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Homebuyers overestimate impact of foreign investors

Homeowners in Vancouver and Toronto believe that foreign investors are driving up home prices but that isn’t backed up by official figures.

Maziar moini

A new Housing Market Insight from the CMHC shows that 68% of survey respondents in Vancouver and 48% in Toronto think foreign investors have a lot of influence on home prices in their cities.

However, official Statistics Canada data shows that total non-resident ownership is just 4.8% of homes in Vancouver and 3.4% in Toronto.

Vancouverites are more likely to believe that investors have more influence on home prices than supply restraints and demand-side factors.

Buyers are also spending more than planned in Canada’s two hottest housing markets; 48% of respondents in both cities said they had exceeded their budgets, twice as many as those who did so in Montreal.

“The survey allows us to better understand how home buying is influenced by attitudes and perceptions, giving rise to sustaining local narratives. As we can see, psychological drivers can be at odds with economic fundamental drivers,” said Guillaume Neault, Senior Manager, Analytics, Canada Mortgage and Housing Corporation.

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Building Canada’s Tallest Condo Towers—Right Into Toronto’s Sales Slump

Great Gulf Group is well aware it’s forging ahead with one of Canada’s ritziest condo projects in a market that appears to be cooling. In fact it’s bracing for the possibility.

The developer plans to construct the country’s tallest residential buildings — two towers as high as 92 stories plus commercial space, designed by Frank Gehry, and projected to cost more than C$1 billion ($750 million). Chief Executive Officer Jerry Patava is confident demand for condos will remain strong in a city that’s a magnet for immigrants, even though sales have slumped.

“That’s a lot of square footage, 1.7 million or 1.5 million square feet of residence is a lot to sell but you know obviously, the building itself is spectacularly designed and the location is great,” Patava said in an interview at Bloomberg’s Toronto office. “But if we don’t get our presales, we’re not building our condo.”

Condo sales dropped 30 percent in the first quarter in the Toronto region compared with the year before, though average prices rose 9 percent, according to the local real estate board. The retrenchment is happening as supply is rising, with work begun on almost 10,000 condos this year — the most since 2015, according to Canada Mortgage & Housing Corp.

Sculptural Form

The project, located in Toronto’s entertainment district, calls for space for an art and design university, offices, retail or a luxury hotel. The first building on the west side, will be launched for presale next year, said Patava, and will total more than 1 million square feet of space. That tower will supersede the 85-story luxury condo currently being built by Mizrahi Developments at the corner of Yonge and Bloor Streets.

The two skyscrapers, which will sit on top of a seven-story podium, will carry the trademark sculptural design that shot Gehry to fame with the Guggenheim Museum in Bilbao, Spain, though in vertical form. The project has been approved for zoning as a mixed-use site and the next phase for the closely held company is to move into presales to get financing for construction.

Patava said the plan is to build the entire underground of the development first, close it off and proceed with the west tower. “I’m hopeful that we get halfway and we can sell the west well, and maybe even start construction, so we can immediately start to sell the east.”

Withstand Correction

The project is one of several under way by Great Gulf in the city, including a 34-story condo building at Yonge and St. Clair and a 46-story at King and Spadina, both of which will also start pre-sales next year in a market Patava describes as “frothy.”

“We are very selective in what we acquire in the downtown core,” he said. “We spent a year and a half before we bought the site working with Frank Gehry just to make sure we can build it right.”

A drop in immigration flows, a significant jump in interest rates or unemployment could trigger a 10 percent downturn in Toronto home prices, though Patava hasn’t seen signs of that yet. Even if that were to occur he wouldn’t be too worried. “We can withstand that kind of downturn, we’ll just cut back on production and look in the U.S.,” Patava said.

Southern Charm

Great Gulf’s U.S. residential divisions, Ashton Woods and Starlight Homes, are two key growth drivers for the company. The company is aiming for U.S. sales of more than 4,000 units this fiscal year in markets including Orlando, Florida and Texas after reaching 3,800 in the 12 months to May.

