A recent study predicts that commercial rents in Toronto could soar as much as 50% in the next three years. Unlike the hot residential market, Toronto’s commercial properties are priced reasonably right now due to a reasonable supply, even though Toronto currently boasts the lowest commercial vacancy rate in North America. While we are at the peak of the Toronto housing market, the commercial market isn’t nearly as hot and the time is right to snap up property before it does heat up. With rents going up so much, it will do so sooner rather than later.Read more
Shortly after the Ontario government introduced legislation designed to curb foreign real estate buyers and real estate speculation, the Toronto Real Estate Board undertook a data analysis exercise to understand just how many foreign buyers there are in Toronto and the GTA, and just how much real estate speculation is really going on in this area. (more…)Read more
The Ontario government recently introduced the Fair Housing Plan, which includes sweeping legislation for the real estate market – most of which will have an impact on landlords in Ontario. One of the measures was the Non-Resident Speculation Tax (NRST) of 15%, which is meant to curb speculation by foreign investors in southern Ontario.
The brass tax of the NRST
The NRST has been in force since April 21, 2017. It imposes a 15% tax on real estate purchases of any property that would be considered a single-family residence that is purchased by a foreign national, entity or corporation. The full text of the NRST is available here.
Refugees and immigrants are not subject to the NRST. Additionally, a rebate program is available for foreign nationals who obtain Canadian citizenship – they can receive a rebate of the tax if they become a citizen within four years. Students enrolled in a Canadian institution for at least two years are also exempt from the NRST. A foreign national student would only receive the rebate after two years of full-time attendance at a Canadian university or college.
The NRST’s geographic scope expands well beyond Toronto and the GTA. It includes the following municipalities:
- Kawartha Lakes
Vancouver foreign buyer’s tax sparks GTA’s NRST
After a foreign buyer’s tax of 15% was levied to cool housing prices in Vancouver, there was evidence that firms marketing Canadian real estate shifted their focus to Toronto. However, the Toronto Real Estate Board surveyed Toronto area Realtors and found that only around 5% of real estate transactions conducted in 2016 were from foreign buyers.
Around a quarter of those purchases were rental investments, with the rest being purchases of homes for the individual or a family member. The percentage of foreign buyers was much higher in Vancouver – it was just above 15% before the B.C. government introduced its foreign buyer’s tax in 2016. It subsequently dropped to about 4% as of December 2016 – only a percentage point below the TREB’s estimated percentage of foreign buyers in Toronto and the GTA.
The Ontario government first showed a distaste for introducing a similar tax in 2016, preferring to let market forces prevail. However, winds changed as the public became increasingly concerned with skyrocketing housing and rental costs in Toronto and the GTA and the Fair Housing Plan was introduced in April 2016 with the NRST as a prominent plank in the Plan.
Various Reactions to the NRST
The Toronto Real Estate Board didn’t have anything specific to say about the NRST in its statement reacting to the Fair Housing Plan, but did say that more empirical data is required before policy decisions are made. We didn’t really know the numbers of foreign nationals that were buying into the Toronto and GTA markets prior to the enactment of the Fair Housing Act; that data will be available to the government once the Plan has been in force for a few months.
Tim Hudak, CEO of the Ontario Real Estate Association, had this to say about the NRST. “The main culprit behind rapidly rising house prices is the GTA’s unbalanced market – housing supply cannot meet demand – not foreign buyers.”
TD Economist Beata Caranci argues in favour of the tax, stating that it has worked well in international jurisdictions such as Hong Kong, Singapore and Melbourne to cool housing markets but not to slow them down. However, she added in a joint statement with other TD economists that “Ultimately, it is unknown what degree of home sales are related to this speculative behavior.”
Will the NRST cool a hot housing market?
Tim Hudak’s argument for supply not meeting demand seems sound, but it remains to be seen how much of that demand was generated by foreign investors. Parsing it out further, how much of that demand is being generated by foreign investors speculating on the market? If 25% of homes purchased by foreign nationals in 2016 were rental property investments, that’s an income-generating venture which allows for more rental supply for tenants, not speculation.
Until the data comes in, we won’t have any numbers – and that is the TREB’s point. The B.C. government did it right by gathering data prior to enacting its legislation, and found that a high percentage of property purchases were coming from foreign buyers. The Ontario government has put the cart before the horse, and will no doubt reap the tax rewards of such a move, but it isn’t evidence-based policy decision making.
