Why Canadians Are Buying Properties Abroad

Do you remember, about five to ten years ago, almost all HGTV shows featured British couples buying property abroad? Every time I turned on the HGTV channel,  up popped a British couple buying property in Portugal, Spain, Costa Rica, Argentina, Thailand and even Albania. We were left with the impression that British people are culturally programmed to buy properties outside of their own country.

But is this just a cultural thing? Sure, the British like to travel, and have a history of roaming (and invading) many parts of the world. I think, however, their lust for foreign real estate investment has more to do with the prices at home. London, where a whole lot of British people live, has always been expensive. If you think Toronto is expensive, try taking a look at the listing in a city like London. Owning a house, or a condo here is almost a luxury. So, many people rent in the city, and buy cheaper properties abroad. And for those British who did buy property at home, their homes have increased in value to the point where they have built up enough equity for a second vacation home in an often warmer country where things are less expensive than in their homeland. And in the case of the UK, that would be almost every other country. The recession, and the dip in real estate values around 2008, certainly slowed this process down, but properties values are back up in the UK and the hunger for foreign property purchase is back.

But why am I, a Toronto real estate salesperson, going on about the British buying properties abroad? Because Canadians share a lot in common with the British these days. From a purely geographical perspective, both countries do not have a warm, tropical or Mediterranean vacation location to go to within their own borders. Winter may be milder in Britain, but you certainly can't relax on the beach during the cold months. It's not like the U.S. or Australia or France where you can go south and be in more tropical, summer-like locations without a passport.

Also, as in Britain, Canadians have built up a lot of equity through their real estate purchases so they have the funds to buy abroad. Canada, for example, is the biggest foreign real estate investor in Florida. This may seem obvious to some, but you have to remember that Florida has become a huge destination for foreign investment from South America, Europe and China. Even in a place like Australia, Canada, after the British, is the biggest foreign investor in real estate, ahead of the United States, a country with nine times the population of our country.

So, what does all of this say? Well, I'm not trying to encourage people to buy abroad, though it is a great idea if you have the money and if you plan to spend some time in a warmer climate. But I am saying this: In the past 20 years, real estate in the UK and Canada has allowed many people to increase their wealth. Will the real estate market always be like this? Probably not. Prices rise and slip, but in places like Toronto, the long term direction is up. For long term real estate investment, Toronto ranks as one of the top cities in the world to buy real estate because of its diversified economy and its stable governments. So, if you would like to buy a cheap condo in Ecuador for a fraction of the price of a Toronto condo one day, to retire to or spend a few months during the year, then you may want to build some equity at home first.

Why Are There So Many Condos in Toronto?

It's been going on for more than a decade. Toronto is changing faster than anyone would have expected 10 to 15 year ago. How many times have you seen those side by side photos with the before and after streetscapes? The before, in a given Toronto neighbourhood, has a few buildings and parking lots. The after side transforms to a dense city packed with sky scraping condos. Some neighbourhoods have almost become unrecognizable from even 5 years ago, and the change is still coming. Toronto City council has approved almost 7000 new condo units this year adding to the nearly 70,000 already in construction. To put that in perspective, Toronto has the highest rate of development of anywhere in the world, mostly concentrated in the downtown core.

You may find this information exciting, making you a proud citizen of Toronto, or you may find it terrifying that there is that much development in our city.  Whatever you believe, the questions is:  Why Toronto? There are a lot of other very deserving, condo-loving cities in the world. Why this one?

I guess the first thing to do is to give this city a little credit. Toronto has turned itself into one of the most successful and diverse cities in the world. It is considered a economic hub and centre of culture.  It also has weathered the economic downturn of 2008 very well. Much better than most cities in the world.

Of course, this kind of development also has to do with the city policies when it comes to building in the GTA. The city really does encourage densification to reduce sprawl and protect the greenbelt around the GTA. It aims to create more dynamic neighbourhoods and fill unused "brown fields" or industrial land that is no longer in use with new neighbourhoods. Height restriction vary widely. Generally speaking, in the core you can go high. Not as easy as you leave the centre of the city. Regardless, developers are not building sprawling tracks of houses in the suburbs very often across the GTA. They are building up.

Another reason for increase in condo development has to do with  the number of foreign investors that buy properties here. As I've mentioned in other blogs, Canada does not keep records of foreign investment in their real estate.  And really, we should be keeping records. It's not that foreign investment is necessarily a bad thing, but there is a valid concern that it drives up prices in a given city. If you take a vacation destination like Costa Rica, many of the foreign investments came from Europe and North America making a lot of real estate more expensive for the locals Costa Ricans. The same concept applies in Canada.

Take Vancouver. The real estate price are much too high for the average wage in that city. Many have speculated that it is been driven up by demand from overseas. There is concern that foreign investment, particularly from China has driven up the prices in Vancouver.

