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Toronto And Vancouver Condo Markets Show Signs Of Stability

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Written by Wayne Karl

Sometimes, boring and unspectacular is good.

Take Canada Mortgage and Housing Corp.'s latest condo survey, for example, which shows market stability in Toronto and Vancouver amid white noise about hyperactivity and oversupply.

Much like last year's survey, which showed that investment condos owned by locals in Toronto and Vancouver are a long-term commitment with the objective of generating rental income, this year condominium investors display stable characteristics over time, CMHC says.

Most are small-scale investors that own only one secondary unit, nearly one-half purchased their last secondary unit for rental income and most expect to own their investment property for more than five years, according to CMHC's 2015 Condominium Owners Survey.

The report, focused on the Vancouver and Toronto Census Metropolitan Areas (CMAs), includes survey insights on what motivates condo purchases, how long owners hold onto their units, and the mortgage-financing profile of condominium owners whose primary dwelling is a freehold or condominium unit but who also own at least one secondary condominium unit. These households are referred to in the report as COS investors.

Highlights of the report include:

  • Nearly one-half of investors purchased their last secondary unit for rental income.
  • About 60 per cent plan to hold onto their last purchases unit for more than five years, versus eight per cent planning to sell their unit in less than two years.
  • Nearly 75 per cent have only one unit and roughly 90 per cent do not plan on buying new units in year following the survey.
  • 56 per cent expect their units to appreciate, 35 per cent do not expect a significant change and five per cent anticipate a decrease in value.
  • The share of investors with a mortgage on their last purchased unit (at the time of the survey) stood at 53 per cent. This is slightly below the share reported for all home owners (59 per cent) in Statistics Canada's 2011 National Household Survey.
  • A smaller share of investors in Toronto expected the market price of their last purchased unit to increase in the latest survey, from 64.0 per cent in 2014 to 59.9 per cent in 2015.
  • A larger share of investors in Vancouver expected the market price of their last purchased unit to increase in the latest survey, from 41.5 per cent in 2014 to 50.1 per cent in 2015.

Condo owner investors, as defined by CMHC, exclude households that own only one condominium unit in which they reside, as well as households that own a secondary unit but rent their primary residence.

The survey also does not provide an estimate of the share of foreign-based and corporate investors -- a hot if not controversial topic of interest and speculation.

"CMHC is currently exploring methods to estimate the extent of foreign-based and corporate investment activity levels in the Toronto and Vancouver housing markets," Dana Senagama, principal of market analysis for the GTA, told YPNextHome.

CMHC had earlier conducted the 2015 Survey of Foreign Ownership, results were released in the December edition of the Housing Market Insight: Canada. The survey found that the share of foreign condominium owners stood at 3.3 and 3.5 per cent in the CMAs of Toronto and Vancouver, respectively.

However, some districts within the CMAs registered higher shares, with Toronto Centre at 5.8 per cent and Vancouver City (which includes the Burrard Peninsula, Vancouver Westside and Eastside zones) at 5.4 per cent.

Interestingly, the survey says 35 per cent of investors expect no change in their unit's value, and five per cent expect a decrease. Combined, this is a fairly high number, considering that the point of investments is for them to increase in value. This does not, however, suggest these condo owners are "speculating" on the market.

"There are typically three major reasons people buy residential real estate they don't intend to live in themselves," says Ben Myers, senior vice-president of market research and analytics at Fortress Real Developments. "One, they hope for price appreciation. Two, they're looking for rental income. And three, they're looking for a 'store of value' -- an investment that will hold value and not decrease."

This is a capital preservation strategy that is often utilized by foreign investors worried about volatility in their own financial market and currency.

Plus, says real estate investing expert Don Campbell, "The expectation of no value increase or small decline is a healthy approach -- if and only if it is combined with positive cash flow. Speculation is all about buying and hoping for value increase. Investing is about creating income and return on investment, with value increase being the bonus -- but not required."

CMHC does not collect data on how much investors rent out their units for, compared to their mortgage and carrying costs.

"Investors are in it for the long term, the majority have greater than 20 per cent equity in their units, and the majority took fixed interest rates. All extremely positive outcomes."

Overall, this year's survey paints condo investors in a positive light.

"Investors are in it for the long term, the majority have greater than 20 per cent equity in their units, and the majority took fixed interest rates," says Myers. "All extremely positive outcomes."

"Funny how much of a big deal was made of the number of completed and unabsorbed new condominium apartment supply last year, as people we constantly making reference to this 'vacant condo' problem. The number of secondary condo units that are currently vacant dropped from 7.5 per cent in 2014 to 4.1 per cent in 2015."

Post originally published at YPNextHome.ca

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