Toronto Income Property Newsletter:
February 2012
A few postings ago, I
wrote about being patient if you are looking to buy an investment property in
Central Toronto. I had no idea how true
this would be for the start of this New Year. Demand is still greatly outpacing
the current supply, and some of the recent sale prices have defied logic. Take a moment to check out the “Sold Income
Properties” on the Plex homepage to see how the market has been performing in
your neighbourhood. If you would like to
have more detailed sales info on a specific area of the city sent to you,
please send me an e-mail.
I’d like to wish all
of you a Happy Valentine’s Day and if you are an NFL fan, all the best for a
great Super Bowl party.
*
The income property
market in Toronto has indeed started off this year with a bang. From everything
that I have seen over the past three weeks, 2012 is looking a lot like last
year – high prices, multiple offers and a lot of overall action. There’s no
doubt in my mind that the market is still favouring sellers and it will take
longer for most buyers to find quality plexes that make fiscal sense. We do expect more inventory to come on-line
in the next few weeks, but the lack of suitable properties for January has been
very frustrating.
Interest rates continue
to be at all-time lows and it doesn’t seem like they are about to go up any
time soon. When you can lock in for four
years at less than 3%, that’s going to help affordability and fuel a strong
demand. I also still believe that if the
market cools down as many experts figure will happen, the prices that we have
seen over the past couple of years will still hold. I do not anticipat e
a reduction in the prices of plexes in prime locations.
One
in six Canadian homeowners and investors who responded to a recent study said
they planned on investing in property in the next two years. The study, commissioned by Re/Max, found that
single-home purchases were the most popular investment, followed by multi-unit
buildings, condominiums and townhouses. Of those who planned to invest in real
estate, close to 30 per cent already owned a home and 43 per cent were under
age 40. Michael Polzler, executive
vice-president of Re/Max Ontario – Atlantic Canada Inc., once said Canadians
are by nature conservative investors and like the predictable returns real
estate offers, even if they might be a better bang for their buck in equity
investments. “It has an allure,” Polzler said.
“You can write off your expenses and you know what you have.”
Carl
Gomez, an economist with Toronto-Dominion Bank, offers an opposite view. He
states there has been a “big rush to real estate” in recent years, thanks to
rising prices, low interest rates and poor returns in equity markets, but he is
not convinced that trend will hold indefinitely. “People go where the returns are,” he
said. “The tide might be turning.” If the tide does in fact start to turn, I’m
sure that we on the investment side of the Toronto
One factor that
continues to push sales of income properties is that we have a fantastic (read
low) vacancy rate. In my opinion, this is something that is not likely going to
change for some time. Some people think that
there are tons of empty apartments out there, thus making investment properties
an unsure bet. This is simply not the case – at least, not in the core of the
city. You may not get a crush of renters
in December or January, but once the snow clears, there are always renters out
there.
The vacancy rate in
the fall of 2010 was around 1.8%. The Toronto Shelter, Support and Housing
Administration published that 579,010 households in Toronto are rentals. I had
a client call me last month looking to rent a two bedroom and wanted to spend
around $1500 a month. I couldn’t find
anything on MLS or on www.viewit.ca so I called a few clients who I knew had
multi-unit buildings. No one had any
vacant units. When I show income
properties to clients we do see vacant suites.
In many cases though, the owner chooses not to rent it out, in case the
buyer would like that suite. It’s also awkward to tell a new tenant that the
building is for sale – it sometimes makes the renters feel nervous.
Some
analysts see downward pressure on rents should the market level off. “The volume of incentives has softened a bit
and landlords are pulling some of them off the table, such as free rent, free
parking, or renovations. This is good
news for real estate investors.” quotes a CMHC source.
Average
rents in Toronto held steady between 2010 and 2011 and are virtually unchanged
since the late 2000s, says a report by Clayton Research Associates Ltd. Aggressive recruiting of tenants helped fill vacant
units. Even better times may be ahead
for landlords, because of continuing strong immigration and a widening gap
between renting and owning. “Overall vacancy rates will decline over the medium
term,” the report concludes, “thereby allowing landlords to pass rent increases
through more easily in the future.”
Interestingly enough, rental rates haven’t gone up that much. A 2-bedroom apartment rents at an average of
1395.00 per month and this number has by and large been the same for a few
years now.
Take
a look at the following vacancy rates in this chart provided by CHMC.
|
Private Apartment Vacancy
Rates (%)
|
||||
|
2007
|
2008
|
2009
|
2010
|
|
|
Barrie
|
3.2%
|
3.5%
|
3.8%
|
3.4%
|
|
Brantford
|
2.9
|
2.4
|
3.3
|
3.7
|
|
Guelph
|
1.9
|
2.3
|
4.1
|
3.4
|
|
Hamilton
|
3.5
|
3.2
|
4.0
|
3.7
|
|
Kingston
|
3.2
|
1.3
|
1.3
|
1.0
|
|
Kitchener
|
2.7
|
1.8
|
3.3
|
2.6
|
|
London
|
3.6
|
3.9
|
5.0
|
5.0
|
|
Niagara Region
|
4.0
|
4.3
|
4.4
|
4.4
|
|
Oshawa
|
3.7
|
4.2
|
4.2
|
3.0
|
|
Ottawa
|
2.3
|
1.4
|
1.5
|
1.6
|
|
Peterborough
|
2.8
|
2.4
|
6.0
|
4.1
|
|
Sudbury
|
0.6
|
0.7
|
2.9
|
3.0
|
|
Thunder Bay
|
3.8
|
2.2
|
2.3
|
2.2
|
|
Toronto
|
3.2
|
2.0
|
3.1
|
2.1
|
|
Windsor
|
12.8
|
14.6
|
13.0
|
10.9
|
