What is Really Going On in Toronto's Real Estate

Posted by Roman Bodnarchuk on May 18, 2016 1:30:00 PM


Brad Lamb informs the residents of Toronto, We are not going to do a very good job creating semi or detached homes anywhere close to the city. In the 416 we will not be able to add to the existing stock of houses ever again as all the land is developed. The supply is fixed in the 416 and very limited in the 905. The demand for homes is going up every year. Population growth guarantees higher prices forever, with occasional moments of recession and panic. During a recession, prices will fall but only momentarily, creating an amazing buying opportunity. The condominium market is a bit of a different story. Some think that it is due for a fall. I believe that prices are set to soar. Land in central Toronto has become scarce and very expensive. Condominiums have remained very affordable. Most development land that remains consists of sites with under utilized buildings or assemblies of multiple properties. Both options are typically seen in fully developed expensive cities (like London, Hong Kong, New York, Paris etc). This is what Toronto is becoming; an expensive international city. Local, federal, and provincial levies and taxes continue to drive development costs higher. This combination of fees and taxes currently eats up approximately 25% of the cost of new high-rise new housing in Toronto. It is only going to rise. Green technologies and other new building code initiatives like fully sprinklered buildings and ground water taxes are adding additional costs to high rise housing. Currently, the cost of delivering a high rise in Toronto before profit is edging close to $600 per square foot. In some areas, it is closer to $800 per square foot. Keep in mind that this is the cost of creating high rise homes. New sales prices must now commonly be $700-900 per square foot (PSF) to allow for a reasonable development profit. The MLS condo resale market will see a 10-15% increase in sales volume this year. It will be a record year for sales. I believe prices will rise 5-10% this year in the resale condominium market. Over the last 5 years, we have seen a more stable 2-3% increase in prices, I believe that scenario is now over. Detached and semi-detached homes will appreciate 10-15% this year and sales will be up 10-15% in volume largely because so little will come up for sale. An interesting statistic that I follow is the number of condos for sale in C01, C02, C03, C08, C09, C10, C11 (an area bounded by DVP-Eglinton-Dufferin-Lakeshore). The volume of condos for sale in the region is down 14.5% this year and the volume for rent is down by 32.3%. This all points to significant increases for both sale prices and rental rates. Condo rental rates will rise 5-10% this year alone. There are not enough condos for sale or rent in central Toronto. It is currently particularly difficult to find a condo rental in any part of the GTA.
Now, some of you may believe that interest rates are going to rise and rain on the parade. That is not going to happen any time soon. Low rates are here for a long time. I believe at least 5 more years, perhaps 15 years. Even when rates start to rise we will stay in a low interest-low inflation environment for a long period of time. When interest rates rise it will be gradually. Governments are huge borrowers. All the municipal, state, provincial, and federal governments around the world are essentially bankrupt. Higher interest rates makes the situation worse. I cannot see any country intentionally bankrupting itself through a high interest rate policy.
2016 is going to be a very big year for Toronto real estate. Prices will be significantly higher in all areas and categories. Volumes for resale homes will smash last year’s record by 10%. Average prices will soar by 10%. New condo sales will stay robust with demand outstripping supply. Toronto will continue to be a hot spot for international money as it will continue to be considered a safe haven for money and investments.