Home Capital has a New Investor: Warren Buffett

Canadian real estate industry welcomes Buffett to the neighborhood. The billionaire warren Buffett is to succeed mortgage lender Home Capital Group Inc.

It might, however, take some time before the decision by the Oracle of Omaha to indirectly acquire $400 million of the Toronto-based company’s common shares to have an impact on actual borrowing. The Post.

“I think this is very positive and something our industry has been waiting for,” said Vince Gaetano, principle of Monster. “We always knew there was a strong company there that provided a great niche of a lending vehicle for the self-employed and the alternative market. Having the star power of Warren Buffett backing this company is a significant vote of confidence.”

Home Capital’s meltdown has caused so many economic crises for clients and the market for months now leaving people scurrying for funding.

“Home Trust has always been a leader in the space and the competition seemed to follow their lead. With them not as a viable solution or parked on the sidelines, it has seized up the whole credit vehicles for these types of loans. A lot of self-employed people will be breathing more easily now”, said Gaetano.

With the new tax trends imposed on foreign buyers, slowing the real estate market, Buffet’s move may help shape things up and boost back confidence in Canada’s largest city.

Also, Home Capital’s meltdown has scared off foreign buyers and the current average prices in Toronto are now off about 12 per cent from their April peak.

“Perhaps at the margin, the fact that Warren Buffet is willing to make this investment may send the signal to some that the broader housing market remains sound,” said Doug Porter, chief economist with Bank of Montreal. “Now, that might be a mis-reading of both the specific investment and the outlook for housing, but I wouldn’t doubt that it emboldens some potential buyers”.

Eli Dadouch, chief executive of Firm Capital Corp, called it a great deal for Buffett’s investment people but did wonder what it will do for lending.

“I know it is the first step in stabilizing their businesses, it’s not that there is a shortage of credit, it’s pricing. The Trust company was taking in money at one per cent and lending at five per cent and making 400 basis points. The risk/reward on that business should be more like eight percentage points. People say pricing has gone up. You didn’t deserve that pricing in the first place,” said Dadouch.