Is Bigger Better For Your Condo Unit?

For the past three years, the Toronto condo market has been quite predictable, maybe even a little boring. It is not like the often competitive, battle-heavy housing market where prices have shot up each year due to low inventory and high demand. Condos have had humble results in the past three years. In many neighbourhoods and buildings, there have been modest price increases. While in others, there have been slight declines. Overall, particularly in the past year, the condo market has shown some respectable price gains.

But something new is starting to take shape here in the Toronto condo market that will change, and complicate, how the condo market functions. It's true that when you buy a condo, you need to be very aware of the neighbourhood in which you are buying and the health and appeal of the building to have the best return on your investment. That will not change. What will change, in terms of an increase in value, has to do with the size of your condo unit. Bigger can be better. And when I say bigger, I'm not talking about a few hundred square feet here and there. I'm talking about the big condos, the ones that are large two to three bedroom units, a house alternative if you will. They may soon become the condo with the best return on your investment.

But why is that? It was not long ago that Toronto developers avoided building too many large condos, particularly three bedroom condos, because they had a hard time selling them. The demand was for smaller condos, not the big ones. In cities like New York, the practice of the developers was different. They did build larger condos because the people of New York are much more accustomed to living in apartment buildings for their entire lives. In Toronto, it is still mostly a new phenomenon from the past few decades. So, compared to some large cities, Toronto did not build very many big condos because the demand was not there.

But something has changed. There is an increase for the demand of larger condos in Toronto, more than ever before. To understand this, you need to look at how houses are selling in this city. Many first time buyers have become wary of the bidding wars for houses and are now looking for house alternatives. They can live closer to downtown, and they don't have to compete for a condo unit as much as they do for a house. They have consistent maintenance fees, and do not require a large renovation budget. Plus, they don't have to commute from far away if they work downtown.

Also, we have the boomers changing everything again. As they downsize from their larger homes, they are looking to be in the city, close to restaurants, their kids (if they have any), and they don't have to mow the lawn or shovel the snow. Plus, if they want to take off to Florida or Spain for four months, they can lock and leave their condo and go. As a group, they have the money for, and the desire for, larger spaces, and will not settle for less. Many have not grown up in an era where they had to live in a tiny bachelor apartment for a portion of their adult life. Real estate offered decent space at an affordable price in their lifetimes for the most part.

Condos may not be for everyone, but there is a growing demand for the big condo. And since developers have not built very many in Toronto's most recent construction boom, we have a classic case of low inventory and high demand in the making. In my opinion, this will likely lead to above average price appreciation on these bigger condo units down the road.

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.

The Million Dollar House

Remember when $1 million dollars was a lot of money? It was not too long ago that the term "millionaire" meant you were in the leagues of Thurston Howell or Howard Hughes, a yacht-owning, caviar munching member of the luxury class. Today, one million dollars is still a lot of money, but it hardly puts you in leagues of the super-rich. In some Toronto middle class neighbourhoods, it is quite common to be a millionaire, especially when it comes to real estate. I've seen teachers, labourers, even cleaning ladies become millionaires when they sell the houses that they purchased in the eighties, in once humble Toronto neighbourhoods, for seven figures thirty years later.

Nowadays, as far as Toronto is concerned, the established neighbourhoods have no problem hitting the million dollar mark, but even the more advanced emerging neighbourhoods like Leslieville, the Junction, and Beaconsfield are closing in on the million dollar mark and, in some cases, surpassing it.

Now, there are two ways of looking at this phenomenon. One is to say wow, houses are sure overpriced in this city and we are due for a serious and much needed correction. And that may be true, but I would more likely think that we are undergoing a certain transformation in this city that is fundamentally changing how this city functions. And it's changing so fast, it is hard to keep up with which neighbourhoods are emerging next.

For example, you may have visited or lived along Queen Street West when it was the cool part of town and a cheap place to rent from a nice Portuguese landlady at at reasonable price in the nineties. The thing is, the cool thing, whether you like it or not, has been made public. When Vogue calls you the 2nd coolest neighbourhood in the world, some may roll their eyes, but it does say something. When people move to this city from New York, Chicago, London or even Oshawa, they will Google the cool neighbourhoods, and up pops Queen West. And that's where the newcomers want to go because they do not know much about Toronto, but they want to live somewhere uniquely urban.

So, this humble strip becomes a destination. The hookers who used to hang out across from Trinity Bellwoods take their business elsewhere. The 20 something cool t-shirt shops or that place to buy a bong gives way to designers and top notch bakeries and restaurant. It is not as chi chi as Yorkville. It still has some grit to keep it interesting. But there's no denying that this neighbourhood is becoming wealthier. A Northcott home, for example,  that was once a rooming house, became a house featured in a architectual and design magazine.

Now, I'm not saying all of this to affirm how awesome Queen West has become for the jet set and the super fancy. I do, however, think something very interesting is happening in our city. Living downtown is becoming a luxury for those of us who like to live in houses. The hub of wealth in Toronto is shifting from the midtown to downtown centre east and west.

