Montreal’s luxury property sales are on fire

Montreal has become a favourite of luxury real estate purchasers, and given the city’s beautiful, and in places European, streetscapes, it’s not hard to understand why.

But according to Amy Assaad, a broker with Royal LePage Du Cartier, there’s a more pragmatic reason luxury buyers, whether local, national or international, are flocking to Montreal.

“Assets here keep going up in value, and the luxury areas in particular don’t see declines. In fact, the luxury areas are seeing 10% annual increases,” she said. “There’s a strong cultural aspect to the city that people really enjoy too, and the city is very affordable compared to Vancouver and Toronto, but it offers as much as those two cities, and in some cases more.”

Montreal is known for its restaurant culture and nightlife, but there’s a different dimension to the city these days, having emerged relatively unscathed from decades of cessation threats, including two failed referendums initiated by sovereignists. Quebec’s political stability has suffused Montreal’s economy with confidence—although the unemployment rate rose as a consequence of the pandemic, it was as low as 6.4% in February 2018—and that’s reflected in the city’s real estate sales. Assaad’s team has completed nearly $171 million in transactions just in 2021 alone.

“We’ve sold over 30 luxury properties this year,” said Assaad. “One important aspect to living in Montreal is most places are no more than 10 km away from the downtown core. Westmount is less than a six-minute drive, the Golden Square Mile is less than two minutes away, but Outremont and Westmount, where most of the important luxury properties are located, are each just a stone’s throw away from downtown.”

Montreal real estate is a propitious investment for savvy international buyers who have realized that properties in the city are following the same trajectories as Vancouver and Toronto, but they’re still comparatively affordable.

“International buyers come from major cities worldwide that have already seen huge increases in pricing over the last year. If you’re a buyer from London or Paris or another major European city, you know that Montreal real estate is going to appreciate,” said Patrice Groleau, owner of McGill Real Estate and owner of Engel & Völkers’ rights to the Quebec market. Engel & Völkers recently reported that international buyers of luxury real estate have a preference for the French Canadian metropolis. Groleau added that one reason Montreal is attractive to them is, unlike Vancouver and Toronto, which respectively have 20% and 15% foreign buyer taxes, they actually settle in the city.

“The problem with Vancouver is that almost all foreign buyers there are taking money out of their countries and putting it in the city’s real estate, and in Toronto it’s about a 50:50 ratio,” said Groleau. “But in Montreal, people are moving here, and even if they enforce a foreign buyer tax in the city, that won’t solve anything because as soon as you have your residency you won’t have to pay the tax. You don’t see empty homes in Montreal, but when you go to Vancouver, you see no lights on in the towers at night because those units are just being used to protect money.”

2021-07-30 14:31:11

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Here’s what big city of multiple property owners look like

More than a tenth of homeowners in Vancouver, Toronto and Montreal own multiple properties, according to a Royal LePage survey of 1,500 Canadians.

Greater Vancouver Area

The third-largest metropolitan area in Canada has the largest share of multiple property owners, according to the survey, at 14%, of whom 27% don’t collect rental income, 51% rent the properties full-time, 13% use them both personally and as rental properties, and 7% currently have vacancies.

“Real estate is an integral part of retirement planning for many Vancouver homeowners,” said Caroline Baile, real estate broker with Royal LePage Sussex. “While some are using their secondary properties, possibly a cottage or a ski chalet, many of those with multiple homes are looking to build future equity as a means of sustaining a desired lifestyle down the road. Investment properties are not likely being used to subsidize monthly income, but are seen as a long-term investment.”

Fourteen percent of homeowners between the ages of 18 and 35 in the Greater Vancouver Area own multiple properties, while another 14% over 35 do as well. Baile says that in demonstrating such market savviness, younger homeowners clearly have an eye on their futures, but considering Vancouver real estate is Canada’s most expensive, it’s likely they have received parental help.

“Young people today put a lot of emphasis on work-life balance. They want their money to work for them, and they recognize that investing in real estate has the potential for great returns,” said Baile. “While so many young Canadians struggle to enter the real estate market, those fortunate enough to do so, whether on their own or with financial support from their parents, will reap the benefits in the future.”

Greater Toronto Area

In the GTA, 13% of survey respondents own more than one property, 27% of whom don’t collect rental income from their second properties. However, 49% own second properties for rental purposes, and 15% use their secondary properties themselves and for rental income purposes.

“Canadian homeowners believe in the value of real estate because they have seen their investments grow over time,” said Karen Millar, a sales representative with Royal LePage Signature Realty. “People feel confident investing in real estate because it is a physical entity that they can experience. Although the market may see peaks and valleys, homes have historically generated wealth in the long run.”

Eighteen percent of homeowners between the ages of 18 and 35 in the GTA own multiple properties, while 11% of homeowners over 35 do, indicating that young buyers are shrewd students of the market and want to capitalize on real estate appreciation, often looking outside Toronto in areas like Guelph and London, which have heavy student presences, where they can purchase for as little as $300,000, says Millar.

