Is Toronto in the Midst of a Condo Price Correction?
The short answer is yes, in the near-term. There is a condo correction that is hitting one-bedroom condos the hardest. The longer answer is also yes, but there is a big “but.” The condo price correction will likely only last a year or two – once a COVID-19 vaccine is in place, there will be stability once again, which will buoy the condo marketplace. The primary driver is the lack of renters and the current desirability, one-bedroom and other smaller square footage condos.
The lack of immigration, fewer students, office closures, and fewer employment opportunities has drastically impacted Toronto’s rental pool. The downtown rental pool is comprised of condos. Increasing supply and decreasing demand in the condo market has created an environment ripe for condo buyer investors in the year to come. (see our below point about the investor opportunity awaits)
Rents Down 15%
Rents are down roughly 15%, but we suspect that this will increase to 20% as there are thousands of rental units in downtown Toronto. Once these units began to be absorbed, it will be after incentivization by the landlords.
New Construction Condo Completions
There are thousands of new construction condo units coming to completion in the year ahead. The absorption of these units will likely complicate resale units’ market value and what flippers expected when they purchased pre-construction. Investors have driven the last ten years of condo pre-construction sales. With fewer renters looking for places to rent, it will make those investors who are not well funded to off-load their condos or take out additional loans to ride out the COVID-19 Pandemic.
Immigration Numbers Are Paused
Canada has a strong initiative to increase immigration across the country. We are looking at approximately 1.4 million new immigrants in the next 5 years. Keep in mind that 2020 and 2021 are likely on pause. 2022 will hopefully be the restart, and there will be more immigrants coming into the country in the final 3 years of the initial growth quota. Not all immigrants land in the larger cities in Canada – that being said, 65% within one year will move to the larger metropolis, of which the Greater Toronto Area being the primary attractor. Toronto will see a large influx in the coming years.
The Great Investor Opportunity Awaits
There is an incredible opportunity for investors to purchase condos in the coming six months. There will be many condo owners that will be forced to divest in the months to come. Why? Because the renters are paying too little for them to financially stay afloat, if they can get a tenant to move in – vacancies are becoming an issue. The key for condo buying investors is not to jump in too quickly as rents will need to stabilize. There will need to be a clear sense that people and “normalcy” will be returning to Toronto’s downtown core.
We are seeing the shift of a seller’s condo market into a buyer’s market. We expect to see more and more landlords having to sell in the early months of 2021.