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Toronto Real Estate Still Has Potential for Appreciation
2021-12-21

  Before the outbreak of the COVID-19 pandemic, the real estate market in Toronto, Canada had already become fierce. In the past two years, as the city has set off a house-buying boom, housing prices have soared. According to data provided by the Toronto Regional Real Estate Board, house prices in the Greater Toronto Area have risen 22% year-on-year in the past year. Among them, the suburbs coded as 905 performed more prominently, and the price of detached houses rose 33% from the same period last year.

  Nevertheless, potential buyers can still focus on communities where price growth is relatively modest, such as the city center and the condominium and townhouse market to avoid the risk of a possible real estate bubble. Housing prices in surrounding areas of Toronto are growing faster than urban areas. If one area has benefited the most from the epidemic, it is none other than Durham, which includes the autonomous region of Toronto’s eastern suburbs. Buyers flocked to the area to find more spacious housing to meet the needs of telecommuting, but the supply level was limited, causing the average price of detached houses in the Dulin District to soar by 34.2% from October 2020 to October 2021, reaching 110 Ten thousand Canadian dollars (equivalent to 860,000 US dollars).

  A similar situation occurred in Simcoe County, north of Toronto, where the price of detached homes rose 31% this year to $1.05 million. Although these areas may have contributed to the overall increase in the Golden Horseshoe region, the excessively rapid rise in housing prices during the epidemic is an abnormal phenomenon. Outline's data shows that in the past five years, the price of detached houses in the area has continued to rise, but the increase has been much slower, with an annual growth rate of around 8%.

  Therefore, when the market style changes, the outer suburbs may be the first to bear the brunt. Take 2017 as an example. At that time, the Canadian real estate market coincided with the last round of cooling, and Doolin District and Simcoe County were the first to be affected. Now, as the Toronto market gradually returns to the state before the COVID-19 pandemic, the outer suburbs are likely to be the first to see price growth slowing again, especially when office workers return to the office and commuters start to look for housing closer to the city.

Urban and apartment markets still have potential for appreciation

  It is recommended that potential buyers consider the neighborhoods in downtown Toronto, as housing prices in these areas have experienced relatively modest growth. 

  Although all downtown communities in Toronto achieved double-digit growth last year, in contrast, some markets performed slightly worse. For example, the average house prices in District C11 and C09 increased by 14.8% and 14% year-on-year, respectively. In these communities, including the affluent areas such as Rosedale-Moore Park and Leaside, as housing prices are already at high levels, the room for appreciation is very limited and the growth rate is relatively slow. Although the downtown condo market was hit in 2020, there are signs that the situation is reversing. Apartment prices fell after stable in the early stage of the epidemic, and slowly picked up again this fall. In the past six months, even the condominium market has begun to strengthen.

Foreign investment pushes up the price of luxury towers

  In the first half of this year, sales of homes worth 4 million Canadian dollars and above soared 250% year-on-year. In the past month alone, sales of homes worth 4 million Canadian dollars and above in Toronto have surged 78% from a year ago.

  In high-end communities such as Yorkville, luxury high-rise residential buildings continue to emerge. Take the 94-storey new development project One Bloor as an example. The unit price per square foot is between 3,000 Canadian dollars and 4,000 Canadian dollars. The average house price in the city is about 1,000 Canadian dollars per square foot. The former is equivalent to three times the latter. More than doubled. Similarly, mature communities such as Forest Hill and Lawrence Park are also preferred destinations for luxury home buyers. Many new development projects are also under construction in the area along the Ontario Line to be completed, which will attract more and more commuters to settle down. This subway line departs from Exhibition Place, passes through the city center, and extends northeast to the Ontario Science Center.

  As foreign investors regain their confidence in investing in the market again, housing prices will only continue to rise. The Toronto real estate market is seen as a long-term safe choice. This is the financial center of Canada. From a global perspective, housing prices are still in a more reasonable range compared with other international metropolises such as Manhattan, Hong Kong or London.

Townhouse price growth is more stable

  The detached house and condominium market often have their own operating cycles. Although the two are sometimes in step, but in more cases, the trend is completely opposite. The performance during the COVID-19 pandemic is the best example. The market for townhouses and semi-detached houses has fluctuated between the two markets. 

  According to Outline data, from October 2020 to October 2021, the prices of townhouses and semi-detached houses in Toronto increased by 23.5% and 14%, respectively. For buyers, townhouses are usually regarded as transitional properties from condominiums to detached houses. However, during the epidemic, many buyers who originally planned to redeem their homes decided to suspend their plans or renovate existing homes instead of looking for new homes. As buyers re-enter the market, the demand for such transitional properties may further increase.

Is there a risk of bubbles in the property market?

  In a recent study by UBS, Toronto was listed as one of the three cities with the highest risk of a real estate bubble. The remaining two are Hong Kong and Frankfurt. However, UBS's definition of a real estate bubble is not as severe as it sounds, mainly referring to the possibility of housing prices falling. 

  Due to urban population growth and the influx of international demand, from 2000 to 2017, Toronto's residential prices rose at a rate of more than 5% each year. In 2017, as the government imposed taxes on foreign buyers and imposed controls on vacancy rates and rents, the real estate market has cooled, but after the outbreak of the COVID-19 pandemic in 2020, the market rebounded quickly. Supported by sustained population growth and limited housing supply, the current market’s upward momentum will not slow down. Regardless of the purpose, self-occupation or rental, housing demand in the Greater Toronto Area will increase year by year.

  As part of the recovery plan after the COVID-19 pandemic, the Canadian government has set a goal of admitting more than 400,000 new immigrants each year from 2021 to 2023, striving to achieve an average annual population growth of 1% across the country. Most of these new immigrants will flood into Toronto. People are moving to Canada from all over the world, and the Greater Toronto Area will undoubtedly become the biggest beneficiary of the new wave of immigration. At the same time, the lack of housing supply will also promote housing prices. There is no reason to believe that prices will fall.