This is a question that's on many condo buyers minds as we head into the fall 2013 and 2014 spring market. There has been a lot of talk in the media recently about a condo slowdown and oversupply of condos in the Toronto real estate market.
So condo buyers understandably are cautious and reconsidering whether to make a purchase or not.
What are the facts?
- It's true that there has been a slowdown in the rate of price appreciation in condos over the past year and a half. This started after the banks increased their mortgage lending requirements for buyers in late spring 2012. This must be viewed in the context of prices that are already quite high by historic standards, so expecting continued % price appreciation at the same level is unrealistic to begin with.
- It's also true that there are a lot of new condos coming on the market in the next few months and years - projects that have been presold in past years and which are now being completed. These new units will either be resold (if the original purchaser was an investor) or will be rented or lived in.
- There are also many new projects that are going to come on the market next spring as preconstruction projects, further increasing the supply of condos.
- Immigration continues to be a big factor in maintaining the bouyancy of Toronto's real estate market. Most new immigrants into Canada land in Toronto, due to family ties, jobs and proximity to the financial centre of the country
- Rental apartments in the city are not being well maintained, and are not desirable for a lot of new immigrants or younger people looking to move out of their parent's home and find their first place to live independantly
- This leaves condos as a relatively affordable and attractive entry point for renters (whether they be new immigrants or domiciles). This explains why condo sale transactions were up by 18% with prices up by 2% in Q3 2013 vs Q3 2012 (according to recent TREB statistics)
- This in turn explains the continued strength in the condo rental market where vacancy rates remain at an all time low and prices continue to increase year over year. Treb recently reported that there was a 25% increase in condo rental transactions in Q3 2013 vs Q3 2012, with average prices being up 1.8% for one bedroom units and 3.6% for two bedroom units during the same period.
- I recently rented a one bedroom unit for a landlord client of mine at 125 Omni Drive, at Scarborough Town Centre, a Tridel Condo building. I was able to rent it for more money than I rented it for last year without even having to list it on the Toronto MLS.
- That in turn will continue to keep condo prices relatively stable, as condo investors will continue to pay a decent price for a condo in the city (whether it be North York Condos, Condos in Scarborough or Downtown Harbourfront Condos) if the unit can be rented out at a reasonable price. There is no evidence that the rental market is going to slow any time soon - in fact, on the contrary
In summary, the recent changes in Canadian mortgage lending rules by the banks has had a somewhat negative impacf on Toronto's condo market. Condo supply is also quite strong, and new projects are announced every day. However, condo buyer demand is also strong, as buyers need a place to stay. Interest rates remain very low by historic standards, which make condo ownership an affordable and attractive investment, particularly when the alternative is to rent in an apartment building which may not be well maintained, or in a condo where rental rates continue to increase.
We will have to watch developments going into the fall and early spring 2014, but for now I see the market holding steady, despite doom and gloom scenarios portrayed in some media outlets.
Ram Rajendram is a Toronto Real Estate Broker with Century 21 Harvest Realty Ltd. He sells condos and houses throughout the GTA, and assists home and condo buyers with their purchasing needs. He is also a Canadian Chartered Accountant and holds a Bachelors Degree in Economics from the London School of Economics (LSE)