Foreign investors remain bullish about Toronto's residential real estate
Jul. 22, 2006. 01:00 AM
Dublin residents Theresa and James Hayes picked up a downtown Toronto condo last November without ever setting foot inside the project's sales office or taking a look at the Yonge and Carleton neighbourhood where it will be located.
When they made the purchase, they joined a teeming pool of foreign buyers enjoying the financial rewards of Toronto's real estate market.
"It sounded like a great place," says Theresa Hayes, referring to The Met, a two-tower project by Edilcan Development Corp.
The couple decided on a two-bedroom apartment on the 31st floor of the second tower, which Hayes said cost "more than $200,000" and which they expect will be ready for occupancy in mid-2008.
The first tower, at 43 storeys, has reached two-thirds completion, says Edilcan principal, G.P. Di Rocco.
But it's difficult to determine how big a chunk of the Toronto condo pie lies with investors, both foreign and local. They could represent as little as 19 per cent of the booming market or as much as 40 per cent, depending on which data you view.
For example, Canada Mortgage and Housing Corp.'s 2005 condominium survey indicates that investors (foreign and domestic) owned 36,000-plus units, or 18.7 per cent of the GTA's rental housing stock. However, these numbers don't include pre-construction sales or buildings that are newly occupied but not yet registered.
It also fails to distinguish between Canadian and foreign buyers. In fact, no agency or analyst tracks offshore interest in Toronto real estate.
CMHC's Toronto analyst, Jason Mercer, says the data isn't easily available because the people who respond to the survey on behalf of the condominium corporations and property management companies don't necessarily know which units foreigners own.
And buyers of new units aren't required to tell the sellers how they intend to use their property, whether they will emigrate and live in it, use it as a part-time pied-à-terre or rent it out.
Like many buyers from abroad, Theresa and James Hayes opted to buy at pre-construction prices, selecting a highrise project in Toronto's downtown because it sits close to transportation, shopping, entertainment and other services.
Di Rocco wasn't sure how many foreigners had purchased units in his newest project.
But his records place that figure at 10 per cent of The Met's more than 700 units — almost twice the number he'd anticipated.
"They hail from countries such as Trinidad and Tobago, Venezuela, Greece, Ireland, Italy, Japan, China and the U.S., and they have purchased suites ranging in price from $120,000 to over $680,000," Di Rocco says.
Hayes said the family has plenty of time to decide what to do with their suite. They may keep it as a good place to spend vacations or rent it out.
In fact, investors who choose to rent provide another clue as to the number of foreign investors in the condo marketplace.
Horst Lietz, the broker of record for Brookfield Canada Realty, manages 300 residential units for individual investors in the GTA.
If his management portfolio represents a cross-section of condo investors, then foreigners hold 40 per cent of the region's rental units.
But even in the absence of hard numbers, analysts concur that foreign investors remain bullish about Toronto real estate.
Condo analyst Barry Lyon, president and senior partner of consulting firm N. Barry Lyon Consultants, says foreign buyers not only tend to prefer products in new projects, they also like to buy them during the pre-construction phase to take advantage of the lower prices.
"They like getting in early and are prepared to wait," he says. "They've become very sophisticated. Once they identify a project, they move in en masse. Those in early have a healthy appreciation of value —and they hold, rather than flip (the property)," he says.
Lyon pegs investors at 20 to 25 per cent of the condo market, but notes the ratio of investor to owner-occupied units can vary from 10 to 50 per cent in individual buildings.
Housing economist Will Dunning suggests the average is closer to 30 to 40 per cent in new buildings.
"In the last six years, there have been waves of buying, and we're now in a strong wave," he says.
Toronto realtor Pat Baker, CEO of Baker Real Estate, whose firm has a wide network of affiliates promoting Toronto's new residential projects overseas, says the city's growing profile on the world stage has fuelled a renaissance in the local housing market.
In the past several years, buyers from East Asia and Europe started to enter the market for the first time.
"Most are buying to live in them — immigrants or part-time residents — or buying for a child that's a student," Baker says.
Others have a portfolio of inventory in areas with the strongest market pull, such as downtown nodes in Toronto, Mississauga and Markham, Lyon says.
"They're buying smaller units to rent at break-even prices."