“Parents of students in Ontario’s university towns are also taking advantage of the local rental market, purchasing a property—oftentimes with multiple units—for their children to stay in while studying and also as a source of rental income from other students.”

Greater Montreal Area

Out of Canada’s three largest cities, Montreal area real estate is the cheapest and it’s allowed 12% of survey respondents to purchase more than one property. Of these multiple property homeowners, 37% don’t collect rental income from their second properties, while 25% use the properties specifically to collect rent. Nine percent reported a confluence of personal use and rental income, and 4% reported vacancies.

“Among secondary property owners in Montreal, the majority are using the properties for leisure, like recreational purposes, rather than as an investment,” said Roseline Guèvremont, a real estate broker with Royal LePage Tendance. “In Toronto and Vancouver, where prices have been soaring for several years, homeowners have been taking advantage of the significant equity in their primary residences in order to purchase a secondary property, and renting it out at least part of the time as an investment. In Montreal, although the real estate market has begun to catch up in recent years, prices remain considerably more affordable, so buyers can purchase without necessarily leveraging equity from a primary residence.”

Sixteen percent of homeowners 18-35 own more than one property, while only 11% over 35 do, suggesting that younger homeowners are already diligently planning for their futures by looking for other income streams and eventually capitalizing on their home equity.

Montreal has among North America’s highest number of students per capita and with post-secondary institutions opening their doors again this fall, landlords are hoping to make back the losses they incurred during the pandemic when students moved back in with their parents or returned to their home countries.

“With the return of in-person classes this fall and the opening of the border to U.S. visitors, demand is already being renewed in the rental market,” said Guèvremont. “Montreal’s real estate investors had a tough time generating profits from their units over the last year due to COVID-19.”

2021-07-30 14:38:33

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How do you tackle GTA’s rental crunch? Increase supply

It’s a great time to be young, as long as you don’t need a job or start a family or want to buy a house (or shake hands).

But buying a home is no easy task in the GTA.

In fact, a recent survey by Abacus Data stated that one-third of non-homeowners in Ontario have given up on ever owning property; another 26 per cent are pessimistic.

So, if millennials and Generation Zers can’t buy, they rent. Right?

However, vacancy rates are trending downward. The new condo market has had to fill in the gaps for thousands of Torontonians and GTAers over the years, leading to a hellish market for renters.

Housing market researchers Urbanation found that there have been 50,000 GTA condo leases over the past four quarters—if all of those downtown Torontonians headed for the hills during the COVID-19 pandemic, it looks like they’re on their way back.

Urbanation also reported that 1,242 new purpose-built rentals were completed and began occupancy during this year’s second quarter. The good news is that this is the second-highest quarterly total for new supply additions in more than 30 years.

However, rental demand is fierce (see above), and all of those new rentals are being built in high-rise-focused Toronto.

Meanwhile, Ben Myers of Bullpen Research & Consulting Inc. reported that “the gap between the average rent for a condo apartment in Toronto and the rest of the GTA steadily decreased during 2020.” But that was last year.

Expecting a large rise in activity this fall, Myers added that, “Bullpen is forecasting rent growth of 12 per cent to 14 per cent next year when the borders open, tourism ramps up, students return to campus, and many office towers are back to full capacity.”

Lower supply, higher prices—that’s the basic supply and demand principle that we all learned in high school economics.

I’m not the only industry observer beating the supply drum. Urbanation president Shaun Hildebrand told a Toronto Storeys reporter: “While new construction activity is also on the rise, the level of supply underway is expected to lag behind demand, creating conditions for rents to continue rising towards pre-COVID levels and beyond in the months to come.”

Let the bidding wars begin: They are no longer reserved for buyers—even renters have had to up the ante to get the home they want, especially in the 905 area.

A GTA real estate agent told that she commonly sees tenants offer more than the rental’s list price plus offer months of advance payments. She added that one rental homeowner recently rented out a house for $700 more per month than what the home was listed for.

One GTA renter told the media website she lost more than 12 bidding wars before finding a new home and paying six months of advance rent—despite having a strong credit rating and steady income.

There is clearly a huge need to build more rentals—more shelter, in general, as we’re seeing people drive their way to affordability, taking a highway north, west or east out of Toronto and the GTA to the next nearest community within commuting distance of the office and working remotely whenever possible when they decide they want to buy instead of rent.

Cue the brain drain: How are we going to keep our young bright minds in this province if they can’t afford to live in Ontario’s capital and surrounding region, the economic engine of the province and arguably the country? And how are we going to convince new talent from anywhere else that Ontario is the place to live, work and build a life?

We need to come up with incentives for builders to create a proper balance between new builds and purpose-built rentals, depending on the needs of each municipality.

The best solution to satisfy demand is to increase supply. With more supply, we’ll see rental prices flatten and, if not an end, a decrease in the number of bidding wars that continue to push up prices.

