Month: November 2020

The frenzy in Toronto’s downtown condo market has wound down, and that might not be such a bad thing.

In fact, it’s an opportunity for sales agents to do more than merely amass as many non-conditional offers as possible ahead of offer dates. Brett Starke, team lead of Starke Realty at PSR Brokerage, sold three units in the last two weeks that had conditional offers on them, and he says it infused more logic into the transactions—something that’s been missing for a while.

“What I like about that is there’s more logic to it, and sales agents are working as advisors again rather than order takers, like we have been for a while,” he said. “On the buying end, it’s normal for people to have an opportunity to think about what they’re about to spend, because it’s likely the most money they’ve ever spent in their lives.”

Starke added that Toronto still has the best condo market in Canada. Although the investor market has taken a hit, end users have come out of the woodwork in droves, now that they have, in addition to historically low interest rates at their disposal, less competition.

“Airbnb-friendly units are hurting, like the Ice Condos at 12 and 14 York or Maple Leaf Square Condos, or 300 Front St. All the buildings specifically marketed to investors for short-term rental income are hurting, but the properties that have livable space are doing well,” said Starke.

Moreover, downtown condo owners who spent extra money on upgrades and enhanced finishes aren’t seeing their units decline in value. Starke says those value-added finishes are fetching them higher sale prices.

“Instead of having one condo in each building available, there are at least a couple to choose from, and the upgrades you put into your units at the beginning have value now, whereas before people arbitrarily bid regardless of the upgrades,” he continued. “Now with upgrades, your unit could be worth $10,000-20,000 more than it was before. There’s a return to reason and logic, which I quite like.”

The downtown condo market has tilted in favour of buyers, many of whom are doubtless taking advantage of an historically-low interest rate. But Daniel Johanis, a mortgage broker with Rock Capital Investments, says the low rate is also proving a boon for investor-owners who are refinancing their mortgages.

“Now they can unlock up to 80% of the appraised value,” he said, “and in some cases the payments could be lower than their existing payments.”

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New condo sales in the Greater Toronto Area set a new record and rose by 30% last quarter over Q3-2019, with 6,370 units purchased, according to an Urbanation report.

The third quarter record was driven by sales surging 106% to 3,834 units in the 905 region, although it was offset by City of Toronto sales dropping 16% to 2,536 units. Moreover, the Q3-2020 sales feat was undermined by year-to-date sales decreasing by 22% to 13,454 units, which is also 13% below the 10-year average of 15,451 units, because COVID-19-related lockdowns through Q2-2020 quashed market activity.

The Urbanation report revealed that pre-sale condo units launched in the third quarter increased by 162% to 6,694 units from 2,556 units in Q3-2019.

“As the resale market was reporting a sharp recovery in sales during the summer, developers ushered in new projects, which were very well received in the market. A 74% share of new units launched in Q3 were sold by the end of the quarter, increasing from the 63% share of new launches sold in Q3-2019 and the highest absorption rate for new launches since Q4-2017,” said the report.

“A 74% share of new units launched in Q3 were sold by the end of the quarter, increasing from the 63% share of new launches sold in Q3-2019 and the highest absorption rate for new launches since Q4-2017.”

While the COVID-19 pandemic is to blame for Q2-2020 sales numbers plummeting, it was also the impetus for historically low interest rates, which have essentially allowed homebuyers to buy more home for less money. According to Simeon Papailias, co-founder and managing partner of REC Canada, domestic investors have, in fact, kept the market afloat.

“We have many investors being multi-transactional right now,” he said. “Investors know that [the market decline] is artificial and that as soon as this health crisis is resolved, the housing market will be in the same predicament as before, which was that supply couldn’t keep up with demand.”

There were 17,596 new condo units that reached completion through the first three quarters of 2020—rising by 47% from the same nine-month period last year—including 6,816 in Q3. There were also 78,156 condo units under construction last quarter and another 5,411 slated for completion before the end of the year, which will set an annual record with 23,007 completions.

There are 22,434 new condos slated for completion next year, 70% of which will be the City of Toronto.

“The units coming to market now were not bought at today’s prices,” said Papailias. “People paid $400,000 or $450,000 for one-bedroom-plus-dens three years ago, and now they’re worth $600,000-700,000, but the mortgage is only going to be $1,800 a month, and rents downtown still cash flow.”

