This year has been a roller coaster ride, to say the least.
For investors in the Toronto new construction home market, there’s a steady flow of new data and commentary being published that aims to accurately forecast where the market is heading. Oftentimes market analysts and opinion columnists publish conflicting views on what’s happening right now and what’s expected as we head into a new year. Even data coming from reliable sources can appear to tell two different stories of the market’s health.
To cut through the noise and get to the bottom of what’s really going on in Toronto’s real estate market, Livabl reached out to Simon S. Mass, CEO of The Condo Store Group of Companies, to shed some light on current market conditions and what investors should be on the lookout for in the future.
Livabl: Mixed messaging on what’s happening in the market through the summer and now into the fall could be holding back some pre-construction investors on pulling the trigger on a purchase. On one hand, interest rates are historically low and overall homebuying activity is high, while on the other, immigration and shifts in the condo rental market are a source of uncertainty. Is now still the right time to make a pre-construction purchase in light of these opposing factors?
Simon S. Mass: The last few weeks, in my opinion, have been a time to reflect on how distorted the coverage of the Toronto real estate marketplace has been. The fact that the same outlets and articles are providing interested readers with totally disjointed commentary, and in some cases, contradictory language, is rather disappointing. This comes at a time where consumers don’t need, or should not have to deal with, unnecessary stress. We all have enough on our plate when it comes to dealing with the new world order with COVID-19, so I am frustrated when I read anything that seems to be written simply for the sake of a headline.
The Bank of Canada is making it more affordable to own property in the current real estate market by lowering its rates close to zero. These new rates are by far the lowest in history. If it wasn’t already a great incentive for buyers, because of the government income support programs, the option exists for consumers to carry their mortgage payments and maintain their real estate purchases in good standing.
Facts are facts. Even for the doom-and-gloom commentators who have been downplaying the value of the real estate investment model for over two decades, Robert Hogue, an RBC Senior Economist recently stated that household disposable income has spiked 11 percent in Canada, substantially increasing buyers’ purchasing power.
I know this is not true of all Canadians, and there have been jobs lost and businesses closed, but the fact remains for those able to, the conditions exist for real estate wealth to be generated.
Other positive news that gets very little attention and is a gigantic factor in the value of consumers who maintain a significant real estate investment portfolio, is immigration and the government’s plan for the upcoming years. The notion that no one will ever return to urban areas to live and work seems short-sighted. I’m as risk-averse as the next guy when it comes to manageable investment strategies for long-term returns, but the plan from the federal government is extremely aggressive.
Immigration Minister Marco Mendicino has said that the government’s goal to drive the economy forward with immigration was ambitious prior to COVID-19, but is now vital to the country’s economic health.
The government’s immigration strategy has been consistent with the approach taken by successive governments over the past three decades to keep intake high during recessions, like using immigration to withstand the economic slowdown in the late 1980s and early 1990s.
Stimulating the economy with immigration is a normal tactic. The fact that immigration has slowed down due to a pandemic, and the government is planning on making that up and then some over the coming years, is a great sign of commitment that will help the real estate market moving forward.
John DiMichele, the CEO of the Toronto Regional Real Estate Board (TRREB), recently said, that the Greater Toronto Area will benefit from the high immigration targets, which are expected to bring even more homebuyers to Toronto and neighbouring communities over the next few years.
We should talk about facts with the appropriate level of context, all with honest sensibility to the question at hand as it relates to buying pre-construction in today’s marketplace. My personal belief is that we haven’t had such an incredible time to invest in pre-construction as we have today. The last time we had such an opportunity was during the global recession of 2008. All reports at that time about the housing market’s outlook were negative and caused some Canadians to take those snippets and headlines to heart, burying their heads in the sand and adopting the negativity that the reporting created.
For the large number of Canadians that dropped out of the real estate market during the Great Recession, or felt stressed to change their plans to purchase by false, misleading rhetoric, I feel a level of empathy with them. They most likely walked away from the most profitable investment opportunity from that point to now.
Let’s be even more clear, and consider not as an investor, but an individual that was planning on purchasing their own principal residence — assume a small condo that for many first-time buyers would have cost $400,000. That condo today, a mere 10 to 12 years later, is easily valued, even during the current global pandemic, between $1 million to $1.3 million. I wish the commentators currently telling partial, headline-grabbing stories could talk to the significant generation of Canadians who missed out on quite possibly the largest investment windfall of their lifetime.