One thing is certain – the NRST is an effective tool to curb speculation for those who were looking to speculate in the Vancouver market and shifted gears to Toronto. However, the number of transactions which occurred because of that shift is unknown – we’ll know soon enough. In the meantime, bidding wars will continue in Toronto and the GTA, and the only change is that foreign buyers may not be parties to those wars.Read more
The first quarter of 2017 has started off on a strong note in the Toronto and GTA real estate market. According to the Toronto Real Estate Board (TREB), both sales activity and average prices have both risen from its 2016 numbers. Despite a rise in sales, supply problems continue to plague Toronto and the GTA. Demand for housing is expected to grow for the rest of the year, especially from first-time buyers.
January 2017 – New year, same supply problems
The beginning of 2017 continued where the previous year left off – sales activity saw an 11.8% rise over the previous year, with 5,188 transactions compared to 4,640 in 2016. This rise was particularly strong for condominiums and apartments, and less so for low-rise homes.
Supply continued to be a problem within Toronto and the GTA, with new listings seeing a significant drop from 2016. January’s new listings were down 17.6% from January 2016’s numbers. Demand for housing is expected to continue to grow significantly, but it is feared that many prospective owners will struggle to find homes that meet their needs.
February 2017 – GTA households see home ownership as a long-term investment
Sales continued to rise in February, seeing a 5.7% year-over-year increase with 8,014 sales compared in 7,583 in 2016. Low supply numbers have led to a significant increase in sales price, with the average price rising by 27.7% year-over-year.
Demand for housing continued to rise throughout February, unmatched by the falling supply – 2017 experienced a drop of 12.5% for new listings. This phenomenon most likely means that current Toronto and GTA homeowners see owning real estate as a worthy long-term investment. According to a recent survey, TREB saw an even split in first-time buyers and current homeowners looking to purchase real estate in 2017 – meaning demand for Toronto and GTA real estate continues to grow for all types of housing.
March 2017 – New listings up amidst potential policy shakeups
March saw TREB urge against a new provincial tax on foreign buyers of real estate in Ontario, as the Board thinks it would not address the supply shortage currently facing Toronto and the GTA. The supply of Toronto area real estate has reached a 15-year low in 2017, and TREB has pledged to continue providing in-depth analysis on the issue.
Sales once again rose in the month of March, this time growing by 17.7% year-over-year. After a disappointing drop in new listings during the first two months of the year, March saw a much needed 15.2% rise in new listings. This doesn’t mean that the market is out of the woods yet, as the new listings growth is still lower than needed to compete with the sales growth numbers.
All in all, the first quarter of 2017 has proven that the real estate supply problem facing Toronto and the GTA is continuing to grow, which continues the trend of raising real estate prices.
Partnering with a friend or family member to purchase a rental property can seem like an attractive prospect, especially with rising real estate costs in Toronto and the GTA. Going in on a rental property with a partner can make it a more affordable and potentially rewarding venture, but with it comes a significant risk. Before making any hasty decisions, it’s important to take into consideration the legal implications of a joint venture partnership. (more…)Read more
An economist at BMO Capital Markets recently said that the real estate market in Toronto and surrounding areas is a bubble market. And while rising prices and dwindling supply have been a fact of life in the Toronto real estate market for the past couple of years, it has to be argued that we’re not in striking distance of where it is possible for the bubble to “pop”.
Definition of a housing bubble
A housing bubble is an increase in property prices which is driven by demand, usually due to limited supply. Once demand reaches a certain point, real estate speculators begin to enter the market, which can further drive up price. The bubble pops when demand decreases, either due to a new abundance of supply or other factors, such as a serious downward slope in the overall economy.
It walks like a duck, but doesn’t quite talk like one
It is true that prices and demand have risen significantly in Toronto and the GTA. Additionally, CMHC has put forward the theory that speculation is driving up the Toronto and GTA real estate markets. But a very important condition to the bubble bursting just doesn’t exist in the Toronto and GTA market – and that condition is decreased demand.
One of the only things that could decrease demand significantly is an increase in inventory, which isn’t likely to happen any time soon within the 416 area code. The boom in the GTA is a direct result of rising prices in Toronto pushing buyers into a cheaper location – many of these buyers would prefer to live in Toronto to avoid long commutes to work. The only place we can really see expanded inventory is in surrounding GTA communities, as development in Toronto itself is limited by space. While demand may dwindle in the GTA once new builds happen in outlying communities over the next few years, that demand for a home close to work will always be there in Toronto itself. If anything, this will depress housing prices in the GTA slightly once new inventory is released onto the market.