The Urbanation report also showed that there were 12,962 unsold condo units in the GTA last quarter, declining by 4% year-over-year, that averaged $1,106 per square foot, which is a 7% increase from Q3-2019.

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Canadians have expressed optimism in the country’s real estate market, even in spite of the COVID-19 pandemic wreaking havoc on the economy, research from Bloomberg-Nanos shows.

Forty-five percent of survey respondents believe home values in their neighbourhoods will increase in the next six months, while 36% think values will be flat, and 13% expect decreases. Six percent of survey respondents were unsure.

The results, derived from a late October survey, represent the highest showing since the pandemic began in March.

“In terms of consumer confidence, real estate is still a great asset to invest in here in Canada because we don’t have too many options—the stock market is turbulent, for example, so where else would we invest?” said Alex Balikoev, senior vice president of sales at Sotheby’s International Realty Canada, adding that the pandemic hasn’t made Canadians any less bullish about real estate.

“What we’re seeing right now in Ontario is people fleeing big cities and going to the suburbs or the country, and the small markets outside of Toronto are booming, as are the city’s suburbs, where the detached market is hot.”

Rahkee Dhingra, CEO of Mortgage Savvy, told CREW that the pandemic hasn’t much dissuaded people from buying homes, largely because interest rates have been cut to historic lows in a bid to stimulate the economy.

“We’re busier than ever; we’re doing a lot of preapprovals and active transactions,” she said. “I’m always gauging to see where we are on the preapproval side for our pipeline of future business, and we’re on pace for our busiest November yet, even though November and December are usually the slowest months of the year.”

Dhingra added that people are looking to upgrade now that they’re spending more time at home.

“I’m doing a lot of coaching calls with first-time buyers and a lot of existing homeowners looking for more space. We’re closing deals within three or four weeks.”

While consumer confidence in the real estate market is surprisingly high considering the economy nosedived this year, the condo markets in Toronto and Vancouver haven’t fared as well. But Balikoev says there’s another way of looking at Toronto’s condo market—the country’s largest—where the deceleration of activity is impermanent.

“We’re going to see a strong rebound in three to four years, guaranteed, because immigrants will have returned to the country, and they’re major drivers in Toronto’s condo rental market,” he said. “Some builders aren’t launching this year, instead delaying a year or two, meaning that four years from now we’re not going to have all the housing units that were originally planned, and there’s going to be a huge shortage. The shortage will drive prices up.”

Balikoev noted that this has happened before.

“This happened in 2016 when prices exploded and some builders delayed their launches, which inflated prices even more.”

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A consequence of the COVID-19 pandemic for landlords is that they’ve lost leverage over renters, but there are still ways to optimize the search for responsible, respectful occupants who pay rent on time.

Brett Starke, team lead of Starke Realty at PSR Brokerage, recommends landlords use a real estate sales agent to help them narrow down their search for the ideal tenant, whom he describes as somebody securely employed in a sector of the economy that won’t become obsolete in the near future, because of COVID-19 or otherwise.

“You’re seeing a huge exodus from Toronto of service staff at restaurants who are moving into their parents’ places in the suburbs because landlords aren’t renting to them,” said Starke. “In times like today, a good credit score matters so much more because it shows how you’ve dealt with difficult situations in the past. A credit score sheds a lot of light on people’s personalities over the last seven years of their lives.”

Ideally, landlords shouldn’t have personal or pre-existing relationships with their tenants, because should the latter fall on hard times they might be less inclined to prioritize paying their rent, added Starke.

Checking a potential tenant’s social media pages is another way to ascertain what kind of character they have and how responsible they will be living in your unit. Although it could be argued that surreptitiously researching someone’s social media pages is an invasion of privacy, Starke says protecting a six-figure investment takes precedence.

“That gut feeling from looking at their social feeds is invaluable because it can reveal a lot of red flags,” he continued. “I’d look at their job history on LinkedIn, and their Instagram and Facebook profiles. I’d even look at their TikTok page to see what kind of videos they’re posting. Their social media feeds paint a picture of them; you can see if someone parties too much or takes a lot of trips or is dedicated to their work.”

LinkedIn, Starke added, is probably the best way to determine how responsible a potential tenant is.

