(Last updated February 2020)
BUYING A CONDO IN TORONTO FOR INVESTMENT
Buying a condo in Toronto for investment reasons might just be the smartest thing you’ve done with your finances in a while. Stick with us as we tell you all of the many reasons why the Toronto condo market is thriving and expected to remain that way.
Over the last few months I’ve spoken to countless Torontonians who have been given the completely wrong impression about the Toronto real estate market — 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 Toronto condo 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 14+ 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!
Is It A Good Time To Buy A Condo In Toronto 2020?
The short answer is yes, 2020 is a good time to buy a condo in Toronto! 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 buying a condo in Toronto for investment. From Toronto’s average condo price to the fact that we’re now on the map as a world-class city. Here’s why buying a condo in Toronto for investment might just be the smartest thing you do you in 2020.
The Price for Toronto Condos 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 buying a Toronto investment condo in. We aren’t concerned about condos in Mississauga or Brampton because if we add this into the data, it will simply be skewed. We want the best comparable data to be 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 C01, C08 and E01 municipalities. (Click here for reference map)
Average Condo Price for C01, C08 & E01 Q4 2016 = $556,814
Average Condo Price for C01, C08 & E01 Q4 2017 = $609,614
Average Condo Price for C01, C08 & E01 Q4 2018 = $661,501
Average Condo Price for C01, C08 & E01 Q4 2019 = $762,418
Average Price Growth for C01, C08 & E01 from 2016 to 2019 = 37%
This is some KILLER growth! Our clients (myself included) who have invested in the Toronto condo market have earned an extra 37% on their Toronto condo investments in just three years! If you have the means to do it, buying a condo in Toronto for investment really is one of the best decisions you can make.
For the sake of transparency, below you’ll find a few of my personal Toronto condo investments. One key takeaway from my portfolio is that holding investments long-term is the best way to make serious gains. And as I’ve said before, if I wouldn’t personally buy it, I wouldn’t recommend that you purchase it either.
Is Buying A Condo In Toronto A Good Investment?
Is buying a condo in Toronto a good investment? Is a condo a good investment? Well, as you can see from the chart above, for my clients and myself, it absolutely was. Despite what the media has told you over the last year, all of my condo investments weren’t just holding strong, they were seriously gaining value.
Especially if you consider the fact that the historical average of Toronto condo appreciation is 4-5% growth per year, though you can see from my portfolio that the investments I select typically outperformed the historical average. My condo investment strategy is a bit different than the average investor buying a condo in Toronto for investment — or the average realtor, but that’s a conversation for another day. If you’d like more on that you can find my Complete Guide to Buying a Condo in Toronto here.
The Downtown Toronto Condo Market is Affordable
Is buying a condo a good investment? Absolutely. As the most affordable market type in Toronto, condos make a great investment. Although the average cost of a Toronto condo has risen quite dramatically, the Toronto condo market is 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 an extra bit of media fear mongering.
For the last year 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 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.
Sales may be down (and in January of 2019 they were actually up slightly), but that’s not affecting overall market prices. Properties are in fact selling, prices are holding, and the pace has begun to pick up as fear has started to subside. The real estate market has already begun to rebound.
The prices of the detached, and even increasingly the semi-detached, markets are still quite unattainable for many home buyers. With home prices remaining high, the resale condo market will continue to be hot as it is an affordable home alternative for would-be buyers.
Fair Housing Plan Changes
The Toronto rental market has been described as “hot” and “out of control” and despite the introduction of the Fair Housing Plan in mid-2017, little progress was made to curb rising rental prices. The planned rental developments by RioCan and Allied Properties cite in this article in The Globe and Mail that rent control was the reason why REITs converted 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.
Not all of the Fair Housing Plan changes had their desired effect. In the fall of 2018, Premier Doug Ford amended the Rent Control Act giving both renters and investors what they need. By lifting rent control on new units, investors can rest assured they are protected against rising interest rates and have the ability to offset the increase in carrying costs, should they need to.
Ultimately, Toronto needs investors to continue to contribute to the rental inventory so that prices will stabilize. Until the market levels out, renters are still able to find rentals that are protected under the Rental Tenancies Act.
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 Toronto condo rents up. This is just another reason why buying a condo in Toronto for investment is a good idea.
Buying a Condo in Toronto for Investment When 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.
According to TREB MLS and their 2018 Q4 Toronto Rental Report, Toronto rental rates skyrocketed in 2018 up 8.8%. As we head into 2020, the average one bedroom condo for rent in Toronto is approaching $2,300 a month.
Would-Be Homebuyers Side-Lined
Over the last year or so there have been serious fluctuations in sales activity. 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, namely, buying a Toronto condo or townhome.
More importantly though, is the stand-off we saw between buyers and sellers in the summer of 2018. 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 still quite high, the Toronto condo market will continue to be the affordable alternative. The demand for condos will continue and prices will continue to rise. There’s no doubt about it. But those who’ve already bought, can sit back and benefit from the promising Toronto condo appreciation.
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 real estate 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 development at Front and Spadina, The Well. 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 real estate investing avenues but the equity gains and rent roll you can achieve with this type of investment are so worth it.
One recent report from Real Estate News Exchanges (RENX) says, “Landlords can pretty much name their price for vacant space, as competition between tenants is fierce.” RENX points to significant employment growth, the emergence of co-working spaces, an increasing global presence as a technology hub and a growing preference for the urban live, work and play lifestyle as major factors in this trend.
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 Real Estate 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 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.
Canada is the fastest growing country in the G7 and it’s no wonder, we just ranked number one in the world for quality of life. The Toronto Region’s population base, in particular, 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.
Second-Fastest Rising Global City
Toronto is emerging as a “leading global city” in the eyes of many business leaders worldwide, and it will only continue to grow in influence going forward. A.T Kearney, known to be the best sourcing, procurement, and operations consulting firm in the world, puts out an annual Global Cities Outlook (GCO) report every year. The GCO identifies cities on the rise – “those creating the right conditions for future global status,” as Kearney states.
In 2020, Toronto came in at spot number 2, out of 151 major cities across the world. “Toronto jumped an impressive 9 places to the number 2 spot, driven by a large upswing in innovation and continued strong governance,” reads the report. When determining status as major global players, four dimensions are considered: personal well-being, economics, innovation, and governance. “These are all determinants of a city’s ability to “attract talented human capital, generate economic growth, increase competitiveness, and ensure stability and security, respectively” reads the report.
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 last year or so, sellers’ prices never dropped below 2016 levels. The Toronto real estate market may have temporarily stalled, but it certainly hasn’t dropped dramatically.