U.S. residential markets are in “the sixth and seventh inning of a recovery,” Patava said, noting the company’s come a long way after almost filing for bankruptcy in the U.S. during the housing crash. “We still have some pricing power and we still have some volume that we can generate in the U.S.”

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GTA new condo sales “very encouraging”

Sales of newly-built condos in the Greater Toronto Area totalled 2,003 in May, accounting for the bulk of the 2,345 total new home sales.

While condo sales were 47% below May 2017’s record high, they were just 1% behind the 10-year average for May.

“May new condominium apartment sales were very encouraging,” noted Patricia Arsenault, Altus Group’s Executive Vice-President, Research Consulting Services. “Not only was it the strongest month since last November, but the sales of 2,003 units are impressive in historical terms: there have only been five other years where May new condominium apartment sales topped this year’s performance.”

The figures are part of a report from the Building Industry and Land Development Association (BILD), which also reveals a 25.4% year-over-year rise in the benchmark price for new condominium apartments in low, medium and high-rise buildings, stacked townhouses and loft units ($758,370).

Inventory is down to 9,345 as only five developments, totalling 710 units, opened in May.

Single-family home sales, prices down
The benchmark price for single-family homes was down 6.4% year-over-year to $1,144,191; and sales of just 342 homes meant sales dropped 33% from last May and down 78% from the 10-year average.

But the fall in prices may be about to change; and not in a way that will benefit sellers.

“It is doubtful prices will continue to moderate, considering embedded government fees, taxes and charges, and high land costs due to regulatory constraints,” said David Wilkes, BILD President & CEO.

BILD is asking residents to send letters calling for action on the GTA’s housing issues to candidates for municipal office ahead of the October 22 elections.

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How Mississauga’s 10-tower, $1.5B condo complex could reshape the city’s future

The M City complex and Hurontario LRT are scheduled to open in 2021 and 2022, respectively

The start of construction for a $1.5 billion condo complex is being hailed as a major step in Mississauga’s ongoing evolution into a full-fledged urban centre.

Developers are set to host a ceremonial groundbreaking Monday at M City, a 10-tower, 15-acre development to be built on the west side of the city’s burgeoning downtown core, at 3980 Confederation Parkway.

“I think it’s going to transform Mississauga,” said Mark Reeve, a partner at Urban Capital Property Group, one of the developers behind the project.

The first two towers of the complex are scheduled to be completed in 2021, one year before the scheduled opening of the Hurontario LRT, which will include a stop just blocks from M City.

There are hopes that the combination of housing and transit will help Mississauga in its ongoing evolution from a sprawling bedroom community into a modern city where people live and work.

Mayor Bonnie Crombie said the complex will help the area achieve its goals of becoming a “vibrant, livable, walkable downtown.

‘The future of the GTA’

Urban planners say the complex and upcoming rapid transit projects have put Mississauga at the forefront of Toronto’s suburbs when it comes to planning and intensification.

“Mississauga really represents the future of the Greater Toronto Area,” said Graham Haines, a research manager at the Ryerson City Building Institute. “It’s a municipality that’s starting to figure out how to build up instead of build out.”

In March, Haines published a report that examined how Mississauga can best prepare itself for its expected population growth.

With the right planning and developments, he found the city could accommodate 160,000 new homes, and as much as 80 per cent of all projected growth in Peel Region until 2041.

The best way to accommodate that growth, he said, is through the construction of so-called “missing middle” housing — homes such as townhouses and mid-rises.

While researchers say the towers at M City are a good fit for downtown Mississauga, they warn it’s not a model that will work across the city.

“It doesn’t mean that we need to build towers everywhere,” said Cherise Burda, the institute’s executive director.

Jobs still needed

Burda said the city is on the right path to achieve it goals, and that among the GTA municipalities, Mississauga is “leading the region in thoughtful intensification planning.”

