The authors say Monday’s report is an analysis of investor economics rather than a market forecast and they identify several factors that could mitigate a slowdown in condo demand that would discourage development of new housing.
On Tuesday, Statistics Canada published an article that said the vast majority of real estate investors live in Ontario, most were over 55 and had an income of $110,000 with immigrants comprising a share of investors over and above their population numbers. Only about 10 per cent were international buyers. In a 2018 report, Urbanation and CIBC released a profile of GTA condo investors that showed most of them are local immigrants aged 40 to 60. “The truth is we’re going to need to continue them in the future because we know traditional rental development remains inadequate.” People often villainize condo investors but rental supply would be a lot worse without them, said Hildebrand. “Ultimately you’re left with a big supply gap at a time when rental housing is needed more than ever.” “This comes back to the issue of relying entirely on mom and pop investors to drive rental supply,” he said. Thirty-nine per cent of condos in the GTA are held by investors who use them as rentals, including 59 per cent of the units built in the last year - a figure that’s risen 20 per cent in the last decade, according to census data in the report. But I think more importantly, it’s going to reduce supply, which is very problematic given the large deficit of rental housing that we’re staring at.” “On the one hand less investor activity means less upward price pressures to a degree. “The glory days of easy returns and cash flow are likely over,” said Hildebrand. Units that sold for peak prices in late 2021 and early 2022 will be completed and investors in those condos will close in a higher interest rate environment than that in which they were purchased. Things will get worse, says the 2023 GTA Condo Investment Report, co-authored by Urbanation president Shaun Hildebrand and Benjamin Tal, deputy chief economist of CIBC World Markets.
It notes that 14 per cent of investors were losing $1,000 or more a month and a third were down at least $400. The situation has declined further this year to a loss of $400 on average in the first quarter, says the report. Last year, that profit had turned to an average loss of $223 for units completed in 2022. In 2020, those buyers were seeing an average monthly profit of $63. Three-quarters of condo investors hold mortgages on their units. It’s creating a scenario that could jeopardize demand for new units and potentially exacerbate the region’s housing crisis, warns the report published Monday. Higher interest rates are pushing the GTA’s new construction condo market to a tipping point, says a new joint report by market research firm Urbanation and CIBC Capital Markets.įor the first time, more than half of the investors who bought pre-construction units as rental properties were losing money last year.
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