Interest rate hikes worsening ‘perfect storm,’ says N.B. developer

Click to play video: 'Maritime developers operating amidst high costs'
Maritime developers operating amidst high costs
WATCH: Consumers are not the only ones bearing the burden of higher interest rates. Developers across the Maritimes are operating amidst high costs too as demand for housing remains rampant. But as Robert Lothian reports, for some builders, the latest hikes are too much to continue on. – Oct 26, 2022

While development across the Maritimes has maintained a torrid pace over the past two years, the latest series of interest rate hikes appear to be turning the tide.

For Percy Wilbur, a developer in Saint John, construction of ‘The Wentworth’ proved to be a smooth process, with units hitting the market earlier this year.

“So, everything kind of colluded to the point that it made it worthwhile to reinvest in new development in Saint John,” he told Global News on Wednesday.

However, his decision to begin new developments came during the “perfect storm,” he said, consisting of labour shortages, rising costs, and recently rate hikes.

Percy’s latest project sits at the top of King Street, relatively untouched since the demolition stage.

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“Right now, we’re looking at 30 to 35 per cent increases, and you can’t invest in that environment.”

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 comes amidst unwavering inflation levels that hit 6.9 per cent in September, according to Statistics Canada.

“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, so as of right now, it is making us think about developments a lot more then we would have in the past,” said Willy Scholten, the chief financial officer of Colpitts Development.

Scholten said the frequent interest rate hikes have made calculations difficult, increasing the work that must be done ahead of each build.

As of Wednesday afternoon, the central bank has issued six rate hikes in 2022.

“Our debt service is one of our major cost items for any development, so having interest rates rise to that level in such a short period of time is very problematic.”

In Nova Scotia, housing starts for September cooled by 34.5 per cent compared to August.

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According to Duncan Williams, the president and chief executive officer for the Construction Association of Nova Scotia, the rate of new projects has slowed, though there aren’t expectations for a dramatic increase.

He said demand, particularly in the Halifax area, remains rampant. Instead, Williams believes developers will take longer periods to start on new construction.

“To put a project together and get it from the drawing board to shovel-ready, there’s a lot of work that has to happen on the financing level,” Williams remarked.

“While there is a need to curb inflation, it’s striking that right balance between controlling and curbing inflation and not putting us unintendedly into a recessionary position.”

However, for Wilbur, waiting for a period of balance simply won’t be an option.

“We’ll keep it in the development stage and design stage, but we won’t start putting shovels in the ground and pouring concrete until the markets stabilize,” he said.

Click to play video: 'New Brunswick’s largest housing markets reporting declines in sales'
New Brunswick’s largest housing markets reporting declines in sales

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