GTA housing prices to increase 6.8% next year, but investors can still capitalize

A new report estimates housing prices in the Greater Toronto Area will increase 6.8% next year, but investors can get ahead of rising costs by buying early.

With new mortgage rules taking effect at the beginning of 2018, the first six months are expected to be docile, and prices fairly stagnant, according to the Royal LePage Market Survey Forecast. However, the latter half of the year is when prices will climb quickly in tandem with revived consumer confidence.

Royal LePage CEO Phil Soper says conditions become volatile whenever government intervenes in the market, as it has with the mortgage qualification changes, and that rattles buyers, which makes short-term investing—like buying and flipping—too risky.

“Their confidence is damaged and they step back from the marketplace and take a wait-and-see attitude,” he told CREW. However, “if you’re a professional landlord and investor, it’s a completely reasonable time to invest in the market because the economic fundamentals are so strong and you won’t be looking to resell the property in the short-term. Vacancy rates for prospective tenants are very low and I don’t foresee them improving in the short-term.”

The vacancy rate, at 1%, is so low, in fact, that Royal LePage’s surveyed agents reported 68% more bidding wars on rental units.

The GTA is home to a very large cohort of millennials, many of whom aren’t yet established and rely on the rental market for housing.

Not only will rentals remain popular, the frazzled market will ensure prices remain modest through June, before climbing nearly 7% by year’s end. In particular, starter condos will be popular in 2018 because of diminished buying power and because condominiums have become a stopgap in the rental market.

“If you’re buying a cookie-cutter condo, you may do better to purchase before March 1 when the traditional spring market kicks in,” said Soper. “Prices tend to be a little softer in January and February, but the selection balloons in spring and you might be able to find something better suited to the tenants you’re looking for. So it’s a trade-off the investor has to do.”

Soper also says entry-level condos are cheap enough to shield investors from major risk, and that they have wider appeal in the marketplace. Moreover, because they typically house singles and couples, their turnover rates are higher, and with the reintroduction of rent control, landlords can adjust rents to market value more often.

Zia Abbas, owner and president of Realty Point, says the low-rise sector should have strong investment potential because some sellers will be disadvantaged. His advice: Find them.

“A smart investor should go to the low-rise market because some sellers will be desperate,” he said. “There could be double commitments, like they bought a preconstruction unit and their new home is ready to take over and the old one hasn’t sold after three, four months on the market. They’ll be desperate and a smart buyer should go and hunt for those people.”


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