However, the city needs more than condos and transit if it is to achieve its full potential. That will take jobs too, researchers say.

“This M City condos project is an exciting one for sure, but it’s largely residential,” Haines said.

The next stage is to attract more jobs and office towers to downtown Mississauga.

That effort will be the “key inflection point,” he said, that will determine the city’s success in its transformation.

Crombie says those jobs are on the way, as part of Mississauga’s expected population boom of around 200,000 people over the next 25 years.

That growth will create more than 100,000 new jobs in the city, she said.

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Huge demand for student housing makes it a lucrative opportunity for investors

Haider-Moranis Bulletin: The private sector can develop student housing into a mature class of real estate investments

As enrolment at Canada’s universities and colleges continues to grow, the space for lecture halls, labs and academic offices is becoming scarcer. The same goes for on- and off-campus student housing.

More than 1.5 million full-time students are currently enrolled in Canadian universities and colleges. They collectively generate a huge demand for rental housing and, in particular in large urban centres where rents are high, present a predictable source of demand for rental units.

But these days, students aren’t the only ones with an interest in student housing.

The previously ignored sector has become a niche opportunity for investors as well, lured by yields that U.K.-based real estate services provider Savills notes are “currently higher than in many sectors.”

Earlier this year, the Canada Pension Plan Investment Board (CPPIB) announced that their joint venture, Scion Student Communities, acquired a student housing portfolio worth US$1.1 billion. The portfolio comprises 13,666 beds in 20 university campus markets across the U.S.

A recent report in the Economist revealed that student housing attracted US$16 billion worldwide investment in 2016, as sovereign wealth funds increasingly target the sector.

Opportunity exists in Canada as well. The growth in the number of post-secondary students here has not been met with a commensurate increase in student-centric housing. The need is most acute in cities such as Toronto, where a collaborative initiative, StudentDwellTO — sponsored by the presidents of the four Toronto universities — aims to find solutions for student housing challenges.

While universities may be tempted to secure a larger piece of the student housing pie by getting more involved themselves, that would be a mistake. Universities are in the business of education and not running rental accommodation. They should encourage and facilitate the private sector, which has the experience and the resources to help the hitherto nascent student housing market reach maturity in Canada.

SVN Rock Advisors Inc. Brokerage specializes in student housing finance. They estimate that the unmet (residual) demand for student housing in Canada is more than 416,000 beds. This should hardly come as a surprise since even with millions enrolled in Canadian universities, the total number of on-campus beds is just 121,164.

SVN estimates that the current number of purpose-built off-campus beds across Canada is 39,178, almost half of which are in the Kitchener-Waterloo area.

The unmet demand for such housing is estimated to be huge, with 51,000 beds needed in Montreal, 32,000 in Toronto and 21,500 in Ottawa.

From an investment point of view, the numbers favour student housing over other residential rental projects. For instance, a purpose-built rental with 140,000 square feet of rental space can house approximately 220 people in 140 units. The same space will accommodate 450 students and can generate 30 per cent more rent, says Derek Lobo, who heads SVN.

And the demand for student housing in Canada is only expected to rise. The demographic realities of most regions of Canada and the increased appetite for education around the world mean that international students will comprise a larger proportion of university enrolments in the future.

During 2011-12 and 2015-16, the number of full-time Canadian students enrolled in Bachelor’s or equivalent programs increased by only two per cent. In comparison, the number of international students studying in Canada increased by a whopping 52 per cent. In Manitoba and British Columbia, the comparable international student population grew by 88 per cent and 74 per cent respectively.

As Canadian universities compete globally to attract international students, they must recognize that “residence life” is very much part of the educational experience. As universities specialize in the delivery of educational services, they should collaborate with private sector investors and property managers to provide quality housing services.

The days of ageing, run-down student housing are over. Students and their parents expect and demand quality housing. Given a stable source of demand and the willingness to pay, the private sector can develop student housing into a mature class of real estate investments.

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