Why the Toronto Condo Market Is Actually Bigger and Hotter Than Ever

Welcome to the True Condos Podcast with Andrew la Fleur, the place to get the truth on the Toronto condo market and condo investing in Toronto.

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Welcome to the True Condos Podcast with Andrew la Fleur, the place to get the truth on the Toronto condo market and condo investing in Toronto.

Andrew la Fleur: Hi. Welcome back to the show. Thanks again for listening. This is episode number 62 of the True Condos Podcast. Hard to believe we are already past 60 episodes, on number 62 here. Thank you very much for listening. Thank you for your support for the show. I do appreciate it. A special welcome if this is your first time listening to this podcast. I hope you enjoy this. For everybody who’s listening, whether it’s your first time or not, make sure you do head on over to TrueCondos.com and become a subscriber to make sure you get even more great information, advice, articles, insights, into the Toronto condo market and investing in condos in Toronto.

Well, I’m not sure when you’re listening to this podcast, but at time of recording here in mid-October, the city of Toronto is completely caught or under the spell of the Toronto Blue Jays. Everybody’s just going crazy and it’s a really fun time to be in the city and it’s very exciting. Go, Jays, Go. I just want to get that out there before we get started here.

I want to talk about an article, which I put on the blog recently. You can check it out. Just go on over to TrueCondos.com/podcast. TrueCondos.com/podcast. You can get the show notes for this episode and all the podcast episodes, including a link to the article I’m talking about. The article is about five shocking truths about the condo market that no one seems to be talking about. It’s a bit of an expose on what’s really happening in the market right now. It’s sort of contrary, maybe a little bit controversial, but it’s contrary to what a lot of the rhetoric is the media it seems or a lot of things you might have heard about the condo market.

If you already are actively investing in the condo market, it’s not news to you. You do understand that there’s great opportunities right now in the market, maybe more than ever before, to invest and to make profitable investments in the Toronto condo market. But if you’re thinking about investing or it’s something you’re not quite there yet, you’re checking it out, and you’re hearing headlines and you’re hearing what people are saying about the market, you might be getting a lot of misinformation. Again, one of the reasons for this podcast is to help you get the correct information about the condo market and about how to invest profitably in the market and how to make money. That’s ultimately why we are here, why we’re doing what we’re doing is to make good, profitable investments in condos.

We’ll get started right away. The first point from this article is they talk about how the fact that the condo market is bigger and hotter than ever before. Again, if you listen to the mainstream media only, you might think that the condo market is sluggish, is slow, is not doing very well, is not as good as it was in years gone by or something along those lines. That seems to be the overall sort of rhetoric that you read. While everyone likes to always talk about the pre-construction condo market, and that’s what we invest in is the pre-construction condo market, that’s what I recommend that everyone invest in is in new pre-construction condos. The reasons why are for another episode.

Getting back on track, we like to talk about the pre-construction market and what’s happening in new condo sales. It’s sexy, it’s interesting, you see people lining up for events and people camping out to get units at new projects and people losing their mind and that sort of thing. It makes for an interesting story, I guess, from the media perspective. Meanwhile, the real condo market, as I call it, the real condo market is actually the resale market. That’s for both rentals and sales. The actual existing stock of condominiums that are existing in the city, that is the real condo market. If you want to know what’s happening in the condo market, so to speak, what is the pulse in the street, you really have to look at the resale condo market first. It’s important, of course, to look at stats and figures and pricing for the pre-construction market, but if you want to get a sense of what’s actually happening in the market, what’s the pulse of the market and what direction the market is heading, you need to look at the resale condo market. I do have some interesting charts and things associated with this article as well. You definitely want to see them. Make sure you do check out the link for this post. TrueCondos.com/podcast.

Let’s dive a little bit closer. The second point is that condo sales figures are only half the story. Condo sales figures, condo sales stats are only half the story. Again, this is key important point for you to understand as you’re studying the market. You need to look at the resale condo market holistically. You need to look at what’s happening with sales and what’s happening with rentals. When you combine these two aspects of the market, you get a picture of the whole market. If you only look at sales, and that’s what the media does, they are only recording on sales, it’s a simplistic way of doing things. It’s just an easy for lay people to understand something is how many sales, what’s the price. But the sales in the condo market are only half the story. If you don’t look at them together with the rental market, you’re missing the whole story.