L: We’re hearing differing sentiments on the real estate market every week — some sources say that the market’s outlook is stellar, while others expect the market to cool down through late 2020 and into 2021. How can pre-construction investors see through the conflicting messages and get a sense of what the outlook really looks like?
SM: Like all investments and investors, you need to have a fundamental understanding of the rules and play within them in a safe environment, and then know your own limits to risk. There are far too many condominium projects launched each and every year that, in my opinion, don’t hit the mark in terms of being suitable for long-term appreciation and value.
With over 100 annual launches, my firm, undoubtedly the largest bespoke pre-construction investment company in Canada, will only secure three to five projects that tick all of the boxes for a double-digit return every time. Location, access to a mobility hub, and lower deposit requirements are what allows us to use the art of leverage, albeit safely, to grow our own investment portfolio as well as that of our select and highly sophisticated client base.
With doctors and those in the medical community being our core group of investors, we take our role in vetting their real estate investments extremely seriously so they can continue their important work in surgery, the lab or on the frontlines. Our clients came to us through existing referrals due to significant return on investments. Without the fundamental principle of good business and the acumen to make great business decisions, we would not be in the fortunate and humbling position that we are in today.
I feel that if you want great advice, and want to cut through the clutter in the real estate sector, where there are over 45,000 licensed real estate professionals, you need to find a source of credible and moral investment decision-making that operates in the big leagues. Your money needs to work for you. Why take a risk of squandering it, or not optimizing the ROIs that you can earn, by simply not doing some due diligence and asking your family, friends and associates who they trust?
L: It was recently pointed out in a Globe and Mail article that nearly half of ‘new’ condo apartments and condo townhomes listed for sale in the ‘416’ region during September were actually previously listed properties that were cancelled by the seller. What do you think this says about the narrative that has been circulating for months that investors are listing their Toronto condo properties due to a rental market slowdown?
SM: It simply confirms that headlines are often just noise. We knew the information was negatively skewed, as we are in the market, and openly live and breath it. The data and the lack of qualifying information is unfortunate.
I don’t believe there is any sector right now, or over the past 20 years, that has seen so much negative biases when it comes to ‘predicting a crash.’ There wouldn’t be so much real estate development in Toronto if there wasn’t a housing shortage. If the naysayers looked at buildings to see if there were any lights on, they would be pleasantly surprised to see that all of the buildings across the GTA are 95 percent occupied with real people and real families, not sitting empty like they do in some condo cities. This is Toronto, where we have a real shortage of housing and we aren’t a transient city or a sunshine-seekers’ paradise for two months of the year.
Factually speaking, pre-COVID we had a 99.1 percent occupancy rate. The article you mentioned forgot to detail that post-COVID occupancy is sitting at 98 percent. The numbers don’t lie. We are in a very strong space and we will continue to be in that space for decades to come as immigration and urban life will continue to push the city forward after the pandemic is neutralized.
L: There has been reporting that some investors have been trying to get out of pre-construction purchase commitments as of late. Do you think these buyers are acting too quickly on short-term trends when the bigger picture seems more optimistic?
SM: I was actually compelled to reach out to some of the real estate brokers that were quoted in the article to simply ask them why they felt the way they did. I was doing it to see if there was anything to learn and to use in my own business for growth purposes.
It appears that after hours of interviews and commentary from these industry sources as to the profits made by speculators who purchased pre-construction condos four to six years ago, and ultimately assigned them during the pandemic, we have no one to feel sorry for. What I mean to say is, the investors who are quoted in the article are making a few hundred thousand dollars in gross profits. I’m not sure why I would feel sorry for these investors who likely made 15 to 25 percent annual ROIs on their deposits.
Also, just to really feel the pulse of the market, I talked to three of the largest developers in Canada, with whom I have a trusting and solid relationship with. I asked them about their experiences as to “the massive wave of assignments.” All of them didn’t know what I was referring to and actually admitted that there have been less assignments taking place year after year for the past five years as most investors have now decided to hold on to units as rentals for much larger long-term returns.