Notes from a Professional: What are the Current Trends in the Toronto Real Estate Market?

The first thing people ask when they meet a real estate professional is: “How is the market?”

A group of young people. Panorama.

For most of people, real estate is the biggest investment they will ever make and we all want to know where the market is headed. Are we going to gain or are we going to lose on our biggest assets?

bird nest - real estate '08 2How do I find the trends?
I have travelled all around the world in order to gain a better understanding of the real estate trends in other big cities. Boston, Chicago, New York were ideal to study trends and to see where we are likely headed, here in Toronto. I have studied Paris and London, Rome and Sydney, Moscow and Berlin: all big cities where people have jobs and want to live.

What’s going on in the Toronto real estate market right now?
Toronto is the youngest city among those I mentioned above, it is the coldest with wind chill and it does not have many architectural masterpieces to recommend it. So why is our market hot, and expensive, all year round?

I look with horror when it takes only few day to sell, over asking, a house in the middle of nowhere, built on a small lot, and priced over million dollars. I have seen triple price appreciation on detached homes over the last 10 year period. I am sure that we all know that the average price on detached homes In Toronto crossed over the $1,000,000 mark recently, and this is an average price!

Have you seen really ugly areas in Toronto? I am sure you have. Yet even these areas have high demand real estate, where people are stuck in traffic daily to get to a job. I see multiple condo buildings in downtown Toronto, where price per sq. ft has more than doubled over the last 10 years. Where units become smaller and smaller and a huge premium is placed on the view. I see 500 units building sold within 2 days at Yonge and Isabella. It is all happening in downtown Toronto, where the roads and public transportation have become a national embarrassment.

Who is moving to Toronto and why?
With intelligent immigration policies, respectful attitudes towards new immigrants and English as the primary language, Canada is one of the preferred counties to immigrate to for people with education and ambition. Every year, almost 200,000 students arrive in Toronto to get an education and with hopes of staying on as citizens. The biggest condo buyers on the market are parents looking for homes for their only child.

Another big trend in central Toronto is parents moving to be nearer to their children. That said, most condo deals made with our clients children involve properties in downtown Toronto. I have not met many young professionals who wants to stay in their parent’s neighbourhood. The younger set do not want to drive; very often, they do not even have a driver’s license. They value their time and money and prefer to walk everywhere. Our city is changing to satisfy this trend.
Toronto is the biggest city in Canada and Canada is the second best country to live in the world, after Germany. We all know how many people now want to live in Germany, so it’s hardly surprising that many Germans (150,000) move to Canada, Australia and New Zealand, every year.

By 2035, the population in Toronto will be 6 million people and 12 million people in GTA. Our city will be taller and apartments will be smaller, like in Asia or Europe. Canada accepts more than 250,000 immigrants every year and half of them settle in our city. We need at least 30,000 homes every year to accommodate them. More and more young people from Vancouver, Montreal and Calgary are moving to Toronto for a better lifestyle and solid jobs.

FamilienausflugWhat should we expect from investing in the Toronto real estate market in the near future?
In my opinion, we should expect a hot market and continued price appreciation in 2016 and 2017 because, compared with other countries and cities, our real estate is still very affordable due to low interest rates. My clients used to pay the same monthly mortgage payments for $400,000 homes when the interest rate was 6.5% as they pay now for $620,000 homes, with an interest rate of only 2.2%.Happy  sweet couple walking in city

At the same time, Canadians have more than $200 billion dollars sitting in GIC accounts with negative or zero appreciation, thanks to inflation. What is a better alternative? Almost any rental property with 20% down payment will bring the owner at least a 5% return on capital, without price appreciation. With average price appreciation at 7% per year, the return on capital could be 25% and more. Last year, the average price went up 9.4% in GTA.

Call myself or Nikolai if you would like to get together and discuss an opportunity to invest in or sell your property. We haven’t done any advertising for years: our business is strictly word of mouth referrals from satisfied people clients.



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Ontario Home Ownership Index

What do Ontarians really think of the current real estate market? OREA has partnered with global research firm, Ipsos Reid, to develop The Ontario Home Ownership Index, revealing the latest market outlook and home ownership trends.


Consumer Index Infographic 2016

January 2016 index


Consumer Index Infographic 2015

Spring index


Spring index

Government of Canada Takes Action to Maintain a Stable Housing Market

58151Ottawa, December 11, 2015 – Finance Minister Bill Morneau today announced changes to the rules for government-backed mortgage insurance to contain risks in the housing market, reduce taxpayer exposure and support long-term stability.

Effective February 15, 2016, the minimum down payment for new government insured mortgages will increase from 5.0% to 10% for the portion of the house price above $500,000. The 5.0% minimum down payment for properties up to $500,000 remains unchanged.

As an example, for a house priced at $700,000, the minimum down payment for mortgage insurance purposes under the status quo would be $35,000. Under the new system, the minimum down payment would be 5.0% x $500,000 + 10% x ($700,000-$500,000) or $45,000. It is important to note that the homes priced at or above $1 million already require a minimum down payment of 20%.

Today’s announcement represents a graduated approach to increasing the down payment requirement proportionally to the cost of a home. Canadians who already hold mortgages will not be affected by this announcement.

The Government continuously monitors the housing market and is committed to implementing policy measures that maintain a healthy, competitive and stable housing market. Higher homeowner equity plays a key role in maintaining a stable and secure housing market.

In making this announcement, Minister Morneau also highlighted the increases in guarantee fees for Canada Mortgage and Housing Corporation (CMHC)-sponsored securitization programs, announced today by CMHC. The Office of the Superintendent of Financial Institutions has also announced today its plans to update regulatory capital requirements for residential mortgages to ensure that capital requirements keep pace with market developments and risks. Taken together, today’s actions will strengthen the resiliency of Canada’s housing finance system to promote long-term stability and balanced economic growth.