The media, again, looking at sales over the past few years, you could kind of conclude that the condo market is relatively flat. The condo market is relatively slow. This sort of underlying assumption with a lot of this media coverage is that the condo market any day now, any day now, any day now, any day now, it’s going to crash. That’s the same thing we’ve been hearing over and over and over again for as long as I’ve been in real estate, almost ten years now, myself personally, and many years before me, this is the ongoing narrative. For some reason, there’s this obsession with the condo market and when it’s going to crash.

There is not the same obsession with the low-rise housing market at all. You look at low-rise housing prices going up 10% year after year after year. To me, that is a crash waiting to happen, much more so than the condo market chugging along at anywhere from 1 to 5, 6, 7% over the past five years or so. Even in the heyday of the condo market, call it 2006, 2007, 2008 kind of thing, we only saw prices going up by 8 to 10%. Meanwhile, again, the low-rise housing prices is going up 10% year after year after year. You never hear people say we have a “housing bubble”, but you hear the term “condo bubble” just about every single day. There is this inherent bias against the condo market.

Side note here, but I think personally it’s just rooted in our psyche, as Canadians, as North Americans, as a suburban car-rooted culture, as opposed to other places in the world, Europe and elsewhere, where high-rise apartment living, dense living, is more of a traditional, normal way of life. There’s something about our obsession with owning land and owning property and owning low-rise housing, that I think inherently is rooted in our psyche to the point that even it comes out in our media. There is this inherent bias against high-rise housing across the board. People see a crane building a tall building and there’s automatically negative associations with things like that as opposed to you see a subdivision going up in a farmer’s field and you think, “That’s progress.” You see a crane downtown building a 60 story building and all you hear is, “It’s too tall. It’s too high. Too many condos.” And this sort of thing. Anyways, that’s just a bit of a side note there. Let’s get back to what we’re talking about here.

The condo market is growing tremendously. If what you’re hearing about the condo market being slow and so on is just not true. The reason is when you look at the rental market and the sales market together, you get a full picture of the story.

Let’s do that. When you combine these two markets together, you look at the stats over the last three years, the resale condo market has grown by 47%. Let that sink in for a second. The resale condo market has grown by 47% in the last three years. What I mean by that is when you add up sales and rentals together, we’re seeing that there are 47% higher number of sales and rentals in the most recent statistics that we have from the Toronto real estate board than the same time period three years ago. That’s a huge number, it represents huge growth, it means that people are moving into condos, whether they’re moving into rent or rather they’re moving in to buy, as a buyer. They are moving into condos at all time high numbers. This is not a trend, this is not some flash in the pans, this is not a bubble, this is the new normal. This is the new way of life. This is reality.

Again, a lot of it is tied back to just the fact that low-rise housing prices are so astronomically high. Condos are the default option. We’ll get more into that later.

You break it out from sales and rentals. The biggest growth is in the rental market. Rentals have grown almost double. Think about that. The number of condos rented out has almost doubled in the last three years alone. 85% growth in the number of condos that have been rented out as per TREB statistics, Toronto Real Estate Board, TREB statistics. Sales as well, not to be outdone. Number of sales have grown as well, 19% in the last three years. The sales figures are continuing to show a lot of strength as well, particularly in the last 6 to 8 months. A lot of strength in the sales market too. Prices really starting to go up there as well. That is sort of the true picture of what’s happening in the market. Hopefully that alone is interesting to you and worthwhile. Some sort of food for thought for you to think about as you’re thinking about investing the condo market and you’re hearing people telling you that the condo market is going to crash or you’re reading things or you’re wondering, “Is this a good idea to do? Is there growth here?” Absolutely. It’s an amazing, amazing time to invest in the condo market. Absolutely there is huge growth happening right now, right before our eyes. It looks like it’s going to continue, if not, even more so in the next few years.

Now that you know this, let’s talk about applications. What do we take from this information? It’s all about not just taking information in as investors, we need to apply it to our portfolios, to our strategies, and we need to take action. We need to make a plan based on the information that we have.

The first point is that condos will be the only choice for first time buyers. With low-rise prices being completely out of reach for first-time buyers, condos are going to be the de facto, only option for virtually all first-time home buyers. This is something that I’ve talked about again and again in this podcast. Sort of ties into the second point here that demand for condos are going to continue to be strong. You don’t have this dichotomy. You don’t have these two markets that are separate from either other with the low-rise market and the high-rise market. You have one real estate market. All forms of residential real estate are part of the market and they are all connected. If something happens in one area, it affects all areas.