“You can see their previous employment history, as well as how long they stay at all their jobs,” he said. “If they change jobs every six months, even if they have a good credit score, that might tell you something about them. Corporate tenants who have stayed at one company, and whose promotion history you can see over LinkedIn, are my favourite ones.”

It goes without saying that landlords should contact their potential tenant’s previous landlords, but Starke recommends doing additional research and ensuring the person is who they say they are and not a friend or family member posing as a previous landlord.

The pandemic has made finding tenants, let alone good ones, difficult. However, according to Erica Mary Smith, broker of record and co-founder of Stomp Realty in Toronto, a landlord who’s flexible on pricing should remember to keep their eye on the future because the market will rebound. Moreover, if they’re willing to compromise on pricing, the tenant will likely accept a looser lease structure.

“I tell my landlord clients to work with their tenants if they’re good tenants, because it’s hard to find tenants now, especially good ones,” she said, noting that Toronto rents will be frozen in 2021.

“If a unit was historically leased out for $3,600 but now it’s only getting $2,900, instead of signing another lease, just go month-to-month. You can’t get rid of the tenant just like that, but if you’re charging $400 or $500 less a month, at least you won’t be locked into the full year.”

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With the novel Coronavirus putting everything on hold, Toronto investors were left scrambling to find tenants. The city’s rental inventory skyrocketed as students no longer attended classes in person, immigration came to a halt, employees began working from home, and short-term rental operators, like Airbnb, were hampered by travel restrictions.

“With tenants struggling to make rent payments, and the restrictions regarding Airbnb and short-term rentals, landlords have struggled to collect consistent rent,” said Erica Smith, broker of record and co-founder of Stomp Realty Inc. Brokerage. “Many landlords have seen their rental units stop collecting rent, hence why there is a flood of inventory on the market.”

COVID-19 has affected landlords all over the country, but particularly in Toronto’s downtown core. The average rental price in downtown Toronto in August was $2,185 a month, the ninth month in a row where decline was evident. On average, rental prices have decreased by $200-$400 compared to this time last year.

“I would say, generally, buildings in the core of Toronto are struggling the most. We are seeing inventory still be rented out more in the suburbs as people are leaving the city. I do see this trend definitely continuing into 2021,” said Smith.

There is still light at the end of the tunnel for investors. Even as the rental market declines in Toronto’s bustling core, there are still great opportunities in its suburbs, where people can work from home, and where landlords are offering renters incentives. It’s helped students, young couples and single workers find great deals on living spaces that are perfect for their needs.

Smith said that an incentive her team has seen quite a bit is applying last month’s rent to the current month, so rather than the typical deposit that landlords collect right away, the money can be put towards a month when the renter is struggling to make ends meet.

“Another incentive is to reduce rent to a point that is covering the landlord’s costs. There was a period when rental rates were so high that there was a huge profit. Some landlords have adjusted to just cover their costs, which also helps the tenant,” said Smith.

Brendan Powell, broker of record, president and owner of the BREL Team, said landlords are definitely struggling right now and offering incentives to entice renters, including gift certificates and free months’ rent. It’s no surprise that rental listings have risen and that “everything is upside down” compared to five to 10 years ago.

“The majority of landlords own condos in the downtown core and people are not as excited about living in a condo right now,” said Powell. “With health and safety protocols, it’s harder to show properties, especially with tenants at home, being in an elevator, or even just shopping around. But, yeah absolutely, landlords are offering incentives. Tenants are losing their jobs, they’re nervous, and just dealing with tenants at all can be tough.”

Powell doesn’t know if this will continue into 2021, but he won’t be surprised if it does. Moreover, rent has become negotiable for tenants who have lost their jobs. While landlords are grappling with COVID-19’s impact on their cash flows, and were used to tenants offering more money in the past due to stiff competition, times have changed and negotiation is acceptable.

“Absolutely, there is negotiation in a way we’ve never seen before,” said Powell. “It’s tough all around. Logistics have gotten more difficult, finances have gotten squeezed. But landlords have done really well for many, many years.”

Rent premiums, as Powell noted, have pretty much evaporated in downtown Toronto for the time being. If a landlord loses their tenant right now, “you’re going to be renting it out for a chunk of change less than you would have 10 years ago.”

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