The unaffordability of residential property is gaining attention. Especially since the solutions to deal with it are rather limited. A brief review of undivided property.
First, the prospects are not very encouraging for first-time home buyers. Marc Desormeaux, senior economist at Mouvement Desjardins, wrote on February 6 that optimistic expectations regarding future price increases, as well as the apparently increased interest of tenants in purchasing a property, indicate a limited potential of price correction in a deteriorating economic situation. Also, “we expect strong population growth to remain a tailwind for the housing market.” In short, “while we expect a mild recession, possible declines in interest rates, and modest price increases, we do not see a return to pre-pandemic affordability levels over the next two years.”
Undivided property revisited
In Montreal, at the end of 2023, 48 months of savings for a residential property other than a condo (31 months for a condo) were required for a median-income household to save the minimum down payment to acquire a representative housing at a savings rate of 10% of pre-tax income, calculated the economists at the National Bank. Faced with this difficult access to property, the extension of the amortization period is therefore an expected response. A possibly necessary evil, says John Fucale, Senior Vice-President, Broker Relations at Multi-Prêts Hypothèques, which should preferably be part of a global strategy involving a recalibration of all debt, with the objective of ‘reduce the burden of money rent.
The scenarios of co-ownership or pooling of required funds are also revisited. Undivided ownership enjoyed some popularity in Montreal in the mid-2010s, accounting for up to 15 to 20% of the resale market in certain locations. A popularity which, however, has evolved in the shadow of the rise of divided co-ownerships (condominiums) and which has still not been verified, despite the economic situation. “It remains a niche market, concentrated in certain sectors of the island of Montreal. But joint ownership is not a major trend,” specifies the mortgage brokerage specialist, who cites in particular constraints or a more restrictive choice of financing. Each co-owner must obtain their mortgage loan from the same financial institution. However, buying a $900,000 triplex with three people or a $400,000 condo alone…
What are we talking about ? The building held in co-ownership by joint ownership has a single land register, in other words a single lot, but it belongs to several people, the joint owners. None of these co-owners is the owner of a private part of the building, but each of them owns a share in the entire building, which is determined in the deeds of sale and/or in the joint ownership agreement. , explains the Chamber of Notaries.
No board of directors, no contingency fund, no co-ownership association, no notarized declaration of co-ownership… Which does not prevent specialists, notaries and lawyers from strongly recommending that co-owners establish an agreement of joint ownership between them and to publish it in the land register. And even if there is no legal obligation, it is also strongly suggested to set up a contingency fund to cover unforeseen events.
The Self-Regulation of Real Estate Brokerage of Quebec underlines the importance of this joint ownership agreement. In particular, it will specify the mode of operation and management of the co-ownership, the rights of all owners and, where applicable, the exclusive use rights allocated to each of them. The most important: the right of pre-emption, which provides that a co-owner must offer his share of the building to the other co-owners before offering it to a third party. And the right of withdrawal. In its absence, the Civil Code of Quebec provides a means allowing co-owners to exclude the third party who purchased a share in the building.
This agreement is all the more important since, under the amendments to the Civil Code, financial institutions in Quebec offer so-called “limited liability” loans, ensuring that each co-owner can take out their own mortgage. “If the co-ownership is governed by a good joint ownership agreement, financial institutions offer limited liability mortgage loans on each share of the building. Which means that each co-owner is responsible for their debt. Thus, the other co-owners are protected in the event of non-payment, and only the share concerned can be seized by the creditor,” we read in the National Bank documentation.
However, the Civil Code of Quebec provides little control over the rights and obligations of co-owners. They are thus exposed to conflict situations, we warn. As its supervision is less well defined, its management is more dependent on good understanding between the co-owners.
Constraints
However, the joint owners are subject to so-called joint and several obligations such as, in particular, debts in the form of municipal and school taxes. They are also not immune or sheltered from the financial problems that could strike any of them.
La Nationale adds that if, to acquire a divided co-ownership, the minimum down payment is 5% of the purchase price, for undivided co-ownership, this minimum down payment increases to 20%, which can be rather restrictive. in the situation. At most, this constraint allows you to avoid having to take out mortgage loan insurance.
Finally, an undivided co-ownership cannot be rented out. “Even if you and the other co-owners agree to allow rental, the rules of the mortgage loan generally prohibit you from renting your home during your absence,” points out the financial institution.
We can understand that all these constraints are enough to keep many first-time buyers away.