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Jim Burtnick: Toronto’s Real Estate Continues to be a Safe Investment

Jim Burtnick: Toronto’s Real Estate Continues to be a Safe Investment

For anyone expecting to see a downturn of Toronto’s housing market, the Canada Mortgage and Housing Corporation says 2017 won’t be the year.

At a recent condo seminar held by the CMHC, the group laid forth it’s predictions for the upcoming year. Jim Burtnick, a member of Torontoism, broker and senior vice president at Sotheby's International Realty Canada, was in attendance. He says CMHC is pointing at rising prices and a somewhat dwindling supply, but the health of the market is expected to remain strong.

CMHC sees sales coming in somewhere between 100,000 properties sold and the 113,000 we saw in 2016. Burtnick says that’s not enough to call it a retraction.

Not so much a slow as a maintain-where-it's-at. I mean, the difference between 110,000 and a 113,000 sales is not huge. That is three-thousand less than last year. So almost basically the same and it would be the third straight year where sales were above 100-thousand sales.

Shrinking Vacancy Rates And Condo Bidding Wars

One of the biggest impacts we’ll see in the coming months is on the rental market. CMHC says competition for condo rentals remains high.

"Literally there are people lining up," says Burtnick. "Like if you put a condo out for rent you're getting multiple people bidding on it."

About 80,000 people move to the GTA every year. They come from overseas – Toronto attracts the highest number of immigrants in Canada – or from other provinces like Alberta and Newfoundland & Labrador where the falling price of oil has impacted those economies. That creates a lower vacancy rate.

Currently, as Burtnick points out, the vacancy rate is below one percent. But that could drive more builders into the sector.

A healthy market is somewhere in the neighbourhood of 4 percent. So you're actually seeing some of these pension funds getting into the rental market and they're building new purpose-built rental properties because that's going to give them the kind of ROI on their fund that they need to finance their pensions.

Another of the CMHC’s predictions shows apartment resale inventory is dropping. That can lead to bidding wars, according to Burtnick, because there’s less condo inventory available.

He says that Toronto used to have around a 4-month supply of condos ready for new buyers, now that supply has dwindled to around 1.5. Because there are simply fewer options, people are willing to spend more.

READ MORE: WHO ARE THE CONDO BUYERS IN TORONTO?

Toronto


Affordability And Rising Prices

While prices may not rise as much as they have in the last couple years, they’re still expected to head higher. That creates a problem for many first time homebuyers whose income is outpaced by the price of a new home.

High prices are causing more people to look at the GTA’s suburbs as a viable option for home buying. CMHC shows prices rising in the areas surrounding the downtown core by more than 20 percent, while Toronto-proper–where prices are already high–is expected to see a hike of a little more than 14 percent.

"The city's become so expensive that the only options are outside the core so more people are looking out there and that's driving up the price outside the core," says Burtnick.

The CMHC also shows that high prices throughout the GTA are effectively pushing some would-be buyers out of the market. The downpayment for a home costs more than the average Torontonian makes.

Toronto's becoming a city like Manhattan in New York, where you've got to have a lot of money to be able to afford to live there. They're suggesting that, just based on fundamentals of people's actual income versus the purchase price, it's becoming problematic.

But what the CMHC’s numbers don’t show, according to Burtnick, is an increasing reliance on the Bank of Mom & Dad.

"A lot of parents are helping kids get into the marketplace," says Burtnick. "So even if their income isn't enough to justify the purchase price they're supplying typically a health deposit so they can get a foothold on the real estate market.

There was a period a few years ago when many believed too many buildings were being built. It fed into fears of a bubble in the real estate market. Even today Burtnick says it’s not uncommon for people to point to the number of construction cranes and say the sky is falling.

But if supplies are dwindling to the point that bidding wars are common, or that it’s causing prices to rise so much that the average person simply can’t afford it, shouldn’t that show that we’re not building enough? According to Burtnick, neither is true. When he looks at the CMHC numbers he sees the city growing to fit it needs.

