Interview: Sathee Bagee from Mortgage24

What is the role of government regulations?

The government's focus is on three aspects regulating the three main elements. I would say first foreign buyers because this is where a lot of the issues come from. Hence, they tackle foreign buyers by imposing the foreign tax and vacancy tax, meaning people who buy vacant properties will be subject to paying taxes.

The second one is regulating the investors market, so if you buy a house today and want to sell it by flipping home, they try to tax them. Hence, they try to prevent people from flipping houses, which was happening in 2016. In 2006 someone would buy a home and flip the house, makes about $50000 to $6,0000, and continue to do this by artificially inflating the demand.

The third thing that the governments do is make affordable housing, so they partner with builders, banks to enable people to build affordable housing. And that is for certain impoverished sections of the city at reasonable rates. The government also works with insurance companies like CMHC. The government wants to ensure that Canadians buying the house can offer a down payment in the regulated market. The government introduced vacancy tax and other regulations in order to promote tenancy and new home buyers. This tax also curbed the investments who purchased the property and left it vacant.

How are real estate investors affected?

Like I mentioned in the question before, real estate investors are not able to flip houses. Think about someone with multiple properties. If you have one property, that is great. But you will carry on far more debt if you have multiple vacant properties. That will be because of Covid-19, economic situation, and rates are so high. You're expected to make monthly payments for the mortgage, property taxes, and utilities without any cash flow coming in. If you decide to sell the house, it will be subjected to an HST and taxes. Hence, it puts investors in a very predicament. They don't have the mindset that is in 2016 - 2017 if you have excess money, put it into real estate - worst-case scenario, you need the money you can sell it. Now that perspective has shifted because even if you can put it into real estate, you will not be and might not be able to sell it when you want, or you will sell it without profit.

How has it benefitted first-time homebuyers?

Yes and no, I'll explain. So yes, in specific sectors like the condo market. You see many first-time homebuyers in the condo markets getting involved in. Also, in other and external markets, meaning outside the greater Toronto area like Innisfil and Belleville. With the surge in Covid-19, this has helped first-time homebuyers because the idea of working from home is so famous that people were willing to leave downtown or leave Toronto. However, If you look on the flip side, people buying detached homes in the heart of the city in Toronto. In that case, the prices are ridiculously high that I have personally not seen first-time homebuyers there.

How does the future look like with the incumbent circumstances?

Real estate is one of those things that only time will tell the best option. Any economic scenario lets the free market decide, but the government has imposed some excellent regulations. The number one regulation that they pose is the vacancy tax, where they don't want vacant houses, which makes much sense. People shouldn't be buying homes for a million dollars just letting them sit there for when Canadians and first-time buyers cannot afford it, so that's something they are targeting. If your property is vacant, it is subject to huge taxes. The government is trying to mitigate vacant property by making the buyers rent it out to Canadians to improve the tenancy market or even selling it for the buyers’ market. So based on stuff like this, it does make me optimistic in the future that the market will come to a place where it does correct itself.

How could this situation have been avoided?

This situation was unavoidable given Covid-19. This was a very new experience. It added to the uncertainty of people, although the market was already a bit sluggish.

What would you do if you were given the authority to correct the situation?

It is not easy to pinpoint a single answer for that question. Because the mortgage industry is very tough because of one thing houses are essential to humans. Number two, it has a huge return when invested. It's tough to kind of put any regulations without having a drastic effect. So let me give you an example. If the government were to put some heavy regulations to decrease the price of a house, what ultimately would happen is that people who already have homes will be fearful. The cost of the house will drop. They will not get back the equity they put into the home; therefore, this will have them panic selling, which will ultimately continue to lower the prices. It will set the economy towards a more deteriorated situation. I think the Canadian government has done a great job of putting regulations as much as they can. I would say that reducing the stress test would be a very kind package because the ultimate thing is that Canadians cannot afford their homes. They're paying higher rates of interest, so that's one factor we would look at. Moreover, helping the first-time buyers for the principal residence and the younger generations would be another factor we should look into.

How do you see 2022?

I see much recovery, and I still see the market continuing to go strong. I feel it to be more purchase transactions taking place outside of the city. More people buy a property in areas that we didn't consider traditionally because of the prices and amount of space. I see many consumers desiring more land as opposed to being restricted. I think Covid-19 huge role; if we are going to be in a lockdown, people would prefer being in a lockdown in a three thousand square feet home than a seven hundred square feet Condo.

What did you advise prospective individuals who want to pursue a career in the mortgage brokerage industry and any message/advice to the readers?

If you want to join the mortgage industry or the readers, I've got to say one word that you should be very good at adaptability. You need to be able to adapt to this. The industry is constantly changing because people's interests are always changing, people's desires are constantly evolving, offers are always changing. For example, the new condos that are coming out all of them without the cost of providing electric vehicle chargers. These are more things builders are doing. Many new construction companies are suggesting heated driveways, so all these things are constantly changing. Technology is making a significant impact on the industry. For a broker, in order to enter this industry, my humble recommendation is to be very adaptable, not to be comfortable in what's happening in the next two years next five years because they will change. The buyers often both seek other alternatives.

Conclusion

Throughout the interview, Sathy stressed the importance of digitalization and the ever-changing landscape of the mortgage industry. He also shed light on the roles of the lenders and government to correct the current situation. It was a pleasure speaking to him.