It’s time for Ontario and its municipalities to open up housing supply – streamline the approvals process, incentivize builders to build purpose-built rentals and create programs for density bonuses. More units, more housed Ontarians.

Richard Lyall, president of RESCON, has represented the building industry in Ontario since 1991. Contact him at [email protected]

2021-07-30 15:08:55

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Condo demand slated to explode

Canadian home sales have tapered off their Q1 peak but that doesn’t mean every segment of the market has softened.

“Home sales are unwinding from their stratospheric first-quarter levels,” said a report from TD economist Rishi Sondhi. “While we had anticipated a correction, it began a few months earlier than projected in our previous forecast in March. As the buying frenzy subsides, the more affordable condo segment is once again consuming an increasing share of the market.”

TD anticipated that condo sales would comprise the lion’s share of market activity since low-rise housing has reached astronomical price points. Any time the spread between low- and high-rise housing grows this wide, homebuyers flock to the latter for its relative affordability. Sondhi’s report says that condos will remain popular as the economy continues reopening and people begin spending more time in urban cores.

“A rising condo share will also be supported by ample available supply. Higher sales of these relatively inexpensive units should help restrain average home price growth. Note that this is the reverse of what happened earlier in the pandemic, when sales of relatively expensive detached units dominated, upwardly pressuring average home prices.”

In the second quarter of 2021, Greater Toronto Area condo sales reached 8,793 from 3,448 in Q2-2020, said the Toronto Regional Real Estate Board (TRREB), with the average price also increasing to $686,312 from $619,312. Although Q2-2020 was an aberration, the real estate board expects demand to become even more pronounced in 2022 for a couple of reasons: consumer polling conducted by Ipsos on TRREB’s behalf indicated that 40% of buyers this year will be first-timers, the majority of whom will need entry-point housing; the other reason is Canada will receive a record number of immigrants next year.

“The second quarter marked a turnaround for the condo market in terms of price growth. Whereas other market segments experienced a resurgence in price growth in the latter half of 2020, the condo market took longer to recover. Looking forward to 2022, condo demand could very well strengthen as immigration picks up and younger people, more impacted by COVID-19, look to purchase a home,” said Jason Mercer, TRREB’s chief market analyst.

Tom Storey, a real estate broker with Royal LePage Signature Realty in Toronto, added that incoming immigration will drive condo rental prices before spilling over into sales. Moreover, he says that while the price of condominiums is holding at the moment, another reason it’s due to surge is because the spread between detached homes and condos has never been this wide.

“What we saw from January through April was extreme price growth and on average three to five offers on condominiums. As we’ve headed into Q3, the prices are holding but they’ve stagnated for three months in a row,” he said. “However, something very interesting, from a value gap perspective, is in February of 2020 just before COVID, the gap between a 416 condo and detached property was about $700,000, and today the gap is $1 million—the largest gap there’s ever been. The last time there was a gap almost this large, condos went up about 20% in the next 12 months, so based on the price gap, it could be argued that condos are undervalued compared to other asset classes.”

2021-07-30 15:12:46

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Softer real estate activity won’t hurt the economy: CIBC

The Canadian economy isn’t as reliant on the real estate market as you might think.

So says a report from Royce Mendes, executive director and senior economist at CIBC Capital Markets, who reminded that residential real estate investment comprises construction and renovations in addition to “ownership transfer costs,” the latter of which still accounted for the bulk of economic activity. And while softening market activity will cause “this component of GDP to come back down to earth,” other sectors of the economy are awakening from their long pandemic-induced slumbers.

“The reopening that is underway also seems to be coinciding with a slowdown in other components of residential investment, such as construction. But, by that same token, companies not doing business in the housing market are also feeling more confident about making investments rather than stockpiling cash, given that vaccinations have reduced the likelihood of another round of harsh shutdowns,” said the report.

“If so, it would see the abnormal negative correlation between housing and business investment continue for a little while longer. But, keep in mind, that a fall in residential investment will not cause a rise in business investment, it’s still that other variable driving both: the pandemic.”

For its part, the Bank of Canada stated earlier this month that the country’s economy will grow at a slower-than-expected pace this year—it forecasts 6% growth, down from its previous estimate of 6.5%—and anticipates 4.6% growth in 2022, up from its initial projection of 3.7%.

The central bank added that with the easing, even rescission, of COVID-19-related health restrictions, consumer spending would increase. With travel prohibited, restaurants shut and major sporting events closed to spectators, Canadians’ non-essential outlays decreased during the pandemic, resulting in households saving an estimated $200 billion of cash, which is just waiting to be unleashed into the economy.

The Bank of Canada does not believe the end of federal aid programs will adversely impact consumer spending since more people will be returning to work with the end of the pandemic in sight.

“The reopening of the economy and the strong progress on vaccinations have given us reason to be more optimistic about the direction of the economy,” said Bank of Canada Governor Tiff Macklem during a July 14 press conference. “But we are not there yet, and we are mindful that the process is likely to be bumpy, and some scars will remain.”

2021-07-29 13:52:49

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