Certainly if you look at the overbuilding aspect, we're not overbuilding in any stretch. We're basically maintaining our natural need based both on immigration and based upon natural birth and death rates.

The reason that prices continue to rise in the GTA, putting even more pressure on buyers, is a lack of supply according to Burtnick. Getting through the approval process for new buildings simply takes too long.

"It’s taking too long for developers to get projects approved and shovels in the ground so that they can provide new inventory."

Students from all over the world seek education in Ontario
Students from all over the world seek education in Ontario

Read more: top 6 universities for international students in ontario

Employment Growth vs. Shrinking Dollar

Looking at the broader picture, Canada’s unemployment rate continues to plummet, but the dollar has also stagnated around 76 cents to the US dollar. Burtnick sees that as a potential boon for Toronto’s housing market.

"What a lower dollar means is certainly Canada becomes more attractive from a point of view of an exchange rate," he said. "So from a foreign point of view it makes us look on sale and relatively inexpensive."

He points out that this could attract foreign buyers, but just as likely their may be Canadian expats looking to return to the market.

"They might see this as an opportunity to get a good bang for the buck, especially if they're getting paid in US dollars."

The tumult south of the border could have a further impact for the region as well. Canadian universities are reporting an influx of applications from the United States. A poll by the Globe and Mail reports a spike of between 20 and 80 percent for the 2017-18 academic year compared to the previous year.

But while it may be easier for students to come here, Burtnick doesn’t anticipate as many people coming looking for jobs.

It's not like they can just come here and start working right away if they need to work. Because you'd have to have a work visa if you're not a Canadian citizen. I think some people are looking for education coming up here. Certainly our education system is a lot more affordable than the US.

Toronto is experiencing influx of new residence not only from foreign countries, but also from other parts of Canada
Toronto is experiencing influx of new residence not only from foreign countries, but also from other parts of Canada

The Interest Rate Question

One of the big questions over the last few years, and one that will continue into 2017, is when will the Bank of Canada raise interest rates? BoC governor Stephen Poloz has intimated that he has no plans to move rates given the unpredictable times we’re living in. But as Burtnick points out, the U.S. Secretary of Treasury Janet Yellen has intimated she could see as many as three rate hikes throughout the year.

That would attract investors to the U.S. bond market and although the Bank of Canada hasn't raised their benchmark rate, for banks to raise money for mortgages they're going to have to offer a better bond rate for people who are putting up the money for these mortgages. So if the US raises their benchmark rate I can see our mortgage rate going up.

Regardless of what happens on the international stage, Toronto’s housing market still looks like a safe investment to many buyers. An equilibrium has been reached between supply and demand that creates opportunity for investors, but still leaves some room for new buyers to join in on the fun.

TT00ML

International Real Estate: London is still London

International Real Estate: London is still London

From the United States to Great Britain, there is a lot of anxiety about the future and that kind of instability can have a strong impact on housing prices around the globe. While the situation South of the border is still too fresh to fully assess the situation, there is much talk of what will happen to real estate in Britain following the country’s decision to leave the European Union.

One recent forecast found that housing prices in the UK will rise between 1 per cent and 4 per cent in 2017, a sharp drawback from 2016 gains. The same forecast also pointed to a possible drop of housing prices in London.

Uncertain Times

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In times like this it’s not uncommon for homebuyers to look abroad for more stable options. Canada can often look like an attractive destination for people who want to park their money in a safe and secure economy. Brexit has created uncertainty in the UK, but whether it’s enough to draw people away from a city like London remains to be seen.

Simon Tollit doesn’t think it is.

Tollit, who is a Real Estate Professional in London, England with Sotheby’s International, says there’s more to the story.

It's creating uncertainty, but Brexit is not the reason why the UK and London is seeing a deteriorating property market. That's all down to down to Stamp Duty.

Stamp Duty Land Tax (SDLT) is a government tax home buyers must pay when buying a property. Tollit says if a person buys a property for 1.5 million pounds, they pay 12 per cent on the stamp value. So if the home sells for 10 million pounds–which isn’t unheard of in London–the buyer pays 12 per cent on the total between 1.5 million and 10 million pounds.

