Chinese stoke Toronto’s condo boom

A house hunter in Beijing reviews a new condo development prospectus. With China clamping down on speculative investments in real estate, an appetite has grown for Canadian property. - A house hunter in Beijing reviews a new condo development prospectus. With China clamping down on speculative investments in real estate, an appetite has grown for Canadian property. | AP/Getty imagesThey have cash aplenty; they are in it for the long term, and they have taken the GTA real estate market by storm.Chinese buyers have become by far the dominant force in the new condo market in the GTA. Estimates of their impact suggest overseas Chinese investors, the 100,000-strong local community and the 20,000 to 25,000 Chinese citizens who are students resident in the Toronto area now account for anywhere from 25 per cent to 40 per cent of all new condos purchased here.

In high-end suburbs in Markham and Richmond Hill, Chinese buyers are snapping up $1-million plus homes in both the new and resale markets. In some prime downtown Toronto projects they account for 65 per cent of the sales during the first few crucial launch weeks when prices are lowest.

“Their impact is huge,” says Stephen Wong, president and founder of Living Realty Inc. in Markham.
His company’s 500 agents handle about 4,000 resales a year plus 2.500 new homes. “Our view is that today Chinese investors account for 40- to 45 per cent of all new condo sales,” says Mr. Wong.

“The fact is, they love Toronto. They see a stable, steadily growing residential market in a country with a stable economy and political structure. As long as we can create projects in great locations at reasonable prices, they will keep buying in great numbers.”

Their clout has even reached into luxury new and resale homes in areas where there is a concentration of Chinese residents, says T.C. Chan, president of Tradeworld Realty Inc. His company has 200 agents and a strong focus on Asian investors.

“Where I live in Richmond Hill and in parts of Markham, 60 per cent of luxury resales – homes selling for $1.3-million plus – are going to Chinese,” he says. “We have homes where buyers use them just twice a year when they visit Canada, yet they maintain gardeners, cleaning staff year round.

“I have seen launch days at projects like Angus Glen when they release a new series of luxury homes and expect maybe three or four people to buy over the weekend but instead 20 Chinese families snap them up.” The importance of Chinese investors is shown in the fact that there are six major brokerages now specializing in the trade and about 10 Chinese publications in the GTA dedicated to the real estate market, says Mr. Wong. There is even a professional organization: The Chinese Real Estate Professional Society of Ontario. The extraordinary interest from Chinese buyers begs a number of questions. Where are they coming from? Why are they buying in Toronto? And is the surge of investor-owned condos a good thing?

Last question first: While many people who buy a condo for their own use might feel uncomfortable living in a building where a large number of suites are occupied by short-term renters, without investor-owned suites the GTA would have virtually no rental stock available.

Experts like Barry Lyon of N. Barry Lyon Consulting Ltd. point out that, because of rent controls, about 98 per cent of new rental suites have come from investor-owned condos. Just two years ago when prices for new suites reached the stage where they made little economic sense as a rental unit, investors fled the market.

The concern then was that the GTA would face a shortage of rental suites and rents for what was available would shoot up as vacancy rates dropped. This fall, however, builders managed to cut selling prices at newly launched projects simply by reducing the size of suites.

The cost per square foot remained the same, but the price per suite was down by about 10 per cent. Once again investors could plunk 20 per cent down and see enough in rent to cover mortgage and maintenance payments with a reasonable return.

“Smart Chinese investors can get 4 per cent a year return on a rental plus a significant return on built-up equity and the natural rise in real estate prices when they sell down the line,” says Mr. Wong.

Taken from the Globe and Mail

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