You now need to earn at least $100,000 to snag a condo in the GTA. In July 2016, the average price of a GTA condo was $406,865 and, according to Urbanation, you needed to earn $64,000 to afford it back then. This past July, the price of a GTA condo soared to $584,019.
Now that the stakes are higher, is it still wise to invest in 2019? Here, Toronto realtors Ralph Fox from Fox Marin Associates and Jamie Sarner break down what you need to know before taking the plunge.
Photo: James Bombales
Condos are still the last affordable option
Because of the affordability crunch, the condo segment of the Toronto housing market has continuously outperformed the low-rise segment. According to TREB’s Market Watch from July 2019, the average price of a detached home in Toronto tumbled 9.1 percent compared to this time last year. Condos, on the other hand, have risen 7.7 percent in just one year.
This has been the trend ever since the mortgage stress test was introduced in January 2018 to ensure homebuyers could keep up with their mortgage payments if interest rates were to rise. Under the tougher lending rules, homebuyers putting down more than 20 percent are required to qualify for their mortgage at either the Bank of Canada’s benchmark rate (5.19 percent, at the time of writing) or two percentage points higher than their contract rate — whichever is greater. If you’re putting down less than 20 percent, you still have to qualify at the Bank of Canada’s benchmark rate or the rate offered by your lender (without adding the extra two percent) — again, whichever is higher.
How did this impact the condo segment? Many buyers that could have qualified for a single-family home prior to the stress test were forced to set their sights on the more affordable option. “The last round [of stress tests] reduced affordability by 18 percent,” says Fox.
“Pretty soon it’ll be very difficult for the average person to even be able to afford to buy a condo,” says Fox. “They’ll become renters, like in most major cities around the world where 80 percent rent and 20 percent own.”
Photo: James Bombales
Will prices continue to soar?
There is speculation that Toronto condo prices might hit a ceiling soon.
Despite this, you can’t ignore the basic principles of supply and demand. “We have a very limited amount of buildable land and what’s left is very expensive.” says Fox. “The cost of land is only going up, the cost to build is going up, and demand is continuing to rise just based on immigration.” Toronto’s population is projected to rise from 2.93 million in 2017 to 3.91 million in 2041, at an increase of 33.5 per cent. “I think the only mistake you can make is selling Toronto real estate. Because in five to 10 years it will invariably be more expensive,” says Fox.
“There are people out there that think the market is going to turn and they don’t want to regret making a purchase that they think they can get cheaper later on,” says Sarner. “But you have a lot of people who have the other regret — they wish they didn’t think that way and bought five years ago.” Ultimately, your budget is the true decider. “It comes with being responsible. If you find something you like, you can purchase it at a price that makes sense for you, then that is the time to transact, in my opinion.”
Consider your lifestyle
There is no one-size-fits-all investment that will provide the same ROI to everyone. “You should always be thinking about the same thing — it depends,” says Sarner. “As an investor, you can be an end user or someone who’s going to rent it out. Sometimes the return can be on quality of life and enjoyment of the unit. It doesn’t all have to be financial.” Sure, buying a condo in an up-and-coming GTA suburb may offer a better financial investment, but if you’d be miserable living outside of the city core, it may not be worth it.
“For any buyer, they always have to weigh the pros and cons of an investment versus lifestyle,” echoes Fox. “And sometimes one will take precedence over the other, but they definitely coincide when you’re making that decision.”
Photo: James Bombales
Think location, location, location
When it comes to getting the best bang for your buck, should you invest in a neighbourhood that’s already booming or look for a unit in a gentrifying neighbourhood? “It depends on your life circumstances, your age, your demographic, where you work,” says Fox. “If you’re young, especially with pre-construction, it makes sense to buy in a gentrifying neighborhood because you’re buying something that won’t be built for three or four years. You might not be living in your most ideal circumstances, but you know that over time, the area is going to improve and you can stand to really benefit.”
Whether you’re renting the unit or living in it, access to transit should be top of mind. “Being near transit will become more and more important as you invest in condominiums because of the traffic, the cost of parking, the cost of the gas, the cost of cars,” says Sarner.
Photo: James Bombales
Research the developer
Nothing will make your investment go south faster than a development with a bad reputation.
According to condo analytics firm Urbanation, 4,202 units were cancelled in 2018 (or 12 buildings across nine developments). This set a staggering new record, considering that in 2017, the height was 1,678 units cancelled. “With all the cancellations in the news about pre-construction projects, you really want to make sure that if you’re putting your money down and investing in a project, it’s with one of the best developments in the city,” says Fox.
On top of that, you want to have confidence that the developer is going to deliver on what they promise. “The challenge is that you’re buying something that hasn’t been built, so you don’t always get what you think you’re getting,” says Fox. “That’s why it’s very important to be diligent in researching the developer and their past track record.”
One of the major advantages to buying pre-construction is that you don’t have to have to give the full downpayment at the time of purchase. Often, the payments are spread out in five percent increments, sometimes up to two-and-a-half years, while the project is being built. “It gives people the ability to save, leverage lines of credit to make payments, or if you have to, make short-term loans,” says Fox. “When that 20 percent is spread out in increments, it becomes more attainable.”
If you’re buying a resale condo, Fox recommends doing your due diligence by getting a status certificate. “When you buy a condo, you’re buying a piece of property, as much as you’re buying into the assets and liabilities of a corporation,” says Fox. The status certificate will include information on whether the previous owner was up to date on paying their condo fees (you could be held responsible for their outstanding debts), or if the condo corporation is contemplating major repairs or is experiencing financial issues that could lead to condominium fee increases or a special assessment. It’s good for 30 days and could be the best money you’ll ever spend.
Photo: Liz Bertorelli
What to look for in a unit and building
When it comes to selecting a unit that will sell, Fox suggests focusing on the floorplan, access to outdoor space and natural light. “For somebody who’s buying for the first time, it’s very difficult to envision what 500 square feet would look like,” says Fox. “You would really need to lean on your agent and their experience.”
When it comes to amenities, keep in mind that the luxury pool, gym and co-working space are driving your maintenance fees up. “It’s nice to have but when people actually move in, they often don’t use the amenities as much as they thought they would,” says Fox.
“It all depends on what your initiatives are. If you’re buying it to live in it, then you have to decide what’s important to you,” says Sarner. “There are many good investments that don’t have very many amenities. There are many poor investments that have fantastic amenities.”
