How immigration is affecting PreConstruction Real estate in Toronto and GTA

Updated: Oct 29, 2019

Express Entry program and Immigration

Just like many others, I have also immigrated to this country along with my wife through the Express Entry program. This program lets everyone all across the globe who has enough work experience, proven English scores, enough savings, clean criminal and health records to immigrate to Canada and receive a permanent residence before even landing. You no longer need to secure a job but rather the program measures your potential to be successful in Canada. This led to thousands of families to come here. Most of them end up coming to Toronto due to several reasons: the biggest city = bigger chance of finding a job, proximity to US and New York, diverse backgrounds of people living in here (Vancouver - Chinese dominated, Montreal - you need to know French to find a job as a newcomer, Calgary - too cold and not as big, other cities - too small and it’s probably more difficult to find a job). This leads to Toronto’s population increasing constantly.

Demand and Supply

When you have these many immigrants the demand for housing organically grows, meanwhile, the supply of housing is not able to keep up with the increased demand. So, you see the prices increasing and they will keep increasing until the market reaches equilibrium, where supply will be more or less equal to the demand. Toronto is the fastest growing city in all of North America and has the highest number of construction starts at the moment. Builders have started expanding to Mississauga, Scarborough, Richmond Hill and Pickering where prices are still considerably lower than in Toronto. Currently price per sq. ft has already increased over 1300$/sq ft in Lakeshore, over 1700$/sq. ft in Yorkdale area, over 1000$ anywhere else in downtown. Builders can’t keep up with the demand for new housing.

Who is buying all of that real estate?

Typical buyers for these properties are either investors or end-users. Investors are looking for smaller 1 bedroom, studio or 1 Bedroom and den units in order to increase their future rent revenues. The idea is when you buy a condo today, by the time the project is built market rates will increase, which will pay for the mortgage and the maintenance fees and sometimes might even bring a positive cash flow from year 1. End users are buying for themselves, so they are looking for bigger units, where they can downsize from a house, raise their kids, enjoy the amenities the buildings have to offer and not worry about chores like mowing the lawn or shovelling snow in winters.

Currently, builders are mostly offering a mix of units and layouts to cater to both groups of consumers within the same building. When there is a right balance the building is taken care of by the end-users, which in turn attracts more tenants, so investors can profit from higher rents as well. The main gain for investors is capital appreciation. They can expect to buy a unit for 500,000, rent it when the construction is completed in 2-3 years, at the rental rates of the future years, hold it for 4-5 years while the building is still covered under the Tarion warranty and has low maintenance fees. Then they can exit from the investment by selling it for 200,000 more and invest in 2-3 new condos and repeat the process a few more times. By the time they are retired, they’ll have enough income to sustain a great lifestyle.

Some people talk about the bubble in real estate prices without analyzing the details. A bubble is created when something is overvalued without underlying elements. Here what we see is the actual demand and supply rules balancing the market. Since there is not enough supply of housing, the prices are increasing to balance out the market. In order to have a bubble, you would need immigration to stop but the prices for housing to keep increasing with the same rate they are increasing now. Since that’s not the case, the bubble is just a term people are using to justify their fear of buying real estate.

Making an informed decision based on facts and data, as well as your tolerance for risk and vision for the future can generate wealth for you, your kids and the generation to follow. If you need professional advice in buying pre-construction, get in touch with me today.

Author: Samir Khalilov

Photo by Aditya Chinchure on Unsplash

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