Intergenerational wealth transfer fuelling more investment

Baby boomers are among the most savvy real estate investors in the country, and an intergenerational wealth transfer to their offspring will ensure investment in the Canadian market remains strong for time to come.

A joint report by Sotheby’s International Realty Canada and the Mustel Group, entitled Canada’s Intergenerational Wealth Transfer & Next Generation Home Buyers, found that of baby boomers surveyed in Toronto, Vancouver, Calgary and Montreal, a third plan to give—or have already given—their children a living inheritance so that they can buy real estate.

Given the exorbitant price of real estate in Canada’s major cities, as well as the ROIs they yield, it isn’t surprising that boomers are so bullish, says Sotheby’s President and CEO Brad Henderson.

“For the most part in the last few years, real estate has outperformed their other assets, particularly some of their financial investments, so it’s not surprising they’re inclined to recommend to their kids to invest in real estate, especially for a home,” he said. “Knowing that affordability is continuing to challenge many Canadians, but particularly first-time homebuyers, what we found is 33% of people surveyed either have given their kids a living inheritance or plan to.”

Henderson added that we’re witnessing a major intergenerational wealth transfer, and that the timing probably couldn’t be better.

“It’s coming at a time when many people would tell you that it’s very, very needed (because of affordability).”

Typically, housing affordability is supposed to be a multiple of three to four times someone’s salary, however, in Toronto it’s closer to eight or nine times, says Henderson.

“In Vancouver, it’s 12 times,” he continued. “With that kind of disparity between the value of the average home and the value of the average income, it’s harder for first-time homebuyers to raise the money for a down payment, let alone be able to carry and/or qualify from a bank for the monthly payment that would be involved. This is going to be particularly acute in the New Year when OSFI’s new rules come in.”

Sunny Sharma, President and Co-owner of Century 21 Leading Edge VIP Realty Inc. Brokerage, says that as much as 80% of his clientele are boomers, and that about 50% of them invest in real estate on behalf of their children.

Sharma echoed Henderson when he said boomers have yielded better returns from their real estate investments than anything else, and that with skyrocketing housing prices they’re worried about their children’s futures.

“They’ve grown up with banks telling them to put money in GICs, or stocks, or bonds, or mutual funds, so these guys are seasoned investors,” he said. “Being diversified in nature, they figured out real estate is one of the most rewarding products, hence their advice to their children. They can create this opportunity for their children by borrowing against their own properties.

“They’re worried about their offspring and where they’re going to live when they’re gone. Why sit with dead equity in their homes when they can put it to work?”


Related stories:
Kelowna to become multi-family housing hub?
Bidding wars on Canadian resort properties now commonplace, says report
 

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