CONDO MARKET REPORT
February sales on the Toronto Real Estate Board were up by 5.7% over February of last year – a slower increase than any month in almost a year. Is this a sign of a slowdown in buyers? No. The problem is a continued lack of listings to buy. At January month end, we had 5,000 ‘active listings’ and by month end for February we were at 5,400. When you factor out those listings that will never sell and you look at 12,000 buyers per month for the spring market, you see a problem. Continued price increases that show no signs of easing.
In the downtown condo market, sales were up by 12.8% in February and in Humber Bay, sales were up by 35% over the same month last year. But more concerning is the drop in ‘active listings’ in these two markets – down 64% and 70% from the same time last year! This is more than the overall Board decline.
So why is listing inventory so low? People don’t want to and don’t need to sell. Would you sell and move in Toronto when you are facing a $30,000 Land Transfer Tax bill for the privilege? No, you would stay put and renovate! And the City of Toronto just increased its take this year from the LTT! The second reason is that people in over-taxed countries tend to focus their wealth on their primary residence which is the only tax-free vehicle available to Canadians! We speculated last year that the 15% non-resident tax on purchases was a real possibility because the introduction would not upset potential voters. Our guess is that non-residents make up about 10% of buyers. When you have 20,000 active listings, this is not a problem, but when you have only 5,000 listings, their impact is magnified 4 times, because they have the money and they are buying, regardless of the price! So why hasn’t the Provincial Government acted? A fear of lost tax revenues is the answer. Just look at the B.C. Government. They are already modifying their tax. Sales have slowed (B.C. has a bigger non-resident component) but prices are already moving higher again!
Toronto MLS Sales Monthly with Three Previous Years for Comparison
HUMBER BAY SHORES: 80 Marine Parade Drive
Getting back to the real world, we looked at 80 Marine Parade Drive in Humber Bay Shores. This building, by Monarch, was registered in 2014. It is on the lake with many units and has great city and lake views. The building consists of a four-floor podium and a tower rising 26 storeys. The first unit we tracked was a one bedroom with balcony, locker, and parking on a high floor with good views. It first sold in late 2014 for $370,000 and eighteen months later for $378,000. That price is $610 psf. The second unit we looked at was a two bedroom plus den, with three baths, parking, locker, and a 245 sf balcony. It also is on a high floor with great views. It sold in late 2014 with a one year closing date (you would pay a premium for that) for $1,150,000. It then sold a year later – at the end of 2016 for only $1,060,000. That translates into a price of $660 psf. For a number of years, prices in this market were flat. But the hot downtown condo market and the lack of condo listings anywhere has sparked a sudden increase in this market as well. There are 334 units in this building with five currently for sale. There are three priced at over one million dollars and none of them are over 1200 sf, which suggests that prices are now ranging from $700 to $800 psf – an increase of $100 psf in just the last six months.
Now our Provincial Government has announced it would look at rent controls as tenants are complaining that rents are rising too quickly. The problem again is a shortage of units because it has been uneconomic to build apartment buildings for over 25 years and it has only been in the last couple of years that developers have cautiously re-entered this market. Without the condo market, there would have been no new rentals downtown. Our guess is that any attempt to mandate rents will make the situation worse and we will be back to the days of ‘key money’. Then again for Governments, it is not about solving the problem but appealing to voters and there are more tenants than landlords, so one can guess where this might end up.
Last year in our March/April Report we recorded 900 rentals. This year the number has dropped to 800! A major reason is that tenants are not moving as frequently. Tenant stays are averaging two to three years as opposed to the normal one year period. Part of the reason is that tenants do not want to give notice, compete in multiple offer scenarios for a new place, and risk being without a place to live.
Studio or bachelor units are renting at $1500 per month (last year it was $1400). The entry point for a one bedroom without parking is $1800 versus $1650 a year ago; the two-bedroom market has an entry point of $2350 versus $2250 a year ago. Yes, rents are 7-10% higher than a year ago, but this money is not all going to landlords. Taxes are higher and so are condo fees, driven by utility increases which average over 5% and legislated reserve funds which are climbing too.