A developer in the Vancouver area is marketing condos with an unusual incentive: no down payment.
Townline Homes is working with the Canada Mortgage and Housing Corporation and BC Housing to allow buyers to get into the Strand, located east of Vancouver in Port Moody along the Burrard Inlet, without any money up front. The price of the units will be 8 per cent below market value – and the CMHC will treat the difference as a virtual down payment.
CMHC typically requires a down payment of at least 5 per cent of the purchase price for a buyer to qualify for mortgage insurance.
The arrangement also has the blessing of BC Housing, which helps people in need of affordable housing and has agreed to provide the company with a low-cost loan of $23.2-million for construction if it can presell 90 per cent of the units.
"We think it's a good opportunity to create more affordable housing for people who would have not entered the housing market otherwise," said Shayne Ramsay, CEO of BC Housing.
To qualify for the new program, buyers must have a household income of up to $65,850 a year for a one-bedroom unit or up to $92,430 for a two-bedroom apartment.
"This is the medium income level in B.C. One of our mandates is to support this kind of development to provide affordable housing for people with a medium income," Mr. Ramsay said.
Buyers must live in the condo for a minimum of two years before they sell it. CMHC is finalizing the arrangement under its Flexibilities for Affordable Housing program, which allows lenders to offer a variety of options for making down payments.
"CMHC will accept a broader range of down-payment sources," Karine LeBlanc of CMHC said in an e-mail. "This could include sweat equity, grants, borrowed down payments or rent-to-own payments."
Chris Colbeck, vice-president of Townline Homes, declined to comment until the plan gets final approval.
Like other parts of Metro Vancouver, Port Moody is seeing high levels of demand – and high prices – in its housing market. The benchmark price for an apartment in Port Moody was $390,500 in December, according to the Greater Vancouver Real Estate Board. For a single-family detached home, the benchmark price was $1.1-million.
Local Realtor Mary Burns said condos often sell out in a single weekend.
"These sales [without a down payment] are very attractive to first-time buyers. We don't see this anywhere else in B.C.," Ms. Burns said.
Thomas Davidoff, an associate professor at the University of British Columbia's business school, is critical of the concept.
"I think it's the wrong way to help people in need of housing," he said.
He said people who cannot save enough money to make a down payment should not be buying homes.
BC Housing has financed similar projects in the past.
In 2012, $21.8-million in low-cost financing was provided to Sequel 138, a project in the Downtown Eastside. In that case, the developer provided a 10 per cent down payment to help buyers secure a mortgage. When they sell the property, they have to pay the developer 10 per cent of the sale price.
"There is a huge demand for these apartments," said Mania Hormozi, development manager of Sequel 138, adding that all of the units have now been purchased.
BC Housing says it will continue to evaluate such projects.
Dr. Davidoff said he worries that if more buyers are helped to get into the market this way, housing will become even more expensive than it is already, and even more people will not have enough money to buy.
"I would be very worried if this happened on a large scale," he said. "Once more, buyers are encouraged to enter the housing market where there are already a lot of buyers, house prices will go up and buyers will be the ones that pay the cost."