BC has a particularly high prevalence of buyers who purchase properties in groups of three or more, according to a recently released batch of data from the Canadian Housing Statistics Program, which is part of Statistics Canada. Newcomers to Canada are especially active in buying premium real estate as a group.
“We were quite interested to find out that [group buying] is correlated with markets for high prices, such as British Columbia,” said Jean-Philippe Deschamps-Laporte, head of the CHSP.
These aren’t multi-generational partnerships, he adds -- such as when parents help their kids get into the property market by adding their names to the title. These are individuals with median individual incomes of $48,200 who are buying as a group, bringing their median total income to $174,000. The data are based on an examination of buyer behaviours in BC from 2018, the most recent set available. The report includes differences by sex, number of buyers who are part of a sale, family type, first-time homebuyers, and immigration status.
“They aren’t necessarily high income earners, but together once you sum up the income of this group, it leads to a total income figure that is higher than those that buy as a pair,” said Deschamps-Laporte.
Ryan McKinley, senior mortgage development manager for Vancouver City Savings Credit Union (Vancity), has spent most of 20 years working in lending, and about 10 years ago they began offering the “mixer mortgage,” specifically designed for group ownership. That product came about in response to Vancouver residents entering into co-ownership arrangements on their own, as a consequence of skyrocketing real estate prices. The co-ownership mortgage has only become more popular, both with people who are related and unrelated.
“I don’t have hard numbers on the increase, but anecdotally we are getting more inquiries as time goes on. Out of necessity, many people do have a goal of home ownership and as soon as they realize it will be difficult for them on their own, they start looking down other avenues to afford that,” says McKinley.
The most common fear around co-ownership is the fact that the parties share not just the title of the property, but the mortgage as well. Although they might each have separate mortgage terms with the mixer mortgage, such as their amortization period, everyone is responsible for the entire debt. That can become an issue if one person loses their job, or becomes ill. Although he’s seen deals come to an end due to divorce, McKinley hasn’t seen a co-ownership unravel because one party stopped making their mortgage payments.
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“I personally don’t track those things, but I usually would be brought into the loop if something like that happened, and I have not seen that,” says McKinley. “You also have more people involved than if you have just one person on the mortgage, where everything rests on that one person. When you are co-owning, there are multiple people so even if something does happen and one person exits, a lot of times there is more financial strength in a group.”
And even when people divorced, those co-ownerships managed to work it out, he says.
“Dissolution of a marriage is something discussed at the beginning, anyway, but even if it’s not, that’s when we come together and figure it out. In the last situation, we managed to do it so the other spouse could be bought out and the remaining spouse took it over. We had to amend things and whatnot, but it worked the way it should have.”
The co-ownership mortgage is one step in the process, and a legally binding co-ownership agreement is the other. And because the co-buyers are tied to each other’s situation, that means they should also have suitable insurance coverage, says McKinley.
“A lot of people overlook it, but it is especially important when you are talking about financially tying yourself to related or completely unrelated people, making sure everyone is properly insured… it’s important to have everyone on the same page.”
Co-ownership generally falls into three categories, he says. There are the traditional partnerships between parents and their grown children, where the parents typically don’t live in the same house but act as an investor.
“Because the down payment is a significant investment now, rather than just giving their kids a big down payment family members are owning together, which provides a leg up for the kids to get into the market and also as a potential investment for parents. So that’s happening.”
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The other category is friends that get together, such as two couples who purchase a house or duplex or two singles who buy a two-bedroom condo. And then there are unrelated people who buy properties. Some of these co-ownerships can be found on the multiple listing service (MLS), where one party is selling their share of the title. McKinley is currently working with one such purchase, where three unrelated people had co-owned for a long time and now one wanted to sell.
Not every situation lends itself to co-ownership, he adds. For example, it’s not a mortgage designed for large groups of 15 or 20 investors. In that case, they should probably form a corporation, he says.
Co-ownership is particularly popular with immigrants, who are pooling their resources and purchasing properties that are typically more expensive than those being purchased by groups of non-immigrants with the same incomes. Immigrant co-buyers often purchase in urban areas where property values are higher.
“While we see this tendency [for group buying] to be more prevalent in British Columbia, it’s particularly the case for immigrant buyers,” said Deschamps-Laporte. “And that’s the very interesting angle. There is a lot of talk about immigrants and their roles in the housing market, and the choices immigrants make that are sometimes different than those made by non-immigrants.
“And ultimately what this tells is partly a story of integration, of a preference for brick and mortar over other types of financial assets.”