From the TREB Report: The Advantages and Disadvantages of the 2017 Market for Toronto Residential Real Estate Investors
2017 was a booming year in the real estate market, but could not keep up with the prosperous numbers of 2016. Even with some noticeable declines, there were quite a number of advantages for everyone who was a Residential Real Estate Investor, or Property Manager in Toronto.
Some of the important factors regarding 2017 included four events.
The first quarter in 2017 was impressive. The average selling price of a home purchase was up 12.7 per cent compared to the same time in 2016. This quarter was also the most notable for average price, as well as annual growth rate. The amount of sales also rose 11.5 per cent. This caused TREB and the real estate market concern, that 2017 was going to follow the last three years and be a record breaker in terms of higher pricing and lack saleable dwellings. They looked to the government to implement some law that would cool the market a bit, especially when it came to foreign buyers. The government answered on April 20th, 2017 with the new FHP.
The FHP, (Ontario Fair House Pricing Plan), slapped foreign buyers with a 15% tax. It also caused major psychological damage to the entire market. Foreign ownership in Toronto was only 7.2 per cent **; however, many potential buyers did not make purchases in the spring and summer of 2017 due to this law. Sales slowed for Q2 and Q3 market wide. This was more due to how uncertain buyers felt about the new rules, compared to what the new FHP actually covered. The fourth quarter had a dramatic increase in sales. This was due to possible new legislation that the Ontario government, would bring in January 2018. This opened the door for more potential renters for Toronto Residential Real Estate Investors and Property Managers.
In 2017, immigration played a positive factor in the Toronto real estate market. A CBC news report estimates that Toronto will be receiving about 170,000 new immigrants in the next three years.*** These newcomers will need a place to live and opens up the need for more homes to rent and purchase. This was also the case in 2017.
Wages and salaries in the GTA were also trending higher than the inflation rate. There was also, a low unemployment rate that lasted throughout the year. In addition, there was positive economic growth in the area. All of this allowed people to feel better about making large purchases.
Sales in 2017
In 2017, total home sales were 92,394 units. Ninety-eight per cent of those buying a residence planned to live in it. The other two per cent said they planned to rent their property. This gave the appearance of a lack of opportunity for Toronto Residential Real Estate Investors, but that is not the case. Twenty per cent of those who own houses also had a second property and 90 per cent of these were used for tenants, or renters. Another important event was what kind of properties were purchased. Fifty per cent of residential purchases were detached homes, but 22 per cent were condominiums.
The TREB report stated that of those selling their homes in 2017, 75 per cent planned to buy another residence. Eleven per cent said they planned to rent. These factors helped the Toronto Residential Real Estate Investor and Property Management Group thrive.
2017 & the Rental Market
Like the housing market, the first quarter of 2017 was strong for those who had invested in the Toronto rental condo market, as well as those who were Property Management Groups. Thirty-three per cent of those living in the GTA were renting their residence. Demand for rental units was hot throughout the year, but there was not a great supply. Due to this, the average price for a one-bedroom unit went up by 7.8 per cent in Q1 and ended at 10.9 per cent by Q4. The two-bedroom unit rose by seven per cent in the first quarter to over nine per cent by Q4. This translated into rents that rose by the fourth quarter to $1970 for a one-bedroom condo, all the way to, $2627 for a two-bedroom unit.
The FHP created a disadvantage for the Toronto Residential Real Estate Investor, as well as the Toronto Residential Property Management Groups. This law did not only impact foreign buyers, but also the rental market. It included provisions that limited rent increases. For an investor, it lessened the appeal of buying a property in Toronto, as their profit margin would decrease depending on what repairs, or upgrades needed to be done.
Added to this problem, another negative factor was the talks in 2017 about adding a tax on all vacant home properties in Toronto. The TREB report findings showed that almost two thirds of owners were not concerned. Twenty-five per cent would not be impacted by the tax at all. Thirty-six per cent would rent their property and only 37% would sell.
The demand for rental units was high in 2017, but the supply or vacancy rate was not. The TREB report includes the findings of the Canadian Mortgage and Housing Corporation, or CMHC. The vacancy rate for rental buildings dropped by 0.3 per cent and in the condo rental market, it dropped by 0.4 per cent. This was their findings compared to 2016.
These four factors created advantages and disadvantages in 2017 for the Toronto Residential Real Estate Investor, as well as for the Toronto Property Management groups. Yet, with the news in Q4, that a new stress test for mortgages was coming early in 2018, sales once more increased. Investors, with deep pockets had the opportunity of purchasing more units. Residential Property Management groups who had a niche in the condo rental market, or could get in could also benefit.
Checkout our other related article 2018 Toronto Real Estate Outlook.
Toronto Real Estate Board.”The Market in 2017”. Market Year in Review & Outlook 2018. Pages 14 -19. Online.