Canadian Real Estate Developer Debt Hits An All-Time High

Canadian real estate developers are pushing their debt capacity to new highs. Bank of Canada (BoC) numbers show developers racked up a new record high at for credit at chartered banks in Q4 2018. Debt levels for developers are almost three-quarters higher than previous peaks.

Canadian Real Estate Developers Owe Over $16 Billion To Banks

Canadian real estate developers have borrowed a new all-time record. The balance of loans at chartered banks reached $16.68 billion in Q4 2018, up 2.36% from the quarter prior. This represents a massive 20.28% climb when compared to the same month last year. The previous record was a quarter before, which topped the Q4 2016 high.

Canadian Real Estate Developer Debt

The outstanding balance of loans to real estate developers, at Canadian chartered banks.

Source: Bank of Canada, Better Dwelling.

The annual pace of growth is decelerating, and consistent with the past few years. The 20.28% annual pace of growth in Q4 2018 is slightly lower than the quarter prior. The previous quarter of growth was still lower than levels seen in 2016. The pace of growth is large, but nothing new.

Canadian Real Estate Developer Debt Change

The annual percent change in outstanding loans to real estate developers, at Canadian chartered banks.

Source: Bank of Canada, Better Dwelling.

Canadian Developers Borrowed Over 70% More To Fund This Boom

To appreciate how much money developers borrowed from banks, you need to look at past peaks. The 2008 peak was only 1.11% larger than the peak reached in the previous building boom in 1992. It wasn’t until 2013 when the current trend breached that level for good. In the most recent quarter of Q4 2018, we’re 72.3% higher than 2013 levels. It’s a lot of leverage for the peak cycle this time around.

Remember, this is just chartered banks in the BoC numbers. The increase in borrowing from credit unions and private lenders are excluded. The amount of leverage this housing cycle from developers to consumers is epic.

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  • Mica 5 years ago

    Warning; developers rarely hold the bag in a housing correction. They’re extremely good at handling risk. Can you say that about your portfolio?

    • Alex P 5 years ago

      Developers are very sloppy when it comes to handling the risks… Bramlea Developments, biggest builder of the 1980’s that built pretty much the entire Brampton was wiped out in a crash.

      I personally know some big developers and the only ones who are not crapping their pants are the ones who didn’t borrow much for construction.

      • SUMSKILLZ 5 years ago

        I’m not sure I totally agree. Land bankers flee the scene pretty quick when its clear the party is over. They can sit out decades before reappearing if past actions predict the future.

        I can see your point for firms doing site preparation, for development, with little product sold to date. There are 1000’s of acres of mud in Northern York region, the roads and utilities are not even in. They took out the trees, are in the process of leveling the land and building drainage ponds. Will all these projects be completed, that’s an interesting question.

        On the other hand, I still see surveyors and soil exploration firms on recently fallow farms and in forests, so that is a sign things are still moving forward for projects on virgin land, not even conceived yet. In that way, nothing has really changed on the ground despite the alarming sales figures. These developer folks don’t seem worried.

        • Alex P 5 years ago

          “I can see your point for firms doing site preparation, for development, with little product sold to date. There are 1000’s of acres of mud in Northern York region, the roads and utilities are not even in. They took out the trees, are in the process of leveling the land and building drainage ponds.”

          You are correct, sir. I think most of those project, especially the ones in the early development stages will be put on hold.

          Building detached is simply not profitable right now.

          Condo prices haven’t corrected much, but we’ll see what happens over the next 2 years.

      • Mtl_matt 5 years ago

        Probably because the owners don’t personally guarantee the loans and maximize dividends during the boom years and let the company implode in the crash instead of reinjecting their own cash to bail it out.

  • Investor 5 years ago

    Does this tell us anything about the state of the economy? I consider this a business loan for the developers.

    • Zack 5 years ago

      All developers finance their investment. They dont use their own money. The debt is higher because they are building more and because property values always go up and mobey value goes down.

      My thoughts on the housing market. Im going to speak specifically about southern ontario:

      Development space is limited and running out. You might not believe it when you go outside of Toronto and see thousands of farms but there are many blankets of planning policies that make it difficult or impossible to develop certain areas. The green belt being one of them. And these policies keep getting more complex and making it tougher to develop. Environmental policies and regulations also keep getting stricter and every year additional layers of environmental protection and regulation gets added.

      Construction cost keeps going up. Material costs go up, approval costs go up, development charges go up, consultant fees go up, taxes go up, salaries keep going up for consultants and workers, minimum wage goes up, and there are fewer tradesman. The cost of development and construction has gone up so much and has so many additional layers to it today.

