As Ottawa’s residential real estate market continues to break records and businesses pose the question of whether they will return to the office, the city’s real estate sector is poised to experience some notable shifts and trends within the next few months.
While projecting changes in the real estate market is no easy task, lawyers Tim Thomas and Amy Jackson of Perley-Robertson, Hill & McDougall can offer some big-picture perspectives.
Having worked in real estate law for 36 and 7 years respectively, the two suggest that there’s quite a list of potential changes that Ottawa buyers, sellers, renters and business owners should be aware of in 2022.
Booming market means buyer beware
In residential real estate, Ottawa remains very much a seller’s market, where competing buyers are often motivated to cut corners. Thomas and Jackson warn that rising interest rates may add even more fuel to the purchasing fire.
“Much of the due diligence we used to see has been skipped by purchasers in favour of trying to get in a competitive, unconditional offer,” said Jackson. “With the imminent increase in interest rates, we are concerned that, to lock in a current mortgage rate, buyers may approach purchasing with even more urgency.”
However, buyers frustrated by low inventory may be happy as municipal and federal changes could reduce the number of residential properties purchased for short-term rental use on platforms such as AirBnB. A new city bylaw states that, as of April 1, 2022, residential owners can only offer short-term rentals in their principal residence, legally established hotels, or in rural secondary-suites or cottage properties.
“Parties will be required to get an annual permit and can only list their rentals in platforms registered with the City of Ottawa,” explained Jackson. “This may decrease demand for purchases as short-term rentals but, more importantly, will require new decision-making among owners who currently use their property in this way.”
Leveling the playing field
On a related front, federal legislation has been proposed to address the negative impact of underused or vacant housing.
“For years, there has been concern about property being purchased as an investment by non-Canadians and left empty,” said Thomas, adding that this new legislation proposes charging taxes on vacant properties owned by those who are not Canadian citizens or permanent residents.
If the bill proceeds, the desired effect is to stabilize housing prices and make buying more affordable.
The costly urge to downsize
With remote work now a reality, a growing number of employers may decide to downsize their footprint or permanently shift to virtual work, added Thomas. While that may provide cost savings, if not done correctly, business owners could face a hefty legal battle.
For any business considering breaking a lease, the first step should be to review the leasing agreement and if anything isn’t clear, seek legal help.
“Every commercial lease is unique and should be evaluated on its own contents,” explained Thomas. “If there are no termination rights present, the lawyer can evaluate what kind of damages and remedies the landlord may pursue against the tenant if the lease is broken or defaulted on. In almost all cases where a tenant wants to terminate, they should be ready to offer some sort of financial compensation.”
Three changes on the horizon for Ottawa developers, buyers and sellers
- Densification coming: The City of Ottawa’s new Official Plan was approved in late 2021 but still needs a rubber stamp from the province. “Overall, we expect a major overhaul of the City of Ottawa zoning bylaws, most importantly resulting in higher-density housing options becoming available,” noted Jackson.
- Clarification via the courts: The rising costs of building since 2019 have many builders of new properties seeking to raise an agreed-to purchase price or terminate agreements of purchase and sale. Some contracts now include clauses for price adjustment in the case of increased material costs. “Litigation in this area will ultimately clarify if and how the costs of new-build housing can be adjusted,” said Thomas.
- Impacts of the pandemic: Buyers and sellers should also be aware of how working with lawyers remotely has led to regulatory and other changes. Recent legislation that allows lawyers to meet clients via video conference and to digitally sign documents has added efficiency but brings potential identify verification challenges. The resulting possibility of identity and transaction fraud means that many title insurance policies now cover the risks of using electronic signing. “We are ensuring every policy we obtain covers this new reality,” added Thomas.