For example, as low-rise house prices continue to go up at 10, 12% a year, continuing to get further and further and further out of reach for the average buyer, and especially the first-time buyer, that has a trickle over, spill over effect in the condo market. It’s a good thing for the condo market because it means that more people, it’s not that people are going to suddenly not want to own real estate anymore, they’re just going to shift their expectation and change their preferences from houses to condos because that’s what they can afford. In fact, this is already the case today. We’re seeing this already articles coming out. I’ll try to link to one in the show notes here that I saw recently about this very phenomenon; people being shut out of the housing market completely and looking to get into condos for the first purchase.

This is a good thing for condo investors, means that demand will continue to be strong, means that we’re going to continue to see growth in the condo market, we’re going to continue to see more and more buyers who would otherwise not be our customers as investors. Who’s our customer? It’s the person buying the condo from us. It’s the person who is renting the condo from us. We’re going to get more customers as they are shut out of this other market, the low-rise housing market.

The third point is that prices in rents will continue to rise. Growing demand from condos, from the rental and the resell perspective means that prices on rents and sale prices will continue to increase as well. Now, unlike in the low-rise housing market, where, again, I think it’s pretty clear that the increases of 10, 12% every year is not sustainable in the long run, the increase in the condo market are going to be single digits as they are now and as they have been most years in the past. That kind of growth is sustainable.

The fourth point is that demand for larger suites is going to increase. Demand for larger units … What I define as a larger unit is 800 square feet or more. That demand is going to increase. We’re seeing fewer and fewer of these units being built in the new condominiums. 750, 790 square feet is generally the largest unit in any new building that we’re seeing built downtown. This is primarily due to the way that condos are financed and the fact that the buildings have to be 70, 80% sold out. Developers are not putting these units in because they’re difficult to sell on a pre-construction basis because end users don’t want to buy them because it’s too far away. Investors don’t want to buy them because they’re just too darn expensive to get into. We’re seeing fewer and fewer of these being built.

But we’re going to see, and we’re already starting to see, increased demand for these larger units and a lot of upper-price pressure in even rents. Rents on the larger units is really seeing some good growth too. It’s something to think about as investors. It doesn’t mean that we want to stop buying studios, one bedrooms, one bedroom and dens, which again that’s our bread and butter as investors. Smaller units, cheaper units, units that are easy to rent, easy to sell. That’s where the greatest demand is now and will always be when it comes to condominiums is studios and one bedroom units. Those will always be the most popular units. Five years ago, I would never advise an investor to get into a two bedroom unit. Now, I’m definitely starting to think it is. I’m advising my clients it’s time to start thinking about at least adding something in the larger size to your portfolio moving forward. Again, the low-rise housing market is just so far to reach. People are going to be living in condos for longer and longer before they’re able to take their equity and move up into a low-rise house.

Okay. The fifth and final point I wanted to bring up is that the downtown core is still the primary place to invest your money in the condo market. I’ve got a nice little chart as well that goes with this one. You want to check it out in the article. Basically, I did a little analysis that shows the downtown core’s percentage share of the overall condo market for GTA, the overall condo market, the share of that. It shows a strong growth pattern over the last few years. The downtown core is ultimately where you want to have most of your investment dollars, not necessarily all. There are sometimes opportunities that make sense outside the downtown core. But downtown is still the primary place. It’s still where the most growth is going to be moving forward. It’s where the most demand is and where, I think, the most demand will be in the future. It’s just a fact that downtown is where you want to be as a condo investor first and foremost.

The simple reason for that is you want to invest where people want to live. People want to live downtown because it’s closer to work, it’s closer to amenities, higher quality of life than in other parts of the GTA, and ultimately, that’s where people want to be. That’s where people want to spend their time and their money is in the downtown. That’s where the infrastructure is being invested in the most by the various levels of government and that’s where a lot of companies are relocating their offices because their employees want to be downtown and their employees are telling them, “This is where we want to live.”

Okay. That’s it for today’s episode. I hope you enjoyed that. I hope you learned something and took something from today’s episode. Once again, for the show notes, just head on over to TrueCondos.com/podcast for the show notes on this episode and all the episodes in the True Condos Podcast. As well, we do have transcripts for every single episode. For all of our hearing-impaired listeners, you can go ahead and read all of the podcasts as well. I know there aren’t many listeners out there who take advantage of that, so thank you. Once again, until next time, I hope you have a great week and go, Jays, go.

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