2018, Outlook and recommendations for the Greater Toronto Area real estate market (TECH city effect)

Although it’s late, I would like to extend my New Year’s greetings for the year of 2018, the year of the dog. I wish that every household will prosper with love.

We have held individual consultation events in Seoul and Vancouver every December in the past, but last year, we were unable to hold our regular December event due to a family event that took place in Seoul in October. We apologize to those who were waiting for our December event and were unable to contact them.

Thanks to your love and trust in us for the past 16 years, our company My Best Home has become the leading Korean real estate agency in Toronto, recognized as a reliable and trustworthy representative in the industry. We deeply appreciate your support, and we promise to work harder to repay you with the best results and avoid any disappointment.

As you may already know, last year in the Greater Toronto Area’s real estate market, there were two significant measures taken to stabilize the overheated market. One was the introduction of a 15% land transfer tax for foreign buyers in April, while the other was the implementation of a 2% stress test on all mortgage applications starting from January this year (leading to a 10-20% reduction in mortgage amounts), which had a moderating effect on the market.

Fortunately, we believe that the government has handled this situation well, and we hope that this healthy adjustment period will allow for a stronger upward trend in the future.

However, despite these measures, we predict that the real estate market in the Greater Toronto Area will continue to experience a single-digit growth rate higher than the inflation rate this year.

In this article, we will analyze and summarize the factors that could be the basis for our predictions.

1. Each year, the accumulated demand increases due to a shortage of supply, which puts pressure on prices as the top priority.

1-A) Preparation for the era of 10 million population in Greater Toronto : Currently, the population of Greater Toronto is close to 7 million in 2018, and it is expected to reach 10 million, the same as the current population of Seoul, in 2040, 20 years from now. If we compare it with Seoul, whose population is decreasing, Toronto will probably become a larger city than Seoul well before 2040 and compete with New York as a huge global city.

1-B) Absolute shortage of supply : Currently, the Greenbelt surrounds the Greater Toronto area, making it impossible to expand beyond a certain size, and each city struggles to digest the demand for high-density housing (condos). In the future, it is expected that condos will not lead the real estate market in terms of quantity or price, as housing will.

1-C) Strengthening of immigration policy : Since the Trudeau government, the pro-immigration policy has been strengthened, and the annual immigration rate of 23-25 thousand people has been increased dramatically to receive 1 million immigrants (33-35 thousand people annually) for the next three years. If we add 40-50 thousand Greater Toronto international students every year, more than 150 thousand immigrants and international students will enter the Greater Toronto area every year for several years, and this population will be the biggest factor putting pressure on prices due to the shortage of supply.

2. Forward-looking employment and real estate indicators

In addition to the increase in population, immigrants, and international students mentioned above, Ontario’s unemployment rate, which is an indicator of the economy, reached a record low of 5.9% at the end of last year (compared to around 8% in previous years), indicating an increase in high-level companies and healthy job growth. The supply of new housing is decreasing noticeably each year, and as a result, the apartment vacancy rate, especially in Toronto’s rental market, is less than 1%, meaning there are hardly any empty units. All of these indicators show that many factors, such as companies, immigrants, and international students, which stimulate demand for real estate, are continuing to converge towards the Greater Toronto Area.

This will be a significant factor in determining the trend in the real estate market and will demonstrate that the long-term growth trend in real estate is high and reliable.

3. Toronto was declared the world’s number one “Technology hub” city!

In November of last year, Google announced detailed plans for a “Smart City” construction project and established its headquarters in downtown Toronto. Amazon also selected Toronto as one of the top 20 candidates for its second headquarters. Toronto is growing into a world-class technology city.

The Canadian federal government has noticeably increased its budget for technology, and now the technology industry is showing employment and industrial indicators that surpass the financial industry, which is Toronto’s leading industry.

In the past few years alone, nearly 50,000 technology jobs have been created, which is significantly more than the combined employment of neighboring cities around Silicon Valley, the representative technology city of the United States.

