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Taking aim at the affordability crisis

The future hasn’t been brighter for buyers, seriously.

Despite recent headlines screaming that the hot Canadian housing market is coming to a screeching halt, housing isn’t suddenly more affordable. 

In fact, a recent increase in mortgage rates is pushing monthly payments even higher, which means you’re less likely to qualify for a mortgage. And while prices are beginning to soften in some places, single-family homes in big cities like Toronto and Vancouver are still unaffordable for most Canadians. Slowdowns in building and rising construction costs aren’t alleviating home price appreciation anytime soon. 

Some contemporary solutions like the Canada Mortgage and Housing Corporation (CMHC) are helpful for some but out of reach for others due to restrictions in the program around home values and income levels.

One company taking aim at the affordability crisis is Ourboro, a Toronto-based fintech startup. I recently spoke with Alex Kjorven, the chief product officer at Ourboro, to hear more about the alternative financing startup, which co-invests in homeownership to help hopefuls reach a 20 per cent downpayment. 

 

How does Ourboro aim to close the wealth divide and level the playing field? 

 

Real estate is the most reliable source of wealth creation — period. The biggest problem is the downpayment piece. Because home prices are accelerating at a much faster rate than income, you can’t afford the down payment unless you have access to the bank of mom and dad. This reality generates and exacerbates the wealth divide

We turn investors into partners versus competitors (i.e. investors who are landlords). In a normal regime, the investor is the landlord with different interests from the tenant (i.e. increasing rent, tenant has no ownership interest). The landlord doesn’t live in the property, thereby removing homes from the market that a homebuyer could live in. In the Ourboro model, investors are partners. We want the buyer to live in the home, be on title and have a sense of pride in ownership.

The current options are either rent or own 100%. Sometimes both options aren’t tenable for the average Canadian, especially as rent rates continue to climb. Another option is rent-to-own.

 

How is your model different from rent-to-own or other federal programs?  

 

With Ourboro, residents are actually on the title, which isn’t the case with other rent-to-own models. With Ourboro, we rely on a detailed co-ownership agreement to assign rights and obligations and define the allocation of beneficial interest in the future appreciation of the property. 

With federal first-time homebuyer programs, an income and pricing cap makes the programs not applicable in certain pricey urban centers. The government also has a collateral charge on the property, and there’s a cap on the percentage of what they can take. 

Ourboro is also not a debt product. There are no fees, interest or an obligation to repay Ourboro. We earn a return on our investment only when the property is sold for a profit. 

 

The housing market does seem to be slowing; what about price drops? 

 

Ourboro is sharing in future profits and losses. This is what distinguishes us from a traditional lender, who gets its money no matter what. There are also no restrictions on when you can sell, except at the end of 10 years, you have to either buy Ourboro out or sell. 

 

Are you concerned about the market? 

 

Prices are lower than the February 2022 peak, but the year-over-year decline isn’t significant right now. Property prices are still high and well over a million dollars in urban areas. Over the last 50 years, there have been dips, but home prices always recover. 

Given this and the fact that you can use Ourboro to manage your downside risk, there is no bad time to get in the market. If you think that the market is on the decline, then Ourbo can be useful because you protect your downside as you’re not putting up all of your equity into the home. As mentioned, if you sell in a down market and there is no profit, Ourboro shares in that loss with you.

What are you seeing with buyers?

 

There are a lot of buyers who are waiting, and there is uncertainty. However, some buyers are using our co-ownership product to help diversify their savings. This is something that we didn’t expect.

The general sense is buyers still want to buy at a lower price, even with higher interest rates, versus buying a property they perceive as overpriced. This is because interest rates fluctuate and could potentially go down during the period of ownership, while home prices are more likely to eventually go up. 

Ourboro resonates with today’s buyers because we help reduce the overall downpayment needed to break into the market. And because we help them reach the 20% down payment threshold, they can avoid costly CMHC mortgage insurance fees.

Ourboro is currently live on the Greater Toronto Area, with plans to expand to Kitchener, Guelph, Waterloo, Hamilton, London. 

 

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