First National Financial LP

Canadian Pacific Perspectives with First National’s Michael Yeung: 2021 - Volume 1

  • Michael Yeung, Regional Vice President, Western Canada

With COVID-19 border restrictions still in place, and normal migratory population patterns disrupted, the source of housing demand has changed in British Columbia in the past year. Michael Yeung, First National’s Regional Vice President, Commercial Financing, Western Canada provides his assessment of the impact and what it means for the future in this first edition of Canadian Pacific Perspectives for 2021. In Volume II, Michael looks at the state of and outlook for construction activity.

It’s been over a year since the World Health Organization declared COVID-19 a global pandemic. Before focusing on the market, how is First National performing?

We have three teams in British Columbia and all three are experiencing strong demand for financing all over the province. There are still three quarters to go, but we expect a record year based on commitments, market share trends and exceptional client interest in our insured and conventional construction, term and bridge financing options as well as our Early Rate Lock program, which provides a hedge against rising interest rates. We’re particularly excited to bring forward our new Core Conventional program which is ideal for all types of commercial property financings including apartment and industrial. As the year progresses, we expect it to add to our growth.

Does ongoing demand surprise you?

No, we’ve had good success throughout the pandemic. In fact, growth and our desire to execute quickly for clients caused us to recruit another Senior Analyst in the last month. Keith Wong has already hit the ground running with lots of business to review. That said, First National’s originations tend to grow faster than the market overall and that was certainly true last year.

As Canada’s largest apartment lender, First National works with many commercial developers. What topics are top of mind for your clients right now?

I would say clients are generally interested in four or five topics beginning with the state of the economy. B.C. is moving into recovery mode although not in a linear fashion. Unemployment fell from 8.2% to 7.5% but in March, economic progress stalled because of the COVID third wave. Our sense is we will experience a temporary employment pullback in April. Even so, the real estate market is red hot and that brings me to the second question clients ask.

Which is?

Is the market getting ahead of itself? In answer to that question, I look at demand drivers which naturally leads to a discussion of population growth. For many decades, the natural birth rate in the Greater Vancouver regional area averaged 7,000 people per annum. By contrast, the Lower Mainland traditionally counted on the arrival of about 40,000 new residents from offshore or other parts of Canada each year and they brought considerable new wealth to the province. About 10% of the 40,000 were Canadian migrants from other provinces. These numbers exclude foreign students and foreign workers.  In past, when developers thought about investing in real estate, they focused on newcomers because they were the largest source of housing demand and quite affluent. This has changed. With the borders closed, migration is at a standstill and now the market is entirely dependent on the domestic consumer.

Is there enough demand from the domestic consumer to support a strong real estate marketplace?

There is, yes. The evidence is the state of the market today. Because the domestic consumer has been overlooked for many years and has had trouble breaking in because of affordability, there is pent-up demand for housing, particularly of the affordable variety. For the first time in decades, it is the domestic consumer who is behind the surge in demand and that goes for both the condo and purpose-built rental market as well as the market for single-family homes. This brings me to what I call the missing-out-effect.

What is that?

For those residents who are not economically affected by the pandemic, who still have a job, their purchasing power has risen dramatically, particularly as a result of low interest rates. They also have fewer competitors for homes and condos because the border is closed. As a result, people are rushing to buy before this unique situation ends with the end of the pandemic. They do not want to miss out on what could be a once-in-a-lifetime opportunity. Since there is a great shortage of single-family housing inventory, the result is a bidding war right across the Lower Mainland. About 55% of all the homes sold over the past six months sold over the asking price. Single-family homes and townhome prices have increased over the same period by about 20%.

So, times are comparatively good for local residents, provided they are employed.

Correct, and another factor to consider is money supply. The federal government has taken major steps to stimulate economic activity. We are seeing massive liquidity moving into the stock market and real estate. In the case of real estate, it is a well accepted hedge against inflation. Inflation is a much more distinct possibility than in the recent past because of additional money supply. Unlike gold, which is another inflation hedge, real estate has an important additional benefit: ongoing cash flow. All of these factors combined cause me to believe that the real estate market is not getting ahead of itself.

And yet apartment vacancy in Vancouver has increased.

Yes from 1% to 2.6%. But when you look deeper, about two thirds of the excess inventory is caused by owners pivoting their properties from the short-term to the long-term rental market because of a dearth of foreign students and travellers. When the borders re-open, that two-thirds of excess inventory will be gone in a hurry and Vancouver will be back to the previous situation of under-supply.

So something to look forward to?

Put it this way. The typical mid-rise apartment accommodates 300 people. If we return to the average of 40,000 people coming to Vancouver, we will need to build 133 new apartment buildings every single year just to keep pace. In our view, developers and landlords can look forward to many years of success and First National will be there every step of the way with dedicated financing solutions based on expert advice.

Michael Yeung is recognized for his expertise in real estate financing including high-value commercial construction lending. His mandate includes growing First National’s commercial business in both B.C. and Alberta. If you would like to speak to Michael or any member of our B.C. commercial team, you can do so by calling 778.887.8433 or emailing Michael at