"So basically it's made it very, very expensive," said Tollit, who points out that in the last year the government also increased the Stamp tax on additional homes and investment properties a further 3 per cent. Tollit says that’s the main reason housing prices have fallen in London.

Sherille visited Sotheby's International Realty offices in London in December 2016. Simon Tollit is on the left.
Sherille visited Sotheby's International Realty offices in London in December 2016.

Looking Abroad

Sherille Layton was born in the UK but immigrated to Canada with her husband in 1999.

We came here on holiday and just fell in love with Toronto. We applied back then and got our visa within 3 months. In fact, we got our visa I think seven days before 9/11. Now it's taking people three years, so we were very lucky.

The newer visa restrictions may also make it harder for anyone thinking of moving to Canada. But Layton says she attended an immigration summit in December and saw some signs that people were moving here.

I was sitting next to an immigration lawyer and [they said] a lot of people are going through Quebec to get their visas because it's faster. So I think there's definitely a lot of eyes on Canada.

London Is Still London

Tollit has a hard time believing Brexit would be the impetus for anyone moving abroad.

I can't think of one person who said 'right, on the back of Brexit I'm selling. It might be one of many reasons why someone would sell, but it's not a defining reason.

Especially when it comes to international buyers, the appeal of living in London outweighs the potential drawbacks of a post-Brexit world. Some are [concerned about Brexit], but if you're looking for a long-term investment or you're looking for a home, you're going to spend time in London.

He says anyone with business in the city or country isn’t likely to be scared away by the changing political tide.

Guys who've got 5,10 million pounds to spend generally are pretty intelligent, switched-on people by the virtue of the fact they can spend 5, 10 million pounds on a property. So they're not stupid and they're guided by experts. So as long as properties are priced correctly there is still a market.

Sherille agrees, saying the rising cost of living will definitely have an impact on the housing market, but people will always want to live there. Just like the rising cost of living in Toronto is not driving away population, but attracting it.

I think probably the first part of the year people will just try and buy because they don't know what the future is going to be like. Although, anybody that I know still in the UK were quite shocked about the whole Brexit thing.

And while London may be seeing a bit of a dip, people are still buying throughout the country. In fact, another recent study from Halifax points out that the number of first time buyers in the UK reached an all-time high in 2016.

Richard and Sherille in London during The Torontoism Team international trip in December 2016.
Richard and Sherille in London during The Torontoism Team international trip in December 2016.

Still Some Movement

That said, there does appear to be some movement. Whether that’s related to housing prices is hard to say, but Sherille says Toronto remains an attractive market for buyers.

If you look at the Toronto real estate market 2016 was another record year. The average price of a home was 730-thousand dollars. The market increased by 17 percent. And she expects 2017 to be quite similar.

There's a lot of turmoil in terms of the G8 countries. Who knows what's going to happen in the US. England's all over the place. France, Italy. We might look boring but we're pretty steady.


The Torontoism team recently joined the UK-Canada Chamber of Commerce, the 94-year-old non-governmental body that serves as an authority on trade and investment between the two countries. Sherille says they’re reporting a lot of movement between the UK and Canada.

There's been a lot of immigration lawyers becoming members of the Canada Chamber of Commerce, so that would also suggest there's going to be quite a bit of movement this way.

Can you keep up with the fast paced market?
Can you keep up with the fast paced market?

The Road Ahead For The UK

So while you may start hearing a few more English accents over the next few months and years, don’t expect bangers and mash to be added to the top of every menu in the city.

"London is still London," said Tollit.

It's still very much an economic powerhouse and we've still got the time zone, we've still got a good legal system, a fundamentally strong economy, the service sector's good, schools are good. So all of those factors are always going to play into people wanting to live there.

Tollit says Brexit does not signal a doom and gloom scenario for London. The market is simply pausing for breath. After all, the city’s real estate market has grown steadily for the last few years.

