Affordability and growing rentals demand make Toronto real estate a smart play for investors

With stock markets around the world in bull mode, it’s easy for investors to overlook an asset class that frequently outperforms other types of investment: real estate.

Yet in certain markets staking your money on real estate is one of the best investment decisions you can make today. Toronto is one of these markets – a sweet spot that offers affordable properties and, by all indications, strong returns in the short- and long term.

Property sales values present a compelling opening argument for investing in Toronto real estate. Over the last two decades, average house prices in Toronto have increased by about 300 per cent. For investors with income properties in the city, this growth translates into a considerable return on their investment.

Let’s crunch the numbers. Consider the investor who buys a $400,000 property with a down payment of $100,000. Over 10 years, half the mortgage gets paid down with rental income from the property, which in the meantime has risen in value by $100,000. From the original capital outlay of $100,000, the investor now has equity worth $300,000. In my books, that qualifies as a smart play.

Rising sales prices are only part of the Toronto real estate story. Canada’s economic and financial capital is a thriving market with bright socio-economic prospects. Ontario’s Ministry of Finance cites the Greater Toronto Area as the fastest growing region in the province, with a population expected to grow by about 40 per cent to almost nine million by 2036, when it will account for more than 50 per cent of Ontario’s total population.

Toronto’s GDP, which makes up half of the province’s output and 20 per cent of total production in Canada, is expected to grow from $286 billion to $571 billion over the next five years. While many Torontonians lost their job during the recession, the subsequent years have seen steady improvements in the city’s unemployment rate.

These upwardly trending economic indicators all point to a long-term demand for rental units in the city. For the last 40 years, Toronto has had an almost 50-50 mix of renters and homeowners. Assuming half of the city’s residents continue to rent over the coming years, Toronto’s growing population will also mean a growing base of renters. If your investment portfolio includes rental properties in Toronto, then you can count on strong, long-term demand for your units. Given the city’s low vacancy rates, you can also count on rental rates trending in your favour.

It’s not surprising that condominium apartment rentals in the Toronto grew by 20 per cent last year from 2013, while condominium vacancy rates registered at a mere 1.1 per cent. Know what else doesn’t surprise me? Last year, a U.K. real estate developer called the Grosvenor Group looked at 50 global cities and picked Toronto as the best in the world for long-term real estate investment.

That’s quite a distinction. For investors, the message is clear: if you’re looking for a solid place to grow your money, it’s time to set your sights on real estate in Toronto.

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