According to Urbanation this month, there has been enormous increase of rental transactions in the first quarter of 2013, over 31% from a year ago. This reflects the ongoing demand for downtown condominium living and the slight hesitation of potential buyers from making the commitment to purchase given all the unbalanced negative media sentiment on the condo market.
While some of these buyers are sitting on the sidelines with a “look and see” attitude, they nevertheless require housing, and as a result of this new demand, have been subjecting themselves to higher rental rates. Consequently, it is not surprising to see that rental rates increasing by 10% in the past two years alone. This is also an indication of continued interest in downtown condominium living – especially in the sub-40 year-old urban demographic.
In addition, some potential buyers have been squeezed out of the market due to new CMHC mortgage underwriting regulations, forcing them to remain in the rental market. While mortgage rates remain near all-time lows, landlords are definitely benefitting from lower carrying costs and higher rental revenue. In fact, many of our Axon client investors have now been able to achieve double digit returns on their equity on many of the properties we have acquired for them recently.
Therefore, it is simply a matter of when those potential buyers sitting on the sidelines recognize that once they have a reasonable amount of down payment available, how much cheaper it actually is to buy versus rent given today’s historically low mortgage interest rates. Until then, they will continue to face Toronto’s 1% vacancy rental rate – which has no signs of abating.
While many like to quote that interest rates are expected rise in the future, the amount that they actually do so, given that the world economies are still on the mend, is debatable. I often tell my investors and buyers that if they are really scared of high interest rates in the future, they can always get a 10 year mortgage at less than 4%.
Given this environment, if anyone is looking for an income property, this is one of the best times to acquire given that we have entered a more normalized condo resale market. On the flip side, renters that have some savings available should come forward in trying to find out how they can acquire a property sooner than later and carry it for less than they are paying for rent. Owning property protects the Tenant from unregulated rental increases (on properties built after Nov, 1991), landlord’s asking for their property back for themselves or their relatives to move in, and also from potential disposition by the landlord of the property.
As long as the Toronto downtown condo rental market remains healthy and renting instead of selling remains an option for investors, I expect condo prices to remain stable. Indeed, this is one of those times in the market when the shrewd investor looks at it as a perfect entry point.
If you would like to speak with me about your future real estate investments or switching from renting to owning, please do not hesitate to contact me at 416-929-1660 or email me at kaive.wong@axoncapitalrealty.com
Sources:
- Urbanation’s Q1-2013 UrbanRental Report