You can't have 10, 12 per cent growth year-on-year forever. It's just unsustainable. So it's a cycle we're going through. We've been here before and we'll come out the other side.

TT00ML

Renting: The New Canadian Dream?

Renting: The New Canadian Dream?

As Canada’s population grows, the price for housing continues to increase in the country’s major urban centres.

According to the Ministry Of Finance, in Ontario alone the population is projected to grow by 30.1 per cent over the next 26 years with the GTA the fastest growing region in the province. Population there is expected to increase by more than 2.8 million, reaching nearly 9.5 million by 2041.

With more people moving to cities home prices are expected to increase. In addition to population growth the rise in prices is being amplified by a lack of supply. Just what is causing this dearth is a hotly debated issue.

Some people have pointed to foreign investors swooping in to buy up all the real estate, a theory which has led to the implementation of a foreign buyers tax in Vancouver. British Columbia’s Liberal Party brought in the tax in an attempt to cool the market, but it’s largely too soon to tell whether there has been an impact on home affordability. Officials in Toronto are watching closely, but others believe the problem stems from elsewhere.

People want to come to Toronto and the number of people has increased, but the number of potential housing has not increased at the same rate.

I think what happens is that Toronto is fairly fixed in its ability to grow in size, because of the moraine at the top and the lake at the bottom. But I think it has more to do with the fact that there is land, and there's potential for land, but there's a lot of government restrictions on it.

333H
You're not the only one looking...



Writing for the Globe and Mail, Brian Lee Crowley, managing director, and Sean Speer, Munk senior fellow at the Macdonald-Laurier Institute, point to past and present governmental policies for causing the dwindling housing supply:

Present policies such as green belts and land reserves, exclusionary zoning and obstructive building and construction regulations are directly or indirectly designed to manage the housing supply – including the types of homes that are constructed. One can debate the utility of these ‘urban containment strategies,’ but it’s not debatable that they’re making homeownership more difficult, rather than easier.


They point to research done by Harvard economist Edward Glaeser, which "has shown that restrictive land-use regulations are a major impediment to housing supply and in turn drive up prices."

There are certain "sacred cows" like schools and churches that seem to defy development.

For instance: There were people complaining about the Don Bosco School in Etobicoke having 90 people in the school, where it used to have a thousand. So why have you got a school sitting there with 90 people, can't that 90 be moved into another school and that property be developed on?

In their article, Crowley and Speer argue that the federal government should use spending programs to encourage provinces and municipalities to liberalize reforms to restrictive zoning and housing regulations. But for young buyers it may be a matter of shifting expectations.

snow bench man person
Thinking about the Six

Toronto is Canada’s Manhattan, a city where the idea of homeownership is distant at best.

It's a matter of expectations. Is the Canadian dream to own or is the Canadian dream to live in a country that has a lot of freedom, diversity and understanding? Is it imperative that we assume that everyone just HAS to own a house? Is that the Canadian dream, or can the Canadian dream be renting?

The numbers support this. These days, as Crowley and Speer point out, median households need to dedicate 71.7 per cent of their pretax earnings to own a single-family detached house in Toronto. In Vancouver the number is even higher.

So if foreign buyers aren’t the root cause of the hot housing market, what is the purpose of a foreign buyer's tax? The endeavour is concerning.

I don't like what the Vancouver tax says. We've always been the safe haven for immigration; a place my family came to, so that they could feel safe. I think it's a bit of a slap in the face for anybody who wants to move here.

I believe a tax on investors who have properties left vacant would be more useful. These are the buildings that remain unoccupied but still draw on services.

Regardless of how expensive housing gets, foreign buyers are something Canadians need to get used to.

China has over three times the population of Canada and the United States: they now have the ability to travel, to move outside of China, and so they're doing it. Are we going to be receptive and welcoming the way we have been for groups from England and Europe and other parts, or are we going to close our doors because it's someone from China?

My family is pretty diverse and I've always felt strongly about diversity in our Canadian landscape. I fought for it for years and the fact that we're trying to segment one group, even though we're not saying it's one group, is disappointing to me.

TT00ML

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