A report from Bloomberg on Canada. “Toronto’s condo market showed more signs of cooling in October. ‘Tight downtown condo markets that previously commanded expensive rents are now thick with supply,’ Robert Hogue, an economist with Royal Bank of Canada, wrote. ‘And the flow of immigrants that typically fuel demand for housing of all types has slowed to a trickle. In just months, the landscape of Canadian real estate has been shaken to its core.’”
From Blog TO. “With rents at record lows and supply only growing, it’s never been a better time to rent a condo in Toronto — but buying one, on the other hand, may not be the best investment for the exact same reasons. With thousands of former Airbnbs flooding the long-term rental market due to the health crisis paired with new, tighter restrictions on vacation rentals in the city, it’s not only rents for condominium units that have been dropping, but sale prices, too.”
“It seems that now, investors are scrambling to sell off the buyer’s rights to their condos before the deals close via what are called assignment sales, which are not a common practice in the industry and can either be a sign of a market that is so hot that you can actually make money on such a quick turnaround — or of the opposite: a complete lack of confidence in a precarious market.”
“Negative cash flow disaster for the investor who bought this condo for $922K in 2019 to only be able to rent for $2300. This Toronto condo investment would likely be > $2000/month in neg cash flow (assume 20% down & 1.89% rate). ‘I mean really what’s the point’…#cdnecon pic.twitter.com/J7vg4OFXf8.”
From Global News. “Jaimie Walker figured she couldn’t go wrong owning a condominium in the historic St. Lawrence Market district in downtown Toronto. Then the pandemic hit. ‘It sat there for three months and three people came in, which was shocking,’ she told Global News, referring to the low level of interest when she attempted to lease it.”
“Walker first rented the apartment from its previous owner, then bought it and planned, in turn, to rent it to someone else as a way to earn income. Under ordinary circumstances, the investment plan seemed sound. But now, with nearby office towers nearly empty — downtown workers had fled to suburbs, some moving in with their parents — suddenly rentals were available everywhere.”
“Almost overnight, owning a downtown Toronto condo as an investment plan no longer seemed viable. Neither did the idea of selling the unit, as a flood of other condo investors in a similar situation had tried. ‘It was getting to the point where I’m not going to get what it’s worth pre-COVID,’ Walker said.”
“In no time, a seller’s market for condos had shifted dramatically. ‘It’s totally a buyer’s market,’ said Ari Armani, a real estate broker with Royal Lepage Signature Realty. ‘COVID-19 had a huge effect on downtown Toronto’s prices.’”
“With fewer people needing to work downtown, reduced numbers of foreign students needing accommodation, and almost no new immigration or foreign tourism to fuel short-term rentals, a housing glut had appeared in an area of Toronto with historically high demand.”
“‘All of these factors make the downtown market a vulnerable one,’ said Janet Yao, who owns a Toronto condo apartment as an investment, as do her parents. Both units are up for sale. ‘It’s challenging,’ Yao told Global News, explaining that there is almost no buyer interest in the properties at the moment.”
“So what does this mean for investors who bought condominium apartments thinking they were a safe bet? In the near term, Tom Storey, a sales representative with Royal LePage Signature Realty, cautions investors not to expect the returns they had counted on. ‘I think expectations have to change,’ Storey said, adding that for investors trying to fill their condo apartments, units are still leasing but owners have to adjust their price demands.”
“Jaimie Walker, the woman who initially ran into problems finding a tenant, and then saw the sales market collapse, got lucky. Her boyfriend, a real estate agent, located a buyer for her unit and didn’t even list it on the market. The deal was signed in August and closed in October. Afterward, she saw more desirable units in her building on the market for $100,000 less than the price she accepted. Others, needing to sell, aren’t so fortunate. ‘I do feel for anyone who bought with the intention of it being an investment property,’ she said.”
The Globe and Mail. “Sarah Laird knows some sellers are unloading their condo units in Toronto’s uncertain market, but the owner of a unit on the city’s waterfront doesn’t intend to get sucked into the panic. Still, Ms. Laird is clear-eyed about the challenges the condo segment is facing right now: Like many owners, she is trying to figure out the best strategy for selling in a market with surging inventory and hesitant buyers.”
“Ms. Laird has twice reduced the asking price on her one-plus-one-bedroom unit at Pier 27 since listing the unit on Sept. 30. Her current asking price is $699,000, after starting at $788,800, then reducing to $749,800 two weeks later. In August, two comparable units in the building at 39 Queen’s Quay E., sold for $810,000 and $820,000 respectively. ‘Six weeks and the market changed drastically,’ she says.”
“Ms. Laird and her partner work in the technology sector in the city’s core. The couple had planned to look for a house together in the spring – then the coronavirus pandemic brought the real estate market to a standstill and they put their plans to purchase on hold. When the market picked up again, they listed her partner’s condo at King and Church streets in July. His unit lacked parking and outdoor space, but within two weeks it had sold. ‘That gave us a bit of false confidence,’ Ms. Laird says.”
“When it came time to sell, she had the unit staged and polished, and hung artwork by a local artist. Despite the effort, the unit had about six showings in a month, she says. Real estate agent Manu Singh says his feed is laden with suspensions, terminations and price reductions. ‘I’m just seeing a ton,’ says the agent with Right at Home Realty Inc., in Toronto.”
“In the past two months, Mr. Singh says, the market has been changing weekly as many investors decide to sell. He has been aggressively shifting strategies to keep up. At 650 Queen’s Quay W., he listed Penthouse 18 for sale in September with an asking price of $599,000. He used the common tactic of drawing attention with a low asking price, then holding off offers for seven days. At 39 Sherbourne St., he tried a similar marketing plan for unit 702, with an asking price of $499,000.”
“In both cases, bids landed on offer night, but they were lowballs that the sellers did not accept. ‘We saw the market shifting beneath our feet,’ he says. ‘My investors were caught.’”
“Mr. Singh relisted the Queen’s Quay penthouse for $649,000 and sold it for $625,000 after 25 days on market. The Sherbourne Street unit was relisted for $528,000 and sold for $515,000 after 32 days. Mr. Singh is watching to see if condo listings in downtown Toronto continue to rise at a time of year when they would typically begin to decrease. ‘That would signal to me that investors are starting to freak out.’”
“He expects year-over-year price growth – which was still at a healthy 7.7 per cent for condos in the 416 area code in September – to decrease and possibly flatten. If supply remains high and demand weak, prices will likely fall, he says. ‘This is the calm before the storm,’ he says. ‘It’s a lagging indicator. It takes a few months for prices to adjust.’”
“As for Ms. Laird, she says most of the people who have viewed her waterfront condo appear to be investors looking to take advantage of desperate sellers, but she doesn’t feel that pressure. The couple has not yet purchased a house and they will take the unit off the market rather than cave to lowball bids, she says. She notes the unit is already priced well below what similar units traded for in August.”
“She figures the flight to the suburbs is temporary and that many people – especially young professionals – will still want to live close to downtown. She and her partner would too if they weren’t planning to start a family. ‘The plan right now is not to take any sort of predatory offer that would just be taking advantage,’ Ms. Laird says. ‘We kind of do believe that things will start to return.’”