Impact from Trade War, Capital Gains, and Bond Yields

How the last 72 hours of policy news affects multifamily owners. Let's dive in!

February 4, 2025

Read Time: 4 minutes

In the last 4 days, the capital gains increase was deferred, Trump ignited a trade war (then delayed it), and bond yields hit the floor.

Updates come in by the minute - not by the month. It's enough to make anyone's head spin.

So today I'll catch you up on what's happening, and what this means for multifamily owners.

Let's dive in.

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Capital Gains Tax Deferral Announcement

Last Friday, the Federal Government announced the deferral of Canada’s capital gains tax increase from June 25, 2024 to January 1, 2026. This is welcome news for multifamily vendors. Reprieve from a policy that - on it's face was ridiculous.

Simple Example of Impact

To illustrate how the original proposal affected owners, let's imagine one of my typical clients. We'll call him Tony.

Tony has owned a 66 unit apartment building since 1995. He's depreciated the asset to (basically) zero over the years. He originally bought it for $1,000,000, but he's considering an offer Colliers brought him for $20,000,000.

Implications for a Top-Bracket Taxpayer with a $20M Fully Depreciated Asset:

Under the Proposed Hike (If It Had Gone Into Effect):

Capital Gain: $20M

Taxable Portion: 66.7% of $20M ≈ $13.33M

Tax Liability: At a top marginal rate (assumed ~50%), you’d pay about $6.67M in taxes.

Under the Current Law (With the Delay):

Capital Gain: $20M

Taxable Portion: 50% of $20M = $10M

Tax Liability: At the same top rate, you’d owe about $5M in taxes.

So - with the stroke of a pen, Tony now walks away with an extra $1,670,000. This delta is material, and often is the difference between doing a deal, or waiting for an election.

June Market Reaction

We know this to be true because in the week leading up to the original proposed date (June 25, 2025), many clients opted to jam deals through to avoid the tax increase. In Q2, 2024 in Toronto for instance - 14 of the 21 transactions occurred within one week of the June 25th deadline.

Election Outlook and Future Supply

Contrary to the polls, I expect a tight election. If the Liberals remain in power, there's a chance this policy gets pushed through. In that scenario - there would be a flood of multifamily properties as sellers rush to avoid the higher tax. This supply could hinder pricing in Q4, 2025.

At risk of speaking my book - now would not be a bad time to sell to avoid this.

Trade War Turbulence: Brace Yourself

As of Monday at 4:36 PM, Trudeau tweeted that the decision on U.S. tariffs has been temporarily delayed until March 1. It's challenging to fully capture the implications of this policy in a short email, but I'll do my best.

“If these output losses translate proportionally to employment, Canada could see roughly 600,000 fewer jobs, potentially pushing the unemployment rate up to nearly 10 percent.” — @trevortombe

Implications of Tariffs If Implemented

Impact on New Multifamily Developments

For multifamily builders, hard costs could surge by 5–10% (or more). Such an increase may render new projects financially infeasible, particularly when economic conditions weaken. In a recession, achieving pro forma rents of—say, $4.75 per unit—becomes increasingly challenging.

Effects on Legacy Multifamily Assets

While legacy multifamily properties, which constitute the bulk of transactions in Ontario, will be less affected, the market will still face headwinds. Many of my clients have already reported a tougher renter market due to changing immigration policies and a struggling economy. Although the impact won't cause severe pain in most cases, it will likely be an operational challenge. A real thorn in the side for owners.

Bond Yields: A Silver Lining

The one shining light in the shadow if this trade war: bond yields have plummeted. We haven't seen rates drop this fast since COVID.

In the wake of Trump's tariff announcement, bonds experienced a dramatic drop. Over the past 20 days, the CMB-5 Year yield—a key benchmark for multifamily financing—fell by 66 basis points, from 3.50% to 2.94%.

As a result, CMHC financing rates for a 5-year loan have dropped from roughly 4.00% to about 3.44% (not exact as spreads have widened). Although I expect continued volatility (i.e. bond yields could shoot up if this trade war is solved), this spread makes the uncertainty palatable.

Closing Statement

Today - there's a real case for sellers to go to market (if they plan on selling anytime in the next 4 years. There's also a bull case for buyers who want to capitalize on the lower bond yields of the moment.

With that in mind, I anticipate a busy year for transactions. Call me (and the team) to discuss your apartment building / portfolio today.

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