The fear with foreign investors may become more of a problem if the real estate market starts to show signs of weakening. In that case, investors may pull out quickly and leave in a downturn, since they have no real interest in that investment city. This would mostly be seen in the condo sector where most of the foreign investment sits in Canada. Other countries like the U.S, Demark, France, Mexico, Japan, Turkey and Singapre keep track of foreign investment. Some countries add a 15% tax, like Singapore does, to non-residents.

I think the unknown is the part that makes some worry. There is no doubt that there are foreign investors in Toronto, though I don't believe the ratio of investor to owner is as high as Vancouver. Still, many investors around the world see Toronto as a safe place to invest. It also adds units to our rental market which allows renters to have a better stock of rentals from which to choose.

Still, I'm not entirely convinced that foreign investment has that much influence on Toronto. What I find interesting - the past two years has shown a shift from foreign investment from Toronto to rock bottom investment towns like Miami, L.A., Dublin and Barcelona. In the United States, rent is more expensive than owning in 94 out the 100 biggest metropolitan areas. That means condos are a good investment for many foreign investors. Though Canada's condo market is healthy, it may not be currently attract a new set of investors. So, that leads me to believe that this past year, which has had very strong condo sales, has been led by Canadians buying condos.

It's true that we need a better system to see just how much foreign investment effects our real estate markets. We don't want to artificially drive up prices. In my opinion, we really should be focusing on making sure this city is ready for the amount of condos it will soon have. We need a bigger transit system, without political delay, and a better infrastructure, or no one will want to invest here, local or otherwise. High density cities can be energetic, walkable, culturally-rich neighbourhoods where you can walk to every thing you need, but this fast-changing city requires proper planning to make sure these neighbourhoods thrive.

What the Improving American Housing Market Could Mean for Canada

I don' think it's official yet. BUT it looks like the American housing market may have stopped hemorrhaging. How do I know? Well, I don't know for sure, but in some of the worst hit areas in the States, there has been a turnaround with prices in places like long-suffering Florida and sucker-punched Arizona. We know it's not the same all over the U.S. The sunniest states, with the most secondary properties, were hit the hardest whereas places like New York City remain a pricey place to live.  

Wherever they live, most Americans are good and ready for any sign that their real estate market may be improving. There has been roughly 9 million Americans who have defaulted on their mortgages. Properties in some locations are now worth less than half of what they were at the peak of the housing market. So we all know how the Yanks have suffered.  

But it's not just about stats on the States. I just returned from a trip to Europe, where the Americans I met while I was there, were downright giddy about their real estate market. I have not seen giddy Americans in a long time. I don't think they had any illusions that things will become robust and return to the heights they were at in 2006 and 2007 any time soon. After all, the banks still have quite a bit of foreclosed homes in their possession and unemployment in the U.S. is stubbornly high. Still, it's nice to see some warm and fuzzy feelings about real estate for our southern friends. 

As Canadians, who have not suffered like Americans, you might think it really doesn't matter what happens down there -whether the news is good or bad. You may believe that our housing markets and mortgage rules are so different that Canadian and American real estate really don't effect one another. After all, our housing market didn't take a nosedive when theirs did. So, what effect does an improving American housing market have on Canadians and their housing market? The truth is, quite a bit. 

We Canadians are buying up a lot of the property in those sunny American states. And who can blame us? Our strong dollar makes American homes much more affordable and prices are at an all time low. So, we invest there and not here on vacation homes. We are some of the foreign buyers who are gobbling up U.S properties and helping their housing market recover while not overheating our own vacation property market. 

But we are not the only ones. Other nations from Europe, Asia and the Middle East are now also looking to the the U.S. to buy property. There is a feeling that things are stabilizing there and ready to appreciate. So foreign investors who have invested heavily in Canada over the past 4 years, because we had one of the few stable housing markets in the world, are now looking to the Americans for deals. 

Is that such a bad thing for Canada? I would say no. Quite the opposite. There has been some concern that there is too much foreign investment in Canada in the past 4 or 5 years. Canada does not keep track of foreign investment in the housing market at the moment. They should. But they don't. The worry is that if there is too much foreign investment in one city or country, then if some thing goes wrong, those investors will pull out all at once and cause the housing market to become unstable. So, the fact that more foreign investors are considering the States means that there could be fewer in Canada. So, in turn, the worry of foreign investment overwhelming the Canadian housing market becomes less of a concern. 

Now, if you don't really buy any thing I'm saying here, fair enough.  These are not all foregone conclusions. These are just a few educated ( or maybe whimsical) predictions. But I can see the early buds of an American recover that I think will help to keep our our own housing market healthy and steady.