Toronto gaining attention for Hong Kong buyers; A primer on where to go

In recent years, Canadian real estate sales have met good responses in Hong Kong, and while Vancouver appears to be the hot spot, Toronto is also gradually gaining attention. Most projects involve pre-sales of high rise condominium units, some of which are located in desirable neighborhoods.

With the Canadian dollar at recent lows (less than HK$6 to one Canadian dollar), a brand new 500 square foot or so studio condo unit in a competitive metro location can be acquired for a bit more than C$250,000, or around HK$1.5 million, which is barely enough for the required down-payment for an ‘extremely modest’ first-time-buyer Hong Kong property. No wonder many in Hong Kong deem the Toronto real estate a steal.

Now, to those not quite familiar with metro Toronto, a lingering question could be “where to invest?” and here are some clues:

- The Toronto real estate market has been steadily rising for some time. Since 1996 when it started to recover from the downturn during the late 1980s and early 1990s, there was not even much of a dent during the Financial Tsunami and Recession in 2008-2009.

With the global implementation of Quantitative Easing (QE) in recent times, prices have been shooting up further. Like other places with rising house prices, many young people and families are finding it hard to save enough down-payment for a home. Certainly the house price to income ratio has also been marching up. Risks? Technically yes, there are some but your humble author does not expect Toronto to suffer the worst downfall in Canada if something does happen.

- Toronto has a nine million people economy. The metro has three million people in it and if one extends beyond the metro boundary to include the surrounding suburbs and towns, add another three million. And if one further expands beyond the ‘green belt’ to include the many countryside communities and farms, add a further two million to three million. That is to say, Toronto economically involves directly and indirectly close to nine million people.

- Stick to the metro portion (especially if you intend to invest and then rent out the property). There could be some bias on the part of your author as his Toronto investment portfolio is metro-centric.

But there are reasons: 1) the younger generation, many of whom are potential tenants, tends to favour metro life than suburban living, and some do not even own a car; 2) the metro, under the broad “Golden Horseshoe” plan and metro intensification programme, has been reviving many urban districts and increasing the density in and around the major arteries, thus enhancing the metro appeal to many residents and drawing them back; 3) Metro neighbourhoods offer convenience, nightlife, and a level of sophistication not always found in the suburbs, and using a Hong Kong analogy, the metro is like Hong Kong Island + Kowloon, and the suburbs are in the New Territories and beyond; 4) sizable developable sites, especially those of detached houses, are getting fewer day by day in the metro, almost to the point of being non-existent.

That is, supply is not limitless. Net rental yields before tax vary from district to district, yet broadly hovers around 4 per cent + or – 1 per cent.

- Which neighbourhoods? Assuming one has a very generous housing budget, then 1) Bridle Path offers some of the priciest estate lots available , its neighbourhood quality similar to the Peak; 2) Forest Hill and Rosedale, their Repulse Bay [without a beach though]; 3) Kingsway and Yorkmills, similar to the pricey mid-levels. In the long term, detached properties in these neighborhoods are like real Van Gogh or Picasso

paintings i.e. their quantities are fixed.

For the condo buyers, pricier units can be found in parts of the lakeshore locations and Yorkville – a trendy upscale downtown neighbourhood. For ease of renting out, buy condos which are right at or very close to the subway stations, especially those along the major intersections of the north-south major artery Yonge Street (think Nathan Road in Kowloon, or Fifth Avenue in New York City) e.g. Yonge x Bloor, Yonge x St Clair, Yonge x Eglington, Yonge x Sheppard etc. Better stick to 1 to 2 bedroom units too.

- A typical Hong Kong middle class property can buy 4 to 5 Toronto counterpart and comparable properties today = say an 800 square ft or so unit at Tai Koo Shing. Using a modest HK$15K per square ft saleable unit price, this HK unit would be worth around HK$12 million which translates to a bit more than C$2 million.

A comparable unit in Toronto would need around C$400,000 to C$500,000 each, thus C$2million can buy 4 to 5 units. The last time Hong Kong properties can trade for several Toronto units was in 1997, ominous?

There have been talks of restricting overseas buyers in Canada and the current Prime Minister says they might emulate Australia. Casual checks with professionals there suggest nothing solid has been formulated yet. Nonetheless, even if so, that would mean foreigners could not trade in the larger second-hand / secondary market. As for first-hand sales by developers, it would still be “be my guest!”

Stephen Chung is managing director of research firm, Zeppelin Real Estate Analysis and is an honorary adjunct professor of the University of Hong Kong