I'm also suggesting that those who bought up early when places like Trinity Bellwood near Queen east or Beaconsfiled sure made a killing when this neighbourhood was still emerging and had some of the roughness from its past. That's why there's been an explosion of Canadians buying property abroad in Florida, Hawaii, Australian, Europe and South America. They have built up equity in their home here in Toronto.

Of course, there's no guarantee that the equity in your home will always be there. The market can change, but I still think house-buying in Toronto is a good idea. Here's why:

1. Houses are good investments in Toronto because they don't build them very often any more in the city limits. It's simple supply and demand. Supply is limited, but demand grows.

2. Traffic is making the idea of a short commute to the city centre a lot more appealing. The closer you are to downtown or easy access to it, the better. The time is coming where the cost of a home may depend on the distance it is to the downtown.

3. There are other emerging neighbourhoods to watch. I don't know if we'll ever see something as trendy as Queen West or Ossington or Leslieville occur as fast, but it's happening in the area around the Junction Triangle along Bloor and Lansdowne, and along Wallace. It's happening in the Danforth Village, the area along St. Clair West, up to and past Dufferin. And there are other neighbourhoods that are still less expensive that I believe will be worth a lot more one day.

You have to roll the dice, be patient with the rough-around-the-edges neighbourhood, and chances are, they will improve in value. Not every neighbourhood in this city, but some key ones.

The momentum for living in Toronto (and many other cities) is growing. Toronto will be a very different place in 20 years. Maybe, if you take a leap of faith with your real estate investments, you could be a millionaire like Thurston Howell or Howard Hughes. Sure, a million dollars may be worth even less in 20 years, but you will likely prosper from Toronto's transformation.

What Are The Best Real Estate Cities in Canada for 2014?

Sometimes around the middle of February I wish I was not Canadian. Not that being a Canadian is so bad, but I just wish there was somewhere we could go, as a Canadian, to sit under  palm tree all year round. Other that having to take on of all four seasons with winter as the longest, life in Canada offers you a lot of variety. You can live in as big city as Toronto, be tres European in a North American kind of way in Montreal, or you can be a pioneer and head up north to the territories' boom towns.

In real estate, not all cities perform the same way all of the time. Some cities are cheap, like Windsor and others are unimaginably expensive, like Vancouver.  Regardless of their average price point, each city performs better or worse than others in a given year. In this past year, the bigger cities have certainly pulled ahead in terms of price appreciation compared to other smaller Canadian cities.

And I think we are seeing that playing out throughout the country right now. Places like Vancouver are up in price by 5% whereas smaller cities are not. Regina is down 2.4 % from last year.  Alberta still going fairly strong with Edmonton at 5% and Calgary at 5. 2% year over year. 

In Ontario, the change is different depending on where you live. Ottawa is up a respectable 3.4% But the real price appreciation is here in Toronto, up by 8.9%. And if you own a detached home, you are up 14. 2%

Nearby towns are also doing well like Hamilton/Burlington, up by 7.5%.

So, Toronto is clearly leading the pack this year, with little brother, Hamilton not too far behind. But why are Toronto and Hamilton doing so well this year? Well, for the most part, Toronto is a major city that draws in a lot of immigration with a diverse economy. Big cities continue to grow, and houses in many parts of the city become increasingly more expensive. Will it always be this way? Probably, near most downtown neighbourhoods. Prices may slip at some point, but the big Canadian cities like Toronto are where most of the jobs that have no ties to oil and resources seem to go in this country. Toronto, and cities like Vancouver, almost function as separate economy. The GTA is the sixth largest economy in Canada, and that includes all provinces and the country itself. 

Hamilton is another story. Hamilton's rise in real estate was a hard won battle. That city has been trying for years to lure in artists and improve their downtown. And I have to give them credit. They did a great job. They have beautiful architecture at a fraction of the price of Toronto. And now we are seeing some of the frustrated Toronto buyers, particularly artists, pursuing a property in Hamilton where there is more space and lower prices. Just how cheap are we talking? Well it depends on your willingness to try more transitioning neighbourhoods. You could find a 3 bedroom house with parking and a garage for under $200K. It's a 10 minute bike ride to downtown but some of your neighbours will be looking like an extra from Deliverance.

If you are living in Toronto and Hamilton and own a property or two, you will feel pleased with this year's price appreciation. And you should be. Pat yourself on the back for a good investment. If you are a buyer, don't worry, the sky is not falling, and those kinds of big increases cannot continue every year, though I believe there is room for price appreciation, especially for houses,  in Toronto and Hamilton in the years to come. 

Real Estate and the Hipster Factor

I am not a hipster. Sure, I have my moments. My music selection is not bad. I do have a pretty good idea on where to find great food in an unassuming location, but I don't sport a french moustache or wear ironic tshirts (very often). Still, the cool factor of a given city does influence real estate and the neighbourhoods my clients reside. So, I cannot afford to look the other way.