If this trend continues for a considerable period, Toronto will become a world-renowned “value city” as it competes with Silicon Valley to become the world’s number one “Technology hub.” By then, as current real estate prices in Silicon Valley indicate, Toronto’s real estate prices will also be in a different position than they are now.

4. Still low Canadian exchange rates and interest rates

Since the decline in the Canadian exchange rate began in 2013, it has been steadily fluctuating between 830-900 won from 2015 to 2018. It is still a very low exchange rate, which is advantageous for sending money to Canada. In the future, Canadian interest rates are expected to rise, and with the trend of increasing international oil prices, the exchange rate is also expected to gradually increase. For households planning to send money, it is recommended to divide and send it in advance when the exchange rate is below 900 won, as a risk diversification measure.

Bank interest rates are also expected to increase by 0.5-0.75% this year. Although there may be some impact on the real estate market, based on the statistics of mortgage fluctuations and real estate price correlations over the past decade, it is unlikely to be a serious consideration for purchasing and selling real estate.

Rather, measures to strengthen mortgage regulations are expected to have more impact.

5. Adaptation to foreign acquisition taxes and strengthened mortgage regulations.

Last April, when Toronto real estate prices, especially housing prices, were considered to have risen too much, the government imposed a 15% acquisition tax on foreign buyers, as in Vancouver, which helped calm the market. Now, after a year of implementation, the market is adapting well, and some of the demand for housing has shifted to condominiums, and the demand for condos from young people has continued to rise without much impact. This trend is expected to continue for a considerable period of time.

The mortgage stress test, which was introduced as an additional real estate policy this year, is having a certain effect as a measure to discourage real estate purchases by making it more difficult for first-time buyers who need to obtain a new mortgage.

6. Conclusion/Recommendations

A series of measures to stabilize the explosive rise in housing prices last year have been effective, and their effects are still being felt. However, as we approach the one-year mark of their implementation, the market is once again adapting.

Despite such difficulties, the chronic accumulated demand and supply shortage problems mentioned above have the potential to change the market sentiment at any time.

If the economy improves, employment and unemployment rates decrease, and plans for new technology hubs for companies like Google and Amazon progress smoothly, investment in Toronto, with its high-quality workforce and low exchange rates, could accelerate, and real estate could experience another unexpected surge.

In 2018, we anticipate at least a single-digit increase in real estate prices that outpaces inflation as a preparation for such a surge.

Houses that fell more than 20% from their peak last April appear to be the best time to purchase this year, and for condos, we actively recommend new condo pre-sales and existing condo purchases in areas with convenient transportation and issues.

In particular, the rate of return on investment for condo pre-sales (within 20% of the pre-sale price) is significantly higher than any other investment method in the past decade. While the price of new condo pre-sales has also risen significantly, existing condos have also risen in price, and after occupancy, they will form significantly higher market prices than surrounding condos, making them the most profitable investment method.

For families planning to relocate from other cities to Toronto, to send their children to Toronto-based universities, or to plan for their children’s marriage, independence, and asset growth, we recommend that you carefully consider and plan your investment through condo pre-sales.

I mentioned before that the era of downtown 1-bedrooms costing $1 million was not far off. With Google’s “Smart City” construction plan announced in downtown Toronto last year, the city’s value is expected to rise rapidly. We dare to predict that the era of downtown 1-bedrooms costing $1 million may be approaching sooner than expected.

Toronto, the most dynamic city in the world!
Ranked first among the world’s most promising long-term real estate investment cities, “Toronto” in surveys.

Real estate is the most important asset for a household. Instead of trying to predict the ups and downs of the market in the next 1-2 years and making investment decisions, it is recommended to take a proactive approach to real estate investment in the Toronto area, based on simple and certain future value at least 5 to 10 years ahead.

Next week is already the Lunar New Year holiday.
Both in Korea and Toronto, it is a cold winter with a lot of snow.
I hope that this Lunar New Year, the whole family will be filled with warmth, love, and happiness.

Thank you.

2018. 02. 07


Ian Kim
Sales Representative
Website: www.torontoprecondo.ca
Email: ian@torontoprecondo.ca