As condos have become the new entry-level asset class for most first-time home buyers and investors, it is paramount for us to keep a close eye on the condo market. This holds especially true because the condo market functions completely different from the freehold market. It is literally a tale of two markets. If you want to learn more about how the freehold and condo markets are different, you can read the Insight Article HERE.
Coles Notes – More often than not, and as a result of a cultural shift, we tend to seek things that are short and succinct nowadays – the “give me a one sentence summary of everything” mentality. When you read media headlines, they’re always negative and most people don’t read the entire article, but instead take just the headline for the facts.
If you were to only consume real estate information by reading headlines, then you would think the world is crashing right now, and that the entire market is going for a huge dip.
However, if you only look at condos, then that tells a completely different story because it is the condo market that is keeping the entire real estate market afloat right now.
Fourth Quarter Stats – Below are TREB’s 2018 fourth quarter reports specifically for condos. I’ve changed the formatting a bit so that the information is more easily consumable.
Condo Central – You’ll notice right off the bat that Toronto basically makes up over 70% of the condo sales (3,728 sales transactions in Toronto out of a total of 5,191 across the TREB areas). That’s because freehold is too expensive for most people in Toronto right now. To live in Toronto, condos are essentially the sole option for most people. Very soon, this will happen in the other surrounding areas as well. Many, many developers are building in the urban centres of the other regions right now.
One Down, One Up – The key statistic that I want to point out to you is the declining number of sales transactions from 2017 to 2018 in the major downtown cores that have a huge condo presence, such as Toronto, Mississauga, Vaughan, and Markham. However, despite this, the condo prices are all UP. Toronto and Mississauga, more specifically, are up more than 8% with sales down over 12%. Interesting eh?
The prices are up because there is a demand for downtown entry-level condos and the lack of supply in the area. The sales are down due to a combination of supply (lack of listings) and buyer confidence in the market right now (yes, those negative headlines that people skim do affect the market).
If you ask me, this is the time to be looking for investment properties as there is less competition under the current market conditions, and you can ACTUALLY negotiate.
Long-term Outlook – My outlook for Toronto has always been such that in 10 years time, you’ll make money, but be prepared for a dip at some point. That’s why it’s imperative that if you’re investing, buy a property that cash flows – don’t just bank on appreciation.
If you’re looking for cash flowing condos, our team puts together turnkey properties with guaranteed rents for our clients. To stay up-to-date on that front, please subscribe to the mailing list by clicking on this link: CLICK HERE
Now, let’s take a look at the rental numbers.
Inventory Shortfall? The first thing that I’ll divert your attention to is the Months of Inventory (MOI). We’re at a ridiculously low 1.7 months of inventory in the fourth quarter, which tends to be the slowest months for rentals. This means that if we get no new listings, in less than 2 months, we’ll run out of supply. That’s what we call a “hot market”.
Rentals Outperforming in Slow Quarter – Now, take a look at the entry-level condos for rent. We can see an increase in the number of leased units and a jump of almost 10% in price. That’s pretty great if you’re an investor, especially since Q4 typically tends to be the slowest quarter of the year. The increase in the number of leased units is how quickly the market is absorbing all of these new condos being built. There have been a lot fewer listings on the market since rent control has disincentivized tenants from actually moving out.
The Wrap – With a massive number of tech companies coming to Toronto and opening their offices in the same location as all of the condos, plus the ridiculous 6-figure starting salary that these tech companies pay, my intuition tells me that we’ll continue to see increases in the prices and rental rates. I truly believe that in the next 10 years, you’ll either own real estate in Toronto or be a renter for life. Which side do you want to be on in 10 years? if your answer is to be an owner, then we’ve got the solutions for you!