Toronto Real Estate Trends – The Numbers

Toronto Real Estate Numbers 

A recent article has broken down the numbers after this record breaking summer.  Click Here to read the article.  

1. $880,433Toronto Real Estate

You read that number correctly, that is the average selling price of a detached home in Toronto according to the Toronto Real Estate Board (TREB).  That is up 11% from the same period last year, and is on the verge of becoming the second city where the average price of a detached home is over $ 1 million.  

2. 130 properties under construction

Despite the number of newly constructed condominiums that have added to the Toronto skyline, there are currently 130 new properties under construction. For the past several years, Toronto has had more skyscrapers under construction than any other city in North America. As a point of reference, New York City currently has only 91 high-rise buildings under construction.

3. 39,000 realtors

This number likely doesn’t come as a shock.  With the housing boom of late, and the price of Toronto real estate continuing to rise month over month, the number of realtors has increased by 20,000 compared to 10 years ago.  Statistically, this is one realtor for every 140 people in the GTA.  

4. 7.9 times income

Housing prices have increased at an alarming rate.  Incomes, unfortunately, have not increased at the same pace.  This has meant that housing prices have surged ahead of income. Over the past 17 years, incomes have risen at a 2.8% compounded annual rate, while house prices have gone up a little over 2 times that amount –  5.8%. In other words, house prices have more than doubled over that period, while incomes are up by just a bit more than half.

Just to put things in perspective – in 1997, the average house price in