Is now a good time to invest in Toronto Downtown Condos?
Tags: Investing in Toronto Condos, Toronto Condo Market, Toronto Real Estate Market
I’m sure you’ve heard that Toronto downtown condo sales have softened, thanks to the pandemic driving renters and owners to the GTA suburbs, looking for larger spaces and backyards now that working from home appears to be the new norm. Adding to this, the lack of tourism and stricter regulations on Air BnB owners is forcing many to move away from the short-term rental market and into the traditional long-term marketplace, and finally, with immigration coming to a halt, a solid base for the rental market, we have a perfect storm looming over the downtown core condo market.
This has investors and buyers asking if now may be the time to jump into the market. Well, I can confidently say the answer is a definite MAYBE.
Of course, each buyer or investor will have their own unique reasons and specifics needs for buying. For a buyer who is downsizing for their retirement, or someone wanting to buy their first home just to get into the market, it can make complete sense to buy now, provided your intention is to stay in the condo for several years, or at the very least, have the flexibility to wait out the market should the prices stay low for an extended time.
For investors, however, the answer is not so simple. Sale prices are just one factor in ascertaining if an investment is sound. We must also consider the current rental market. Sale prices are indeed declining, but not nearly proportionate to the double-digits decline the rental market is seeing. The average rent price is down 16 to 20% from a year ago. Also, with so much competition, it is taking longer to rent, so landlords need to be prepared for vacancies.
Many condo owners might have bought the property on speculation, thinking values would continue to increase, but then the pandemic hit and now are fearful of an extended downturn and cashing out, but real estate is not typically a get-rich scheme. Real estate tends to be a long-term strategy. Over the last 40 years, despite the odd downturn and blip in the market, real estate values have appreciated about 7.5% each year, when averaged out, in the Greater Toronto Area. Over the long term, the trajectory is always upward. I can only imagine how investors feel that pulled out of the market in 2008 when we took quite a hit, only to see those homes now worth 3, 4 or even 5 times what they were worth then. Keep in mind, that although selling prices are lower than they were a few months ago, they are still higher than they were last year at this time. So, what is an investor to do? While there is no steadfast rule, and a sophisticated investor may see an opportunity, it may not make sense to pay 2020 purchase prices to get 2018 rents. You could possibly take a “wait and see” approach, hoping there will be further decline – if you believe that is going to happen, or at the very least, wait until you see the condo rental market begin to recover so you can realize better rental rates and avoid long vacancies. but I am reminded of Warren Buffet’s famous quote “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. With the help of an experienced investor and savvy Realtor, like myself, and if you are able to carry a unit for a few months and wait out the softer rental market for a resurgence in demand, you can make a sound decision and find yourself in a good position.
Of course the question on everyone’s mind is, will the market rebound next year? Well, my crystal ball is broken, so I can only give my opinion and that of the various pundits on the subject. The general consensus is that the condo market is expected to recover next year. I believe there could be a three to six-month window in which buyers can take advantage of lower prices and greater supply as well as historically low-interest rates to get into the market before demand increases and prices go up. Keep in mind, once immigration opens up again, we will be back into high demand and rising prices. I will be recording a video on my 2021 Housing Market predictions for the Greater Toronto Area soon and will go more in depth on what we can expect in the coming year.
As always, Contact me anytime if you would like to explore your options further, I am always here to help get you what you want, when you want it. And Remember, it's all about you!