The Ongoing Value of Toronto’s Condo Market

Does Toronto’s condominium market still offer investment value, despite some speculation that last year’s strong run in appreciation values may point to a “pricing bubble set to burst”?

I personally believe that the idea of a bubble is unfounded, particularly in relation to the mid- to upper-condo segments.

One issue which has spurred uncertainty regarding future investment appreciation within the condo market has been the furor generated in the media about how foreign investors are pushing purchase values beyond the means of domestic buyers and investors. In August of last year, the B.C. government introduced a special 15 percent tax on residential purchases by foreigners – supposedly based on the premise that these investors had created an “artificial surge” in prices.

The question has been asked, is Toronto next?

But, like any ‘witch hunt”, perception seldom matches the real facts. A recent report  suggests that foreign investor influence on pricing within the condo market is negligible. According to the Urbanation data, foreign investors only accounted for 5 percent of the sales of new condo units in Toronto last year. Similarly, a report issued by the Canada Mortgage and Housing Corp. (CMHC) estimates that only 3.3 percent of condos in Toronto are owned by foreign investors, while the number in Vancouver is about 3.5 percent.

I would like to point out that the same Urbanation report indicates domestic condo investors (those not planning to live in the unit acquired) accounted for 52 percent of new sales last year. Urbanation VP Shaun Hildebrand notes in an article last year, “I don’t think that in either case [domestic or foreign investors] we are seeing speculative activity…” So, like any sizable investment, the data supports the fact that many condo investors are most likely in the market for the long-term.

Stepping away from the topic of foreign buyers, let’s look at other fundamental drivers that are likely to maintain investment growth in the Toronto condo market.

Firstly, both Urbanation and the Toronto Real Estate Board (TREB) concur that market statistics continue to show greater condo buyer demand than the development of new inventory.

TREB notes: “Gone are the days when we were concerned about a potential glut in inventory in the condominium apartment market…First-time buyers represent an important component of home ownership demand. Many households looking to purchase their first home will consider a condominium apartment.”

I believe this trend – particularly in the luxury end segment – will continue well through this year into 2018.

A second significant factor motivating demand in the luxury segment is a rapidly changing demographic of condo buyers.  Canada’s aging population is seeing more and more owners of high-end single-detached homes looking to sell as their family commitments decline. In turn, they are looking for downtown convenience without compromising the luxury of their lifestyles. I am confident that the mid to upper-end condo market segments will continue to attract buyer demand and present long-term investment value.