Even though the Maritimes’ development has continued at a rapid clip over the past two years, the most recent round of interest rate increases seems to be shifting the tide.
Building “The Wentworth” turned out to be a straightforward procedure for Saint John developer Percy Wilbur, with units going on sale earlier this year.
So, he said, “everything kind of came together to the point that it made it worthwhile to reinvest in new development in Saint John.”
However, he said that the “perfect storm” of labour shortages, rising prices, and recent rate hikes led to his decision to start new developments.
At the top of King Street, Percy’s most recent undertaking is still largely unfinished after the demolition phase.
“Right now, we’re expecting hikes of 30% to 35%, and that climate is not conducive to investing.
” On Wednesday, the Bank of Canada delivered another blow to the cost of borrowing — a half a percentage point increase to the key interest rate. It occurs in the backdrop of persistent inflation rates that, according to Statistics Canada, reached 6.9% in September.
According to Willy Scholten, chief financial officer of Colpitts Development, “it’ll (impact) the projects that we would be starting now and what that’s going to do in 14 to 18 months with the demand being what it is. As of right now, it is making us think about developments a lot more than we would have in the past.”
According to Scholten, the regular increases in loan rates have made calculations challenging and increased the amount of labour required before each new development.
Six rate increases have already been announced by the central bank as of Wednesday afternoon.
“Having interest rates rise to that level in such a short period of time is really problematic since debt servicing is one of our primary cost factors for any construction.”
Housing starts in Nova Scotia decreased by 34.5 percent in September compared to August.
The rate of new projects has slowed, but there are no plans for a sharp increase, according to Duncan Williams, president and CEO of the Construction Association of Nova Scotia.
He claimed that demand is still high, particularly in the Halifax region. Williams predicts that developers will start work on new construction more slowly.
There is a lot of work that needs to be done on the funding level to put a project together and get it from the planning board to shovel-ready, Williams observed.
The challenge is finding the ideal mix between controlling and reducing inflation without unintentionally pushing the country into a recession.
Wilbur, though, will not be able to wait for a period of equilibrium.
Until the markets settle, he said, “We’ll maintain it in the development stage and design stage, but we won’t start digging holes and pouring concrete.”
According to a developer from New Brunswick, rising interest rates are intensifying a “perfect storm.”
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