Economy another potential external factor
If conditions continue with the status quo, the only other item which could affect the real estate market – and which would affect it no matter what the housing prices and demand were like – is a significant downward tick in the economy. The most recent outlook maintains that Canada’s economy is growing, with a slowdown in the real estate sector in Vancouver pumping the brakes a bit on growth. The elephant in the room is how many protectionist trade policies the U.S. is planning on putting in place in the next year with the renegotiation of NAFTA, although the current administration’s signals during Prime Minister Trudeau’s recent Washington visit pointed to Mexico, and not Canada, being the major target in NAFTA renegotiation.
So is the proclaimed “bubble market” really just regular growth in the Toronto and GTA real estate market? While the rise in housing prices and increased demand may make it look like a bubble market, the Toronto Real Estate Board (TREB) argues that the supply levels for real estate being at their lowest levels since 2000 is the critical factor in rising prices. It is predicting another year of double-digit growth in housing prices. So if it is a bubble, it’s going to keep on growing for at least another year.
The main concern of the Toronto Real Estate Board for the current market is how many buyers will get pushed out of the market with rising housing prices and new federal mortgage rules which put home ownership effectively out of reach for first-time buyers in expensive markets like Toronto – this is justifiable as these people may just move out of the area, instead of being future Toronto and GTA real estate homebuyers.
Those who can’t move will rent, making this market a hot one for those who have considered real estate investment in an income-producing property. Contact Highgate today if you want to find out how you can capitalize on these market conditions with a property management company and real estate broker built to serve current and future landlords.Read more
Real estate investment in Toronto is actually much simpler than people think, but you have to have the right mindset to do it. That mindset is somewhere in the middle between being too scared to jump into it before investigating every small detail and being overconfident and uninformed. As with everything in life, moderation between the two extremes is where you want to be in order to be successful with real estate.
The most successful investors we meet are confident, make decisions and don’t look back. They are not looking for a silver bullet to make easy money. But they are patient and willing to look down the road long-term. They believe in themselves and they believe in the real estate market.
Stop being scared of the “what-ifs” of property investment
You may have a dream of investing in an income property. But somehow, you always manage to talk yourself out of it. Prices are too high, the market isn’t right, you don’t have enough time – there’s always an excuse.
If anyone actually knew how the real estate market would perform, they would be the richest people in the world. There is one fact that every statistic backs up – real estate always appreciates in value in the long term. The hardest thing is to purchase that initial property and it’s like quitting smoking – the sooner you do it, the more results you’ll see over time. You have to hold your nose and take that initial risk, but you shouldn’t do it flying blind either. A Toronto property investment firm like Highgate can walk you through the entire process, from making the initial purchase to managing the property for you.
For the overconfident: Real estate investment is not a way to get rich quick
There are a few types of people who fit into the “overconfident” category of real estate investor. Either they’ve been to a few real estate investment “seminars” where they’ve been asked to fork over thousands of dollars to learn something a Realtor could tell you for free, or they’ve been watching reality TV shows where houses are flipped and fortunes are made. Either way, the overconfident real estate investor comes in with guns blazing and a little bit of uncontextualized knowledge.
The #1 thing that you should learn about real estate before you purchase an investment property is that there is no “Get Rich Quick” scheme that can possibly involve real estate. Even if you purchased a dirt cheap foreclosed property in the US after the American mortgage crisis of 2008, you would have still had to hold on to that property for a number of years to make good money on it – and that’s an extreme example that hopefully, for the economy’s sake, won’t happen again. Real estate investment is exactly that – an investment. It’s an investment of money and time. It does pay off – but only over the long term, and only if you manage your cash flow properly and make prudent initial buying decisions.
For the house-flipping bunch, the thing you don’t usually see on those shows are the hidden costs that crop up after the sale and the renovations start. There may be structural issues that were missed on the home inspection, requirements to bring the property up to code, and more – all of which can quickly nuke any profits that could have been made on the sale. Due to this and many other factors, house flipping is also not a “Get Rich Quick” scheme, unless you make prudent purchase decisions and budget properly.
Real estate investing done right for everyone
If you want to do real estate investment right, just follow these three simple steps.
Step 1 – Contact a real estate broker
Find a real estate broker you can trust – preferably one like Highgate which also does property management. Firms like this will know the rental market and the real estate market, and can educate you on both.