Maybe you're so hip yourself that you're thinking: "Pfff! Toronto is so not hip." But you would be wrong. At least, according to Vogue magazine. According to these style mavens,  I'm not the only one who is aware of just how cool some consider Toronto to be. In fact, in their top 15 neighbourhoods in the world, Toronto's West Queen West ranked #2 , ahead of cool neighbourhoods in New York, Los Angeles and Paris. I'm not sure everyone would agree, but I think it's safe to say that the world considers Toronto cooler than it used to be. Because I have to tell you, in the 80s, Toronto was not terribly cool. It was that awkward, pimpled teen with the clothes that didn't fit right who really wanted to go out and own the dance floor at the high school dance, but felt it was safer to hang back by the bleachers.

But does cool really matter in Toronto? I don't think it's important that you are cool or hip to live in this city.  As I mentioned, I am neither cool nor hip. But I do think very positive things come out of cool or hip like independent businesses that create distinctive neighbourhoods or a sense of creativity that makes a neighbourhood  more distinct. Maybe hanging around too many hipsters makes you skin crawl. And if that's the case, I should make you aware that hipsters have often been the vanguard of where to buy next. West Queen West, Beaconsfield, Ossington, the Junction, and Leslievllle have all become little pockets of cool, and real estate prices have been reflected in that. Even the changeover in Yorkville was once the hot spot for hippies, the hipsters of the 60s.

On the rise, you'll find the Junction Triangle, Danforth Village and even the city of Hamilton as places that are also becoming centres of cool-dome. And that kind of buzz is really a draw. Neighbhourhoods that were once a little down on their luck with relatively inexpensive housing stock become purchases for artists and hipsters. Then someone opens up a cafe, and then a few new restaurants. Then the word gets out. People start to visit this cool neighbourhood and the main strip becomes a destination for wine bars, art galleries and gastropubs. Many hipsters may have moved on by this point, but those who saw the cool factor early will see their real estate prices increase. And that's what I'm hear to tell you about.

Now, not all neighbourhood are destined to be centres of cool, and I am certainly surprised by some neighbourhood that have risen to hipster meccas. But needless to say, being hip does make a difference to your real estate investment, even if you are not hip yourself.

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.

The Fall Market Coming: What To Expect This Year

If you are anything like me, you may be wondering what happened to summer this year. Nights were cool, temperatures over 30 degrees were rare, and the humidity haters were one happy lot.  Still, even though it may feel like summer has barely started this year, there is no denying that it's exiting soon. Already, I hear the sing along jingles of back to school commercials. I wait longer in the traffic on Lake Shore because of the CNE. And I notice the nights this week coming a little bit earlier than last week.

Though the temperatures and the early evening may come gradually, the real estate market in Toronto more closely matches the beginning of the school year when summer ends abruptly. You wake up and poof! It's packed up and gone. Unlike the Spring market that may start as early as late January or as late and early March, the Fall market is predictable. Once you clear Labour Day, the new listing start rolling out, the buyers and sellers return to the market, and we see a busy period in September and October that slows down a little in November before really slowing down during the December Holidays.

Even though there are a collection of quality condos and houses that go up for sale in the summer, there does tend to be less activity during this season. The passion of the Spring market can trail off into July, but August is often very slow. Next to the festivities of December, August often has some of the fewest transactions of the year.

But what will the Fall market be like this year?  What will happen as the engines restart on Toronto properties? I suspect it will be like the Spring market of 2014. Condos will continue to have one of the best years they have seen in the 2010s. I don't think we'll see outrageous bidding wars or wild price appreciations here, but I think prices, for the most part, will be healthy, and we'll continue to see many condos sell in large numbers, generally better than last year. Of course, as I've said many times before, make sure you pick the right condo in the right neighbourhood. Not all condos are created equal.

For houses, the chronic low inventory will keep them in high demand. I don't think we'll see the number of bidding wars we saw in the early part of the Spring in most Toronto neighbourhoods. In some in-demand neighbourhoods, we saw houses go for $100K to even $200K over asking. I think the Fall market, however, will be more reflective of the late Spring, where a quality house would likely go into a bidding war, but not the scrappy shack in a lacklustre neighbourhood. First time buyers hungry for houses will likely cause emerging neighbourhoods like the Danforth Village and the Junction Triangle to continue to have significant price appreciations. Bargain hunters may look further afield in Caledonia/ Fairbanks, parts of the Danforth Village or Scarborough. Detached will still be king. For condos, the shift will continue to be to the downtown core away from the activity in midtown.

In terms of inventory, this will vary widely between the condo and the house. Certainly condos will have a steady stream of supply. No worries there. The trick is to pick the right one. Resale is still king though new condos are now offering much better incentive than in the past. It's hard to see how many houses will come up for sale. Still, it's easy to predict that buyers will outnumber sellers. Not all houses will go to bidding wars, but if you have a house in an established or emerging neighbourhood, you will do well with the right marketing plan.

So, whether your selling or buying or  already planning your next winter trip to Costa Rica, summer is fading fast and Fall is coming. There's simply no denying it any more! Hello cooler temps, a  light jacket at night, and a Toronto real estate market that is waking up from a short summer nap.