You would think that for a person without kids, such as me, March break would be a normal week, perhaps even slower. For whatever reason though, things got a bit hectic this week. You see, I usually sit down really early on Monday mornings with a cup of nice coffee before I turn my phone on to write my newsletter for the week. But this week, somehow that didn’t happen and I found myself out of routine. Perhaps it was the daylight savings… I digress. Typically, I have a request for a particular topic or a running list of things that I want to write about. However, this week, I had so many little miscellaneous things going on that I decided to change things up and put together a bunch of micro insight posts of what’s happening in the market right now. Let me know if you like this kind of format, as feedback is always welcome!
Fact You Should Know #1 – Offer Dates are Making a Comeback!
Nobody likes hearing this, but unfortunately, it’s true. I represent a lot of clients on the buy-side because I have many investors looking to buy cash flow positive properties. It’s no joke, almost all of the good properties that my clients have put an offer on involved an offer date of some sort. The only difference now is that the initial listing price is not as ridiculous as the ones that we saw in 2017. The properties now are still selling with no conditions, and at about 5-10% over asking. During the recent offer dates that I’ve been through, we have been pitted against 3 or more other offers. Furthermore, 2 of the properties were actually sold via a bully offer, which is an unconditional offer that is WAY above asking and expectations, before the offer date even takes place.
If you’re wondering what properties they were, the common denominator is [BREAK] that they were all entry-level properties under $750K. It’s exactly what I have been preaching: entry-level listings are making a big comeback while the luxury product still isn’t moving. This is all due to the restriction of credit, thanks to the stress test.
Fact You Should Know #2 – Interest Rate Cut?!
Last week, the Bank of Canada didn’t increase the interest rate. I feel like Stephen Poloz, Governor of the Bank of Canada, would be the best person you could possibly play poker with. He always telegraphs his hand and says, “next one, I’ll get you on the next one”. What a guy!
Last year, it was written all over the news that we should expect 2019 to have multiple interest rate hikes. However, now we’re at the complete opposite end of the spectrum, with indications of potentially an interest rate cut instead.
This is the way in which I look at it – the media needs content for headlines and they will write what they need. If you’re on the fence with buying your first investment property because of a potential interest rate hike or two, then you shouldn’t invest in real estate. Although a 0.25% interest rate could affect your yield, it shouldn’t hamstring your investment or you financially overall.
Second, the Bank of Canada has historically followed the Federal Reserve (US equivalent governing body) with the interest rate hikes. The Feds increased interest rates by 0.25% in December of 2018 and we have yet to increase ours. It has only been a few times where we have not followed the Feds, so I’m preparing myself mentally for at least 1 more interest rate hike despite all of the current headlines saying that we’re going to get a cut. If we do end up getting a cut, then great, it’s time for a celebration! But again, this shouldn’t be a major contributing factor to whether you invest or not.
Fact You Should Know #3 – The City Thrives on Municipal Land Transfer Tax Revenue
Last week, the city of Toronto had its annual city council budget meeting. The City’s operating budget was approved, but a major was bought up by councilmen. Credit to Gil Meslin for recording some of the meetings and for the photo below.
This is what Peter Wallace, Secretary of the Federal Treasury Board, had to say about our long-term financial plan: “What we have now is a gap between service commitments and revenue. That gap has been managed in the last four years by very significant increases in the land transfer tax… even if land transfer tax stays constant, the budget may be under pressure in 2019”.
Here is a photo of the operating revenue history. Take a look at how ridiculously high the Municipal Land Transfer Tax (MLTT) is compared to the rest of the revenue going to the City.
Do you think the City is somewhat incentivized and reliant on real estate transactions? With transactions down 20% from the highs of 2017 and 2018, what do you think is in the back of their minds? That’s some food for thought for you!
Fact You Should Know #4 – Commercial Downtown Office Vacancy Rate
I’ve been preaching about the ridiculous inflow of companies going into the Downtown Toronto core as of late. Have a look at the chart below from Avison Young about the vacancy rates in the downtown core. The vacancy rate is below 2%, which is crazy because it’s almost like the residential rental market. Then you look at the buildings under construction and the fact that most of them are pre-leased; this just tells you the sheer demand that Toronto is undergoing for office space because so many major, global companies are coming to the downtown core. As a result of all of this, where do you think downtown core prices will be in a few years?
Fact You Should Know #5 – Toronto’s Tech Scene is No Longer a Secret
In a recent article written by the Financial Times, it talks about all of the crazy attributes of Toronto becoming a bustling tech city, and that Toronto has created more jobs than San Francisco in the last few years. It goes on to further talk about how Canada as a whole is more welcoming and easier to get ahead in life in the tech world. The budding tech scene is all in addition to the great universities that we already have.
So it’s not a secret anymore. Group fact #4 and #5 together and you can understand why I am so bullish on the downtown condo market, perhaps even more than I have ever been.
I hope this new format was helpful to give you some quick insights into the Toronto Real Estate Market.
Until Next Time,
Zhen