Market Impact
The increase in minimum down payments on homes above $500,000 is designed to target excess risk taking in Canada’s most expensive housing markets. The average price of homes sold in October 2015 through the Canadian Real Estate Association’s Multiple Listing Service® (MLS®) system was about $453,000, therefore this change will have limited impact in much of the country. For those areas where the average home price is currently over the $500,000 like Toronto, this change could adversely affect or delay demand in those markets, particularly for first-time homebuyers. That said, given the incremental nature of the change, and since minimum down payments are less frequent at higher home prices, we expect the overall impact to be relatively minor.


CMHC Predicts Housing Market to Cool Down in 2016

58155The country’s housing regulator predicts Canada’s housing market is set to cool over the next two years as the frantic pace of both new home construction and existing home sales in some markets slows down.

In 2015, “the housing markets in British Columbia and Ontario have benefited from lower gas prices, rejuvenated exports and record-low interest rates”, CMHC chief economist Bob Dugan wrote. But those effects will wear off in coming years.

New home construction will also fall, with housing starts hitting 186,990 in 2015 before dropping to 178,150 this year and to 173,650 in 2017. The residential construction sector will be forced to grapple with high numbers of newly built, unsold condos that “encourage some builders to channel demand for new housing towards existing inventory,” CMHC wrote.

“To be sure, the GTA’s condo market will be tested as interest rates start rising in 2016 and 2017, and increased resale activity from domestic condo investors will result in excess supply and some downward pressure on price,” Mr. Dugan wrote. “But for now, those who look at the rise in unabsorbed units as a sign of increased vulnerability are barking up the wrong tree.”

Not everyone agrees with that assessment. In a recent report, Canadian Imperial Bank of Commerce economist Benjamin Tal wrote that CMHC’s data on unsold condos appeared to be unreliably volatile and that higher levels of unsold condo inventory in the Greater Toronto Area could be mainly attributed to just five projects by four developers.

With the start of 2016, the housing market in Toronto and Vancouver is expected to taper off slightly over the next two years, the prices should drop by 5.0%, and the number of units sold is to drop down as more prospective first-time buyers find they’re priced out of the market due to the new government rules.

In Montreal, an improving labour market will spark new home buyers over the next two years, pushing home prices up by 2.0% a year. However, a surge in new rental construction to 10-year highs will also boost rental vacancy rates.

The improving economy and private sector energy projects should give a lift to the Atlantic Canada region’s struggling housing market, but residential starts will likely fall over the next two years. In St. John’s, home prices should fall 2.0% this year as developers move away from speculative home building. In Halifax, existing home prices will grow below the rate of inflation as the city undergoes its biggest rental-housing renaissance since the 1970s.

The market in Calgary, Edmonton, and Saskatchewan has undeniably felt the effects of the struggling energy sector. Construction of detached homes is expected to reach its lowest levels since 1988. High rental vacancy rates and a backlog of unsold condos will put its weights on developers and resale activity is expected to fall by 12.0% by the end of 2017.


Important Things to Consider When Buying a Condo

58154Condominium sales are booming in many urban areas in Canada especially in large cities such as Toronto and Vancouver, with several buildings being developed. Today, condominiums continue to appreciate in market value at a rate that is almost as fast as that of single-family residences making condos a good investment.

Buying a condo with features that are in high demand will maximize the profit on your real estate investment and create an enjoyable condo living environment.

A condo with a view
A spectacular view is an important factor in deciding the value of a condo unit. A unit with an unobstructed view of the cityscape or a lake is much more preferable to a view of an industrial building or a neighbour’s kitchen. Choose a south or west-facing unit that offers optimum light, which can make smaller spaces look larger. Balconies and patios provide desirable access to the outdoors, which is highly sought after by condo dwellers. Although these features will cost a premium, they are more than worth the investment, and will help in getting a top price when it comes time to sell.

Condo maintenance fees
Buying a condo with a relatively low maintenance fee is a smart choice. Many condos have amenities that include gyms, swimming pools, squash courts, party rooms or rooftop patios. The cost of these features will result in a higher monthly maintenance fee. Condo buyers should consider whether they will make use of these facilities in order to justify paying a higher maintenance fee.

High demand condo features
Look for condos with modern kitchens and bathrooms that not only provide immediate aesthetic appeal, but are in great demand by buyers. Hardwood floors are a very popular feature in condos, not only offering a stylish appearance, but also providing a desirable, easy-to-clean alternative to stain-weary, allergen-inducing broadloom.

Storage space
Storage space is important because of the small size of the condo unit. Some condos include a storage locker in the common areas of the building. Make sure there is enough space for your essential seasonal items – such as a bike, skis, snowboard, hockey gear, baseball equipment, Christmas tree, etc.

Car parking
As parking in large cities can be scarce, a condo that has a parking space included is a very good investment. Ensure that the building has ample visitor parking or that there is available street parking in the neighbourhood. Many condos in the downtown core provide no visitor parking, leaving the costly option of parking in a public parking lot.

Building security
While having a security guard on site does provide added security, keep in mind that this expense will increase the maintenance fee.

Owner occupancy rate
Is also important to find out who occupies the other units of the complex. Owners occupying their suites have an invested interest into the building and typically take better care of common areas.

Do not get caught up on the looks and cosmetics of a condo. Go back at least a couple times to view all the things you may have overlooked or didn’t consider when visiting the first time.

Condominium units have become a wise alternative to owning a house. This is not surprising, as living in a condo can be more convenient than living in a house. A condo is ideal for individuals living alone, small families and older people. And because condos are smaller, they are less expensive to maintain.