The beginning of 2017 has certainly been an interesting one, both at home and abroad. With unprecedented growth in Toronto and a correction already underway in Vancouver, I’ve outlined some key trends and projections for the rest of the year.

 

Key Strategies For Your Real Estate Investment Portfolio

As the year ended, home sales in the GTA held on to their record highs – with strong demand and continued low levels of inventory pushing the average selling price of a Toronto home up 26.7%. A frothy market backed by a strong local economy, steady immigration, and low interest rates saw active listings at the end of December at their lowest point in a decade-and-a-half with only 36 days’ worth of inventory, resulting in an over-heated seller’s market. As the needs of today’s GTA buyers, sellers and investors continue to evolve, we’ve summarized some of the key trends and projections for the year ahead:

 

Emerging Trends

Long-Term Tenants: The idea of home ownership may now be out of reach for many Toronto buyers. For some, leasing has become a more realistic alternative. This has fueled renewed interest in purpose-built rentals and long-term executive style leases of homes & condos. Expect to see a shift in focus towards more modern purpose-built rental developments as developers and investors take advantage of a hole in the market left by an existing inventory of older, less desirable buildings around the city.

Our Strategy: Following the trend, consider investing in a multi-residential property in Toronto. Multiple units help mitigate the impact of vacancy loss and cash flow easier than a single-family space. Choosing an appropriate property in a strategic area will help you maximize profits and appreciation while adhering to fire and building codes will keep you protected. To help with affordability concerns, consider pooling funds and investing as part of a group or if you currently own a single-family investment property, it may be worth converting it into one or more income-generating units to unlock additional cash-flow.

Suburban Spillover: With Toronto home values skyrocketing, would-be-buyers are being pushed in to neighbouring areas within close reach of the GTA. Durham region is particularly interesting, with Uxbridge leading the pack with a 31% increase in property values over 2015, and Oshawa in a close second with a 27% increase. Quick and easy access to downtown Toronto, and a comparatively lower cost of buying-in, may make investing in a suburb a logical next step.

Our Strategy: Consider shifting focus outside of Toronto. The ongoing plans for Ontario’s regional rail expansion will continue to fuel growth in outlying communities. Finding the next neighbourhood or suburb in the path of growth is the key to getting ahead of the market. Once a location is hot, so are prices and once competition becomes fierce, returns get driven down. Identifying the key factors influencing market demand is trickier than you’d think but opportunities always exist.

Technology: With clients around the world, we understand the importance of accessibility and flow of information. Keeping pace with the technological trends and successfully managing the changing expectations from our clients and tenants has been a cornerstone of our success. With an endless supply of information available – thanks to the internet – clients, tenants and investors are better informed than ever before. Buyers and renters are becoming more discerning when it comes to their living spaces too.

Our Strategy: Both buyers and renters are expecting more energy-efficient properties and amenities. As hydro costs rise and technology prices fall, the value propositions for things like LED lights, green roofs, and Energy Star appliances become far easier to produce. New systems in waste management and energy conservation will help achieve net-zero-impact building. When purchasing or updating an investment property, consider doing a full-scale energy audit and focus on upgrades that reduce its carbon footprint. A shift toward energy efficiency and reduced impact spaces will likely become more popular as concerns over climate change continue. Well-informed renters and buyers will start to appreciate the upgrades and assign a value to the efficiency you’ve created that your competition may not have.

Projections

The first month of 2017 showed no signs of immediate change. Inventory levels remained low, putting continued upward pressure on prices throughout the city. As prices continue to climb, it’s possible that policy intervention may be implemented to cool the over-heated market.

Looking ahead, it’s expected that deteriorating affordability and tightened mortgage regulations will add to any cooling effect. CREA has predicted Ontario home sales to decline by 2.7% throughout 2017.

The Spring rush will likely boost activity for the next few months further reducing inventory and pushing prices up – effectively sidelining a segment of buyers directly impacted by the new mortgage regulations. It’s likely this will promote spillover into more affordable neighbouring suburbs. According to Genworth Canada, approximately one-third of first-time homebuyers would no longer qualify for their current homes if they were forced to re-qualify under today’s mortgage rules. While dreams of home-ownership remain, those unable to move into low-rise will help boost absorption rates on both existing levels of condo inventory and new development across the city.

Except for a short-lived decline in 2008, property appreciation has been steady over the past twenty years, resulting in record levels of Torontonian net worth in the form of equity. With this in mind, it’s important to note that even if the Canadian housing market were to ‘collapse’ (20%-30%) most GTA homeowners would still be sitting on a cushion of substantial wealth.

Our projection is that 2017 will see continued growth in the Toronto market – albeit at a slightly less aggressive rate of around 8-10% – with the cooling trend continuing into 2018. As Toronto grows more similar to world-class cities like New York, Paris and London, expect continued immigration, job growth and improvements to infrastructure to translate into a stable long-term environment for real estate investment.

It’s important to understand how your investments are positioned – particularly in a market as fast-paced as Toronto. If you’d like to discuss your investment portfolio and the various strategies available to you, our team is happy to help. Contact us for additional information.

Sources: CMHC: Housing Market Insight, Greater Toronto Area – January 2017, CREA Quarterly Forecasts, RBC Monthly Housing Market Update, TREB, PwC Emerging Trends in Real Estate – Canada & The United States 2017.