Step 2 – Get in touch with the market
You can read all of the books and real estate magazines that you want – the only way to really get to know properties is to go see properties with an experienced broker, even if you aren’t planning on buying one yet. Pick an area that you and your broker like, then go see about ten properties in that area. Find out what each property sells for. This will tell you how much you need to budget for, give you an idea of fair market value for the area, and start your real estate education. Don’t be worried about being viewed as a tire kicker, you will likely be buying a property with that broker one day and a good one won’t mind showing you the ropes. Repeat the process every couple of months until you have a good sense of what properties sell for, what potential issues are, and so on.
Step 3 – Purchase your investment property
If you’re already working with an experienced broker, they’ll have helped you work out what your budget should be for your investment property. Most importantly, don’t over leverage yourself in order to purchase an income property – even the best-laid plans come with unforeseen costs that you should be prepared for.
Now that you have a sense of the market, you can apply that knowledge and put in offers that are likely to be accepted on properties where you see the most potential growth, the best rental possibilities, and so on.
Step 4 – Properly manage your investment property
If your intention is to rent your property out, you’ll get the most return on investment with a property management company – especially if you are not an experienced landlord. They will help you avoid potential pitfalls like non-paying renters and more. A firm like Highgate can also help you out if you are interested in house flipping – we know the duds and the stars, and have contractors on hand who are affordable and efficient. We’ll also make sure you aren’t overleveraging yourself financially and have enough funds to do it right.
If you are interested in real estate investment, contact Highgate today. We don’t speak at fancy seminars, but you can get our advice for free – and our family has been in the real estate and property management business for decades.
We’re rolling out the red carpet for new clients at Highgate Property Investments this month with promotions for home buyers, sellers and landlords seeking property management services. While we can go on about how great we are in our marketing, the only way to really sell our services is to show you what we can do for your bottom line. (more…)Read more
With the new mortgage rules which effectively knock down the price of entry to the real estate market for first home buyers or home buyers on a limited budget, it isn’t surprising that condominiums saw the highest growth rates of any property type in October.
The Toronto Real Estate Board’s October Market Watch was full of more of the same, with 11.5% growth in year-over-year number of transactions across Toronto and the GTA. The only difference was that this growth was mostly fueled by condo sales.
Condo sales in GTA are exploding
The number of condominium sales in the Greater Toronto Area increased by 28.3% year over year, while Toronto condos clocked in at a 19.8% increase. This can be explained in a very simple way – if you are priced out of the detached or semi-detached home market, you are likely going to purchase a condominium in Toronto if you can afford it, and in the GTA if you can’t. The average price for a Toronto condo is $100,000 more than the average price of a condo in the GTA – a significant and palpable difference to a first-time or tight budget buyer. At an average price of around $359,000, a GTA condo is the last bastion of affordability in the area market for a buyer with a single income.
Rates of price growth skyrocketing due to lack of supply
Despite the explosion of condo sales, if we go by the rate of price growth, detached homes are still the most desirable commodity in the local real estate market. Condos only went up by 12.5% in October, while detached homes went up by 25.8%.
Jason Mercer, Director of Market Analysis for TREB, explained the phenomenon. “Until we experience sustained relief in the supply of listings, the potential for strong annual rates of price growth will persist, especially in the low-rise market segments.”
Detached homes are bound to face a continued lack of supply because it is more profitable for a builder to build a condominium building than a detached or semi-detached home in the current hot market, especially where land is at a premium in Toronto.
Is the foreign buyer tax in Vancouver driving sales in Toronto?
Although the TREB had promised a review of this to come later in 2016, we haven’t seen it yet. It will be up to the TREB to determine if correlation is the same as causation in the matter of Vancouver home prices plunging while Toronto home prices increased in October, although it’s hard to imagine that the Vancouver foreign buyer tax is having no impact at all given the sharp contrasts between the increases and decreases – Vancouver’s overall home sales slid by 38.8% in October. This could also be a result of the new mortgage rules making new properties in Vancouver officially unaffordable to those with an average middle-class income, especially since prices in Vancouver are higher across all property types.
How the new mortgage rules factor in
Realistically, the new mortgage rules only affect first time homebuyers or buyers on a limited budget, as stated above. While they were touted as a means to cool the hot housing market – which they may have done in Vancouver – in Toronto they seem to be driving these buyers into condominiums. Those at the upper end of the market who can afford a detached or semi-detached home in the area will be largely unaffected by these mortgage rules, and this could be why home prices continue to appreciate in the detached and semi-detached categories at a high rate.Read more