Canada's Condominium Magazine

Many domestic investors, few foreign buyers in Toronto condo market

We are learning more about how many foreign buyers and domestic investors are active in the Toronto condominium market. Condo research firm Urbanation, which conducted a survey of developers and brokers to gather the data, says the role of foreign buyers is “rather limited,” accounting for just 5 per cent of all sales within projects currently in development in the GTA. The share of units sold to foreign buyers ranged from 1 per cent to 25 per cent, depending on the project. Domestic investors play a much more significant role, however, accounting for more than half (52 per cent) of all sales. Sales to domestic investors ranged from 5 per cent all the way up to 90 per cent. For both foreign buyers and domestic investors, the highest shares of units sold were in centrally located downtown projects, according to Urbanation.

During the period of the survey, the third quarter of 2016, 6,677 new condominiums were sold in the GTA, 74 per cent more than in the same period a year ago and the highest third-quarter level ever. We now know that more of these buyers were domestic investors than people buying the units to live in. We also know that a “significant share” of these investors are recent immigrants who are bringing money into the country from overseas. Despite the seemingly high number of investors, Shaun Hildebrand of Urbanation noted that the ratio of investors to end users is not “abnormally high” for recent years. It would have been similar as far back as 2007-2008, he said. Just 43 per cent of new condos sold in the Toronto area were bought by people who intend to live in them.

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Domestic investors accounted for 52 per cent of condo sales in the third quarter of 2016 in the GTA.

What is different today is that the investors are not speculators, because prices are not growing fast enough. The average third-quarter sale price of new condos was 2 per cent higher than last year, though in the City of Toronto it was 5 per cent higher. Asking prices for unsold units increased by 12 per cent, however, putting price trends for new condos on par with the resale market. The average price for resale condos jumped 12 per cent from last year within the City of Toronto. Most of the units bought by investors go into the rental market, said Hildebrand, and are held for the longer term.

Toronto-area buyers’ appetite for condominiums is greater than ever. In a separate statement about condo sales, Urbanation says that the gap between the number of new sales and the amount of new supply set a record: 19,917 condos were sold as of September, while only 12,189 new units came on stream for pre-sale. Of the 111,207 units in development in the third quarter, 90 per cent were pre-sold. Of the new units that opened for pre-sale in the third quarter, 63 per cent were sold by the end of September. This was one of the highest quarterly absorption rates on record. The absorption rate of remaining supply in existing projects was also at a record high 29 per cent, double the ten-year average.

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Sales of high-end condos, over $600,000 are rising quickly, according to Urbanation. Shown is a suite (rendering) at Tridel’s Scala condominiums.

Sales at the higher end of the condo resale market are also growing quickly. Year-to-date sales of units priced above $600,000 were up 62 per cent over last year.

Meanwhile, unsold inventory “plunged” by 33 per cent compared to a year ago, to 11,485, Urbanation says. This represents a record low 5.2 months of supply.

The lower inventory of available condo units is putting upward pressure on the condo rental market. In its survey of third-quarter rentals, Urbanation found that the number of rentals had fallen 9 per cent compared to a year ago. This was because of a 13 per cent drop in the number of listings, and a 30 per cent drop in the number of new units registered in new projects. There were just 930 units listed for rent at the end of the quarter, a five-year low.

As a result, it has become more difficult for renters to find condos for rent: the average condo rented in just twelve days, and twice as many units rented for above asking price as did so one year ago. Rent growth shot up 10 per cent in the City of Toronto in the third quarter, the average monthly rent reaching $2,044. It was the first time rents were above $2,000.

The vacancy rate in post-2005 purpose-built rental apartments was 0.6 per cent. There are currently twenty-five buildings, containing 5,678 units, under construction.

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