Over the last few months I’ve spoken to countless Torontonians who have been given the completely wrong impression about Toronto real estate — specifically, the condo market in downtown Toronto.
I’ve heard plenty of rumbles about the “GTA”, I’ve read media headlines whose BS interpretations of market stats have educated people questioning their investments. The media attention has definitely sparked worry and even a bit of fear into those who’ve [rightly] invested a good portion of their life’s savings into Toronto real estate.
As always though, I’m here to give you my Honest Broker opinion. I’ve spent the last 11+ years immersed in real estate. I live, breathe and, of course, sell real estate. I know the Toronto real estate market better than any news reporter spouting their ill interpreted facts. And let me tell you, as of late they have definitely been ill interpreted!
Today I’ll address the Toronto condo market and cover a few of my top reasons on why it’s actually a great time to be a real estate condo investor in Toronto.
Condo Prices Are At An All Time High and Climbing
When we look at condo prices in downtown Toronto we must look at local data, the areas we will actually be investing in. We don’t care about condos in Scarborough or Mississauga because if we add this into the data, it will simply be skewed. We want the best comparable data to that of the areas we will be investing in. To do that we need to take a look at the average condo prices in downtown Toronto, specifically the C1, C8 and E1 municipalities.
Average Price in C1, C8 & E1 August 2016 = $622,701
Average Price in C1, C8 & E1 August 2017 = $731,636
Average Price Growth in C1, C8 & E1 from 2016 to 2017 = 18%
This is some KILLER growth! Our clients (myself included) who have invested in Toronto real estate have earned an extra 18% on their investment properties in just one year!
For the sake of transparency, below you’ll find a few of my most recent personal investment properties. As I’ve said before, if I wouldn’t personally buy it, I wouldn’t recommend that you purchase it either.
Despite what the media has told you over the last year, all of my investments weren’t just holding strong, they were seriously gaining value. Especially if you consider the fact that the historical average per year is 4-5% growth. My approach is a bit different than the average investor or realtor, but that’s a conversation for another day. If you’d like more on that you can find my Guide to Investing in Pre-Construction Condos here.
The Condo Market is Affordable
Although the average cost of a Toronto condo has risen quite dramatically, condos are still the more affordable purchase for first-time homebuyers.
Many buyers, especially first-time buyers in downtown Toronto, have been pushed out of the market for a Toronto home. Those searching for a home alternative will find themselves purchasing more feasible and fundable condos or sky homes (large condos) as these are the affordable alternative.
Toronto Housing Prices Will Remain High
As mentioned above, we don’t expect Toronto prices to drop dramatically. The Toronto real estate market saw the first slow down in sales that it has seen in eons all thanks to good ol’ government intervention and media fear mongering.
For the last few months all we’ve heard is some variation of “the prices don’t make sense with income,” “Toronto is overbuilt,” “but, the bubble.” Although we did see a temporary two month slow down, things are once again moving strong. The changes that we saw in the market were based on fear, they were not a symptom of the fundamentals of the market.
These changes have actually had very little impact on the fall market. Sales may be down, but that’s not affecting prices. Properties are in fact selling, prices are holding, and the pace has begun to pick up as fear has started to settle. The real estate market has already begun to rebound.
With home prices remaining high, the resale condo market will continue to be hot as it is an affordable home alternative for buyers.
Fair Housing Plan Changes
The Toronto rental market has been described as “hot” and “out of control” but it’s about to get even harder for would-be renters to secure their desired unit. Last week’s article in The Globe and Mail cites a recent report and warns that the Rent Control Act will place continued strain on the Toronto rental market stating, “[the] rental supply crisis is poised to worsen.”
Planned rental developments by RioCan and Allied Properties cite the new rent controls as the reason why REITs concerted 133 planned rental units to condos at the Kingly development in Toronto. The report is the first to measure the impact of extending rent control by tracking the conversion of planned apartment projects to condos.
It’s quite possible that other developers will come to the same findings and follow suit. The FRPO found in a survey of its members, who are mostly large property owners and management companies, that about 20,000 of more than 28,000 planned purpose-built rental units in the GTA were under review as a result of the government’s housing measures. Even with expected levels of new apartment starts, the report projects that demand for rental units in the province will far outweigh supply.
Not all of the Fair Housing Plan changes had there desired effect. Rental vacancy rates will continue to remain at an all time low for the foreseeable future. This means that the rental market will continue to be hot. As an investor, this low vacancy rate means you’ll be able to rent your unit for a premium with continued and increasing competition among would-be tenants.
Vacancy Rates Are at an All Time Low
Fuelling the fire of the red hot condo market in Toronto is the city’s extremely low vacancy rates that are sitting well below one percent. As mentioned above, the demand will continue to outweigh the supply and vacancy rates are expected to remain low. These low vacancy rates will continue to create bidding wars amongst would-be renters and are actually driving condo rents up.
