Toronto SunWed, January 31, 2007
Condo market in good health
Forecast puts Toronto as third strongest city in the country for making a profit investing in condominiums
By LINDA LEATHERDALE, MONEY EDITOR
If history was to repeat itself, you would think our hot condo market would have crashed and burned by now.
Well, according to a new condo report by financial service provider Genworth Financial Canada, you had better think twice.
Their bullish outlook paints a healthy future for the market, even in Toronto where an abundance of buildings have popped up on the skyscape, fuelling speculation a bubble was about to burst.
“Toronto has seen a record decade of growth and this report shows that the market remains healthy as demand and supply remain in balance,” said Peter Vukanovich, Genworth Financial Canada president.
If Genworth is right, Toronto’s condo market is forecast to be the third strongest in the country until 2010, with average prices — which crunched in at $239,816 in 2006 — to climb to $247,303 this year and to $305,500 by 2010. That’s a decent 4% price hike in just three years.
It’s a no-brainer that the strongest growth in the condo market is to take place in oil-rich Alberta, where job growth is on fire and housing demand is at a high.
According to Genworth, Calgary is to lead the country, with average condo prices rising from $262,456 in 2006 to $294,681 this year and another 12.5% to $335,855 by 2010.
Next is Edmonton, where condo prices averaged $180,367 last year and are expected to rise to $213,351 this year, followed by a 18.3% hike to $240,875 by 2010.
Genworth is also bullish about Ottawa’s condo market.
“Pent-up demand, steady employment gains and healthy population growth have also helped Ottawa’s condo market to continue to grow,” Vukanovich said.
In the nation’s capital, condo prices are to rise from $184,772 this year to $206,587 by 2010 — for a 3.9% gain.
“In both cities (Toronto and Ottawa), a correction is unlikely and this cycle is forecast to continue through the end of the decade,” he added.
So much for that crash so many predicted.
Still, if you’re an investor, should you be wary?
Real estate investing guru Don Campbell cautions to always do your homework.
“As an investor in a market that has as many variables as the Ontario economy has right now, it is critically important that you do your homework before you write the cheque,” said Campbell, president of the Real Estate Investment Network (ontariorein.com).
The guideline used by Campbell, author of Real Estate Investing in Canada — Canada’s best-selling real estate book — is you need to fetch rent worth 8% of the buying price of the condo.
That means for an average Toronto condo, priced at $247,303 this year, you would need to get rent of $1,850 or more a month to break even. And he reminds us that as an investor, Canada Revenue Agency expects you to be in the black.
That also means a 25% downpayment of $61,825, and Campbell reminds us that banks like that conventional downpayment from investors.
Those who mislead lenders by claiming they are buying to live in the unit and not to rent it out are committing bank fraud, he warns, adding many institutions have hired more investigators.
Meanwhile, Toronto’s high apartment vacancy rate — which hit 4.3% in 2004, its second highest level ever as more renters made the plunge into home ownership — is on the decline, which is good news for investors. It’s expected to fall as low as 3% this year.
A recent Toronto Real Estate Board report shows overall across the GTA a two-bedroom condo apartment fetched $1,807 in rent, which is close to breaking even if you use Campbell’s guideline.
Of course, the closer downtown, the higher the rent where 802 two-bedroom condos rented out for an average of $2,028 last year.
Campbell’s advice is buy older condo products that with some fixing up can lead an investor to break even or attain positive cash flow quickly. But do all your due diligence, like checking out the condo corporation and its finances.
CONDO PRICES LOOKING UP
City Avg. Condo Price Avg. Condo Price Avg. Condo Price
2006 2007 [forecast] 2010 [forecast]
Montreal $169,899 $177,015 $200,063
Ottawa 177,267 184,772 206,587
TORONTO 239,816 247,303 305,500
Calgary 262,456 294,681 335,885
Edmonton 180,367 213,352 240,875
Vancouver 289,344 307,305 349,409