Housing booms in Canada
Global housing markets 'limped into the new year', with Canada remaining a notable outperformer, according to a Scotiabank Group report on global real estate trends.
Canada and France led 10 developed economies in the third quarter of last year, with respective growth of 4.8 and 4.4 per cent, followed by Switzerland with 3.3 per cent. The other economies - Sweden, Japan, Australia, Britain, the United States, Spain, and Ireland - contracted by 2 to 15 per cent.
Compared with most other markets that are 'mired in negative territory', Canada seems to be bucking this trend. But despite the country's strong fundamentals, 'activity here too shows some signs of cooling', the report says.
It is, however, not an overstatement to call Toronto an 'outperformer'. Greater Toronto Realtors? reported the second-best year on record in terms of the number of sales last year, up 4 per cent from 2010.
'Low borrowing costs kept buyers confident in their ability to comfortably cover their mortgage payments along with other major housing costs,' says Richard Silver, president of the Toronto Real Estate Board (TREB).
'If buyers had not been constrained by a shortage of listings over the past 12 months, we would have been flirting with a new sales record in the Greater Toronto area.'
Jason Mercer, senior manager of market analysis at TREB, says: 'Months of inventory remained below the pre-recession norm in 2011. Very tight market conditions meant substantial competition between buyers and strong upward pressure on selling prices.'
And, with prices rising against the tide, talk of a bubble emerged. The Economist magazine adds fuel to the debate by including Canada among nine countries where housing prices were overvalued by 25 per cent or more. Along with France, Australia and Belgium, Canada was named as among the four countries where prices were in line with those in the US 'at the peak of its bubble'.
To be sure, Toronto's condominium boom did not help. Dubbed last year as the 'city of mass construction', Toronto had 132 high-rise buildings under construction in September, far exceeding Mexico City and New York at 88 and 86 respectively, according to research published by www.canadianrealestatemagazine .ca. Chicago was fourth with 17.
Despite the growing housing supply, investors in Toronto's housing market have been having a hard time keeping up with rental demand, according to Shaun Hildebrand, senior market analyst at the Canada Mortgage and Housing Corporation (CMHC).
'All eyes are on the [Toronto] condo market,' he told the audience at the CMHC's 2012 Housing Outlook conference in November. Hildebrand said rental demand would remain strong due to the current economic uncertainties and people's inability to afford buying their own homes.
There's also a demographic shift in play. 'We're also witnessing a trend among empty-nesters [or] retirees from the boomer generation choosing condo ownership as a means of downsizing,' Hildebrand said.
Indeed, CMHC expects rental demand this year to be the strongest in several years.
Ross McCredie, president and CEO of Sotheby's International Realty Canada, sees a similar demand at the top end of the price scale. A shortage of 'upper tier' properties sparked a bidding war, he says.
McCredie considers about 40 per cent of properties in downtown Toronto to be in the upper tier category, which he defines as 'high-class, well-built [properties in] triple A locations'. The benchmark price point for such properties used to be 'north of C$1,000 [HK$7,770] per square foot', but it's now more than C$1,800 per square foot, according to McCredie. 'And it's not just foreign buyers - local buyers are now accepting that price too,' he says. That's simply because there are more rich people these days, according to McCredie. They want to park their wealth in 'triple A assets' and Canada is seen as 'a great haven to store their money'.
Demand that pushes prices up against the global tide is 'a bit alarming', McCredie concedes. However, there are 'a lot of reasons' to believe that investors will still do well on a long-term basis - a minimum of five years or longer.
Foreign buyers comprise nearly 50 per cent of Sotheby's International Realty's high-end transactions (exceeding C$3 million) in Toronto and Vancouver, according to McCredie.
'They are investors in Canadian real estate and have business interests here, and are buying more,' McCredie says. 'Many are now buying homes for their children and investment properties as part of their succession planning.
'Overall demand from foreign buyers looks incredibly strong currently and we see nothing that is going to change that in 2012 or 2013.'
Developments that the firm expects will appeal to foreign buyers include 277 Davenport Road, Toronto, a boutique property of 10 luxury contemporary condominium units designed by Hariri Pontarini.
It is located in The Annex, one of the premier neighbourhoods in Toronto, with the best private schools and parks nearby, and the high-end shopping and cultural neighbourhood of Yorkville just five minutes away by car.
Sotheby's International Realty Canada is also the sole broker for Jade Waterfront Condos, a project in Toronto's Lakeshore Boulevard West/Marine Parade Drive. The 38-storey, ultra-stylish waterfront tower boasts amenities such as a fitness centre, yoga studio, potting studio, and theatre room, and even a virtual golf facility and pet grooming room.