Rental Prices Are High
Despite the good intentions of the Rent Control Act, Toronto has recognized increasing rents due to the low vacancy rate and heightened rental competition. Renters are out-bidding each other and are going so far as offering an extra month or two of rent up front in cash to secure the property they desire. Below, we’ll show you the numbers on 11 Charlotte Street where two nearly identical units were rented in late August within TWO DAYS of each other, and the latter rented for $400/month more than the first.
First Unit: 11 Charlotte St. – 34th floor, parking and locker included.
Second Unit: 11 Charlotte St. – 28th floor, parking but no locker.
As it would stand, the unit on a higher floor with a locker included should dictate a higher rate than the unit without a locker and on a lower floor. However, with this crazy low vacancy rate and renters chomping at the bit to find an apartment, landlords will likely get what they ask — assuming what they are asking is reasonable — and in this case, it obviously was.
Would-Be Homebuyers Side-Lined
Over the summer there has been a serious drop in sales activities. The Fair Housing Plan, tighter lending policies and rising interest rates have quite dramatically contributed to this. All of these changes have actually made it harder for buyers, especially first-time buyers in downtown Toronto, to purchase. A number of purchasers have either been completely side-lined or found themselves looking at more affordable options like condos or townhomes.
More importantly though, is the stand-off we saw between buyers and sellers this summer. After the Fair Housing Plan was implemented, buyers felt they deserved a ‘deal’ but sellers refused to drop their prices. Instead a lot of sellers pulled their properties and decided it just wasn’t the time to sell. The fact that most sellers weren’t willing to ‘drop their pants’ is a clear sign of a well-funded and stable market. If the Fair Housing Plan isn’t going to force their hand, nothing will.
With home prices holding above 2016’s numbers, condos will continue to be the affordable alternative. They will continue to sell and prices will continue to rise. There’s no doubt about it.
Very High Demand for Commercial Real Estate
Toronto has the second fastest growing downtown office market in North America. The demand is high and the vacancy rate is at an all time low. This has companies paying top dollar when any space becomes available — the competition is fierce. Toronto’s commercial market has attracted several high-profile tech companies in the past year including Uber, LG Electronics, and Microsoft.
Shopify, who already has several offices around Toronto, will be one of the lead tenants in the new Well development at Front and Spadina. Microsoft will be moving their Canadian headquarters to the CIBC Square office development currently under construction at 81 Bay Street.
Industrial spaces are commanding even higher prices with a record-breaking year-over-year increase of 9.3%. Investing in commercial real estate may cost more upfront compared to some other investments but the equity gains and rent roll you can achieve with this type of investment are so worth it.
Stringent Lending Guidelines
Toronto property owners are extremely well-funded. Canada’s stringent lending guidelines only allow very qualified people to purchase property. They have to jump through a number of safe guards before a bank will lend them money. This ensures that the market will not destabilize because buyers were poorly funded, rushed the sale and accepted a low purchase price. This would affect their neighbour’s and vice-versa.
Lending practices here are quite strict and it’s contributing to the rising home prices which, in turn, is keeping people out of the market longer. This will lead to would-be purchasers being forced to rent for a longer period of time than if it were easy to break into the Toronto housing market.
Stable Toronto Market
Record immigration, stringent lending guidelines and a growing population are among a few of the reasons the Toronto market is so stable.
World Class City
Toronto’s international profile has boosted to that of a world class city. Toronto has been recognized as Canada’s “tech hub” and has been called the Silicon Valley of the North. It was just named the fourth city on the list of The Most Liveable Cities according to the Global Liveability Report, and Canada as a whole ranked seventh on the list of 2017’s World Happiness Report. More recently, Toronto made the Top 10 list of Future-Proofing Cities in the world.
Toronto is a world class city but compared to other world class cities in the U.S.— and frankly, anywhere in the world — you’re paying less per square foot. It’s kind of like you’re getting a deal.
The Toronto Region’s population base is one of the fastest growing in Canada. Toronto has more than twice the proportion of recent immigrants (8.4%) as Canada (3.5%) with approximately two million more expected by 2023. Adding to the trend is Canada’s low dollar and high quality of living (16th in the world) making Toronto an ideal home for migrating foreigners .
Extremely Low Delinquency Levels
At this time we’re experiencing considerably low — if not an all time low — delinquency levels — mortgages left unpaid for 60 days or more — as they have dropped to 0.56%. This means there are very few people defaulting on their mortgages as buyers in Toronto are well funded. This trend is also expected to continue as Canada has introduced more stringent lending guidelines and has been seriously considering implementing the Stress Test for all buyers.
Property owners in Toronto are well funded. If you haven’t figured it out yet, now is the time to do so. This means that they are not over leveraged to the point where changes in rates or the market causes them to have to dump their assets and take a loss. Well funded means they have a backup plan and they are in the property game for the long haul. This is why with all of the chaos over the summer, sellers’ prices never dropped below 2016 levels. The market may have temporarily stalled, but it certainly hasn’t dropped dramatically.