      The developers can wait but you cant. You need a roof over your head and you need to live your life but if the prices drop by more than say 5 or 10% the developers will wait and wont construct anymore homes and they can wait 5, 10, 20 years which will drive prices back up. Once prices go back up they will build again.

      You may not realize this but southern ontario is one of the most desirable if not the most desirable place to live in, IN THE WORLD. Some people compalin about asian money that flooded the GTA, there is a lot mote foreign money out there as well.

      It doesnt matter if you cant afford a house as long as someone can. The developers and builders arent building houses for poor you, they build for the rich for whoever can afford it. If you cant afford a house and someone can then tough luck, no one cares about you. You will have to move somewhere farther or compromise some other way.

      The value of money keeps dropping, $800,000 sounds like a lot today but in 6 or 10 years it may not be that much.

      Population is rising quickly in the GTA from immigration and it is the fastest growing region and these people need somewhere to live. You either rent or buy, everyone has to live somewhere. Where are you going to put the 2 million coming to Ontario over the next 5 years?

      Also the baby boomers that are getting older will continue to live past their retirement and when they do die off there will be more people replacing them so dont imagine a situation where there are thousands of houses empty because baby boomers died off.

      The ‘natural’ path makes it more difficult to develop everyday. Home owners dont want development near them and everyone is a tree hugger these days. It is SO difficult to develop these days and everyone is so informed and involved that it makes it so expensive to develop and build. 

      • Notorious D.E.V. 5 years ago

        > Development space is limited and running out.

        Lost me here, since you haven’t read a single planning report. Not one of them concludes that development space is limited, outside of the development community and the people that have turned into tools for them.

        What developers mean is there’s no land that’s cost effective to develop on right now, which is a constraint of credit and wage growth. What developers are looking for is a cheap government assisted land grab using tax dollars.

        • Zack 5 years ago

          No youre wrong. The greenbelt limits development and then youre further limited by many planning policies, official plans, zoning bylaws, conservation requirements, secondary plans etc. Thats why richmond hill and newmarket are starting to build mid rise buildings for intensification. Cost of development has gone up exponentially since a decade ago. I dont think prices will necessarily boom but I just cant see it dropping further.

          • DC 5 years ago

            The edges of developed land have not reached the greenbelt. There is a large area, the white belt, that is open for development. Development is limited by the Places to Grow act which forces density on cities in Ontario before unlocking additional lands in the township.
            This is a Wynne policy aimed at bolstering transit usage by clustering density near transit hubs and in downtowns.

      • Grim Reaper 5 years ago

        I agree.

      • Neo 5 years ago


        That was a whole lot of drivel right there. The GTA is one of the most desirable places to live in the world.? Sure bud. You don’t get out much do you.

      • MH 5 years ago

        You know who seldom wins negotiations? The one who faces piling debt payments and no free cash flow to meet the obligations.

        Anyone who has the ability to connect this article with the one linked below knows who can and who can’t wait, and how this story is going to end.

  • Tannenbaum 5 years ago

    That amount of vulnerability is EPIC. Consumers, developers, banks, etc. huge debt levels, a shock to the economy would be detrimental at this point.

  • Wes Fahr 5 years ago

    What they are doing is demonstrating their faith in the economy. It’s pretty hard to ask homebuyers to take on hsitoric levels of debt to buy news homes, when you’re not willing to do it yourself to build them.

  • Joseph 5 years ago

    Talk about poorly built condos. Poor quality combined with high prices = a bad situation down the road.

    I wonder if builders will find ways to cut corners to stretch the money they already took out. If they’re looking simplh to finish some projects that are halfway done. Maybe they pull money from one project that would have been good and create two so-so builds just to have more sales in its place.

    So many variables for builders out there this late in the game. Time for them to get creative if they haven’t already.

  • DB 5 years ago

    It’s time to stop using leverage tools, (HELOC, Ma and Pa, inflated portfolios, and pristine business models with the numbers to go with it, (when simply that is not the case) ie: Donald Trumps Fixer testimony on how he tried to get the funds to buy the Buffalo Bills). Some say numbers don’t lie..His did..I use to believe half of what what I saw and less of what I heard. But now I do believe the time is ripe for the books to get reconciled..time to cash out, sell and actually see buyers occupying all those empty investment condos in Toronto. Only then will we find the bottom of this quagmire in the making; a true base line where one can press the restart button so it can start all over again .

  • Jupiter 5 years ago

    The housing market will crash, there are no fundamentals supporting these prices.

  • Don Mussenden 5 years ago

    Does the BOC show the statistics in real terms; 1982 or 2019 dollars ?

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