Toronto Loft Conversions

Toronto Loft Conversions

I know classic brick and beam lofts! From warehouses to factories to churches, Laurin will help you find your perfect new loft.

Modern Toronto Lofts

Modern Toronto Lofts

Not just converted lofts, I can help you find the latest cool and modern space. There are tons of new urban spaces across the city.

Unique Toronto Homes

Unique Toronto Homes

More than just lofts, I can also help you find that perfect house. From the latest architectural marvel to a piece of our Victorian past, the best and most creative spaces abound.

Condos in Toronto

Condos in Toronto

I started off selling mainly condos, helping first time buyers get a foothold in the Toronto real estate market. Now working with investors and helping empty nesters find that perfect luxury suite.

Toronto Real Estate

Toronto Real Estate

For all of your Toronto real estate needs, contact Laurin. I am dedicated to helping you find that perfect and unique new home to call your own.

 

Tag Archives: renter

Which Canadian property markets are most at risk?

Ben Rabidoux – Globe and Mail

The oft-repeated axiom in real estate is “location, location, location.” Even housing “bears” recognize that there is no such thing as a Canadian real estate market. Granted there are macro factors that affect all regions equally, most notably the cost and availability of credit, but regional markets vary widely in terms of their fundamentals and, by extension, their vulnerability to a price correction.

The two markets that currently concern me the most are Vancouver and the Toronto condo market. Here’s why:

Vancouveredited out as it does not matter to readers of this blog

Toronto

The Toronto condo market concerns me for a very different reason. While prices have also outpaced fundamentals, most notably rents, what concerns me most is the potential inventory in the pipeline at a time when existing inventory is quite high.

Comment: Yet again, prices as compared to rents, are moot. Like comparing Kiwi fruits to house cats. But if you take the average house price at current mortgage rates, you get a monthly payment of around $2,200. Similar to many 2-bedroom condos. So, with the right down payment, a renter could easily make the jump to home ownership. That is the measure that matters – and it shows housing to be very affordable.

Condo starts in Toronto have been very high over the past few years. There are currently 53,000 residential dwelling units under construction in Toronto, an estimated 48,000 of them are condos. Condo research firm Urbanation recently noted that there were 15,554 unsold Toronto condo units at the end of March, an increase of 27% annually. They further estimated that if current trends persist, that number could approach the all-time high later this year.

Comment: Past few years? Try almost a decade. In 2006 there were 129 condos under construction – not much less than the 143 we have now. This did not start yesterday, as many would have you believe. Not sure why anyone cares about unsold units. They will sell one day. And if you see a crane, that means that the project has at least 70-80% of their units sold.

With this much inventory in the pipelines, strong demand for new units is essential to absorb this inventory without adversely affecting prices. However, the majority of new condo units are currently being purchased by investors and not end users. This is quite concerning considering that most new condo units in the GTA do not generate enough rents to cover ownership costs for investors, meaning they are cash-flow negative.

Comment: There are at least 50,000 new households forming in Toronto every year, and they all need somewhere to live. Be it a condo, a house or a condo to rent. With about 28,000 condos completing every year, it leaves over 20,000 families needing homes. Do not worry about demand, it is strong and pent-up and will last for a LONG time.

And to imply that condos do not generate enough rent is preposterous. A $300,000 condo with 25% down at 3.29% and amortized over 30 years (with $1,800 annual property taxes and $280 condo fee) costs $1,420 a month for an investor. They would likely get $1,600 for that unit. Even with 20% down and taxes of $2,000 and condo fees of $350 it still only costs them $1,576 a month. It is EASY to cover costs with rents, which is why people are doing it. Trust me, I help investors buy condos all the time… And with a vacancy rate around 1.3% there is a steady supply of tenants.

What this implies is that many investors are banking on continued strong appreciation in these units to make any money. This raises two enormous questions:

Comment: Your presumption is wrong. Price appreciation for new condos is almost flat, investors are not looking at that. They are looking at 10-15 years of tenants paying the bills and having $200,000 in equity.

1) If the price of Toronto condos stagnates, will these same investors still line up to purchase new units? If not, how will all that unsold inventory affect the supply/demand balance?

Comment: Yes, the prices are stagnating and they are still buying. Unsold inventory is moot.

2) How will current investors react if their expected capital gains begin to vanish and condo prices languish or even fall and remain suppressed? Will they continue to hold their cash-sucking “investment” or will they sell out, adding more inventory onto a weakening market?

Comment: The gains do not vanish as long as the condo market continues to be the rental market. It has been for years, it will continue to be. There are no new rental apartments being built, so there is no other option. Toronto is 50% renters, they all need somewhere to live… at least 25,000 new rental units are needed in the GTA every year.

On this front, the latest resale data should concern us. The headline 10% increase in Toronto house prices is being largely driven by the detached segment while condos are beginning to lose steam and have largely moved sideways over the past year.

Comment: Like I just said. Condos are up around 4%, houses about triple that.

The bottom line is that no one reasonably expects the potential fallout of a housing correction to be felt equally across Canada. Some areas are far more at risk than others. The message for new buyers contemplating jumping into home ownership in these riskiest markets should be clear: Tread lightly!

Comment: And be sure to do your homework and know what you are getting into. Do your own research, read all the numbers for yourself. Do not take my word for it – and especially not the press!

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto Realtor with Century 21 Regal Realty. He did not
write these articles, he just reproduces them here for people who are
interested in Toronto real estate. He does not work for any builders.

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