The recent Ontario budget outlines sound promising for investors who opt for syndicated mortgages. New measures go into effect beginning July 1 and will offer investor protections to ensure that “potential investors are aware of the risks” surrounding syndicated mortgages.
A syndicated mortgage is when a borrower finds more than one private lender to invest money in a property instead of going to the bank.
One big change coming for investors in Ontario is a $60,000 annual investment limit.
All this comes after dozens of investors have collectively lost hundreds of thousands of dollars.
A syndicated mortgage is a partnership involving two or more investors in a specific, targeted mortgage. Unlike an investment in a MIC, a syndicated mortgage is an investment in a single real estate loan, rather than a pool.
As the real estate market boomed in recent years, syndicated mortgages became more appealing to less sophisticated investors who wanted in on real estate investments.
These syndicated mortgage products give small investors the opportunity to put in their cash into mortgages used to finance real estate developments, such as residential condo buildings.
Unscrupulous salespeople marketed these products as fully secured, risk-free, and high-return which were not true.
Many who were promised returns never saw them. Some projects attached to these loans have fallen through or been beset by delays. Multiple lawsuits are before the courts.
Between 2012 and 2015, the syndicated mortgage business went from $3-billion to $6-billion annually.
It is hoped that the new rules will protect investors from such risky investments and from themselves by capping the amount they can invest in such products in the first place.
The $60,000 cap, new forms dealing with investor risk tolerance, property appraisals, and disclosure will be created by the Financial Services Commission of Ontario (FSCO), which currently regulates syndicated mortgages.
The province plans to transfer that power to the Ontario Securities Commission down the line.
These changes will come in handy given that the Toronto market seems to be rebounding and summer could well see a flurry of new investment activity. – CINEWS