Real Estate. Could the market collapse?

BY JAY BRIJPAUL

Canada’s mortgage debt towards the last quarter of 2021 has risen to over $1.77 trillion dollars. Most buyers are carrying jumbo mortgages. A buyer who bought a home for $1,000,000 with 20% down payment will carry a mortgage of $800,000 and pay $3,465.00 per month based on a 2.2% mortgage. Taking property tax and other expenses into account, it becomes a heavy financial burden to carry. Will the current real estate market collapse or will price continue to swell?

Immigration is strong. In 1996, GTA average population was around 4,263,759. The latest census in 2021 came in at 6,202,225 – 300,000 short of Statistic Canada’s 2021 population estimate. Over 1,200,000 new immigrants will arrive in Canada within the next three years. International students, once employed, can apply for their landed immigrant status. As such, we can see an increase in the number of foreign students settling in GTA.

Stats Canada figured that by 2046, the GTA population will exceed 10,000,000. What is certain is that as the population grows, demand for housing will continue to surge. Within the last 25 years over 2,000,000 homes were sold. The average price increased by 450%. In 1996, an average home that sold for $198,150 is worth $1,095,475 in 2021. That’s an annual increase of about 7.08%.

Land scarcity is another factor to consider. To build more affordable homes, we need more vacant land. The GTA is running low on vacant land. In the 905 area, remaining small pockets of land are being used to build high density housing such as condominiums. In Mississauga, for example, 50% of the sales are from newly built condos. Freehold properties are in demand. Buyers who cannot afford these homes tend to opt for condos. As the demand for condos increase, their prices edge upward.

It’s becoming increasingly difficult to balance a household budget. Twenty years ago, a cart load of food could cost about $25. Today, $25 would buy a few mangos. Cost of living is high. Everything is inflated. The buying power of the dollar has declined. The cost of building materials has increased, and interest rates are low.

Residential real estate is lucrative. Many investors are shifting their money into real estate. It is estimated that one in every four properties are bought for investment. China and India’s middle classes are stretching their wings and funneling some of their wealth into prime residential real estate in the GTA. Because of inflation, low interest rates and a strong appetite for real estate from local and overseas investors, the demand for residential properties will remain strong.

With land scarcity, developers are targeting existing under-utilized buildings in prime locations for redevelopment. For example, the Sutton place hotel on Bay Street is now a 727 residential condo known as the Britt. In central Toronto, condo sales account for 76% of the current residential sales. The increased supply is not enough to quench the thirst for GTA real estate. With more and more conversion and redevelopment, more residents can live and work in the downtown core. Toronto is quickly becoming a mega city where you would need mega bucks to buy a mini condo.

To increase supply, lane way housing, legal basement apartments and garden suites are being encouraged. The value of a property with a garden suite, for example, would climb substantially because of the secondary structure. Freehold properties with a decent yard space would be golden.

Interest rates would climb gradually. This would be enough to release steam from the housing market. If for some reason, the rates must go up drastically, then we can see other measures such as increased years of amortization being taken to protect the housing market.

The best properties to buy are homes in the mature section of the GTA. These are older homes on larger lots. With time, as the GTA population swells, these properties can be used to create high density accommodations. The value will climb. If you are looking for a condo, then do not discount the older buildings. Here the suites are much more spacious and over time, will become great investments.

The GTA is a world class city by all standards. It offers a stable government, a high standard of living, an envious medical system, a high educational standard and a stable banking system. It is a multi-cultural haven where everyone can feel at home, and everyone wants to own a piece of real-estate.