Key data for condo investors

Investing in pre-construction condominiums in the Greater Toronto Area has proven to be a tremendous investment over the last 20 years, but prices have risen very quickly over the past three years and now require a much higher upfront investment. If you’re on the fence about shelling out that much cash, take a look at some of the recent data and findings to help you finalize your decision.

One of the major drivers of real estate is the net change in population and immigration levels. The Toronto metro area grew by 125,000 people in 2018, according to estimates from Statistics Canada, over 30,000 more than in 2018 and almost 80,000 more than 2015!

The population spike has contributed to an increase in the labour force. There are now 350,000 more people working in the Toronto CMA in June of 2019 than there were at the start of 2015. Job growth and changes in housing sales are highly correlated. If you have stable employment, you’re much more likely to buy a home (or at least rent one on your own).

In 2014, the percentage of adults in the workforce that were unemployed reached 8.5 per cent, but that rate plummeted to a low of 5.8 per cent in 2018. StatsCan reported that the rate was 5.9 per cent in June 2019.

Not surprisingly, the Toronto CMA leads the country in new condo apartment price growth. According to new data from Statistics Canada, Toronto CMA prices have increased by 13 per cent since 2017, outpacing Vancouver’s 11 per cent. Both Montreal and Calgary prices have declined on average during that time.

Statistics Canada recently published other noteworthy data on condo investors. They track the share of housing units “not occupied by the owner” of the unit, and the percentage of units that are owned by a non-resident of Canada. Approximately 37 per cent of condominiums apartments in the Toronto CMA are not occupied by the owners of those suites, compared to 15 per cent for townhouses. It is also estimated that non-residents of Canada own 6.4 per cent of condo apartments in the CMA, compared to 2.3 per cent of townhouses. There are lots of investors, but most of them are local. Investors have provided most of the new rental supply in Toronto over the last 15 years.

According to survey findings from CMHC, there were about 225,000 completed condo apartments in the Toronto CMA a decade ago, of which 19 per cent were leased out by private landlords. Fast forward to 2018, there were 390,000 built condominiums, of which 130,000 are leased or 33 per cent of the total.

Since 2008, the Toronto Metro area has added 16,400 net new condominiums per year, with over 8,500 being rented out. Therefore, over half of new condo buyers are hold-and-rent investors.

There were only 5,700 net new leased condos in the Toronto CMA last year, the lowest level of absolute growth since 2012. This lower level of investors is likely a result of expanded rent control and higher interest rates, which are major deterrents for investors. But, the sharp rise in values may have led some investors to cash-out early to buy more pre-construction suites. Keep in mind that there is no rent control on units completed after November 2018.

If we estimated the share of investors in the 60 per cent range moving forward, and that new condo completions hit 20,000 to 25,000 per year, the Toronto CMA could add between 11,000 and 16,000 new leased condos to the investor rental stock annually (assuming assignment activity remains low). This should keep rent growth from rising as quickly as it has over the last 18 months, which is a major consideration for condo investors.

Recent monthly listing data from Rentals.ca shows that rent per-square-foot in the GTA for condo apartments was $3.10 psf in June 2019, up from $3.01 at the end of 2018. The average condo unit was offered for nearly $2,400 per month, and is really testing affordability.

There was a lot of data and findings above, and a lot of food for thought. I will always recommend that you hire an experienced team, do your own research, and only buy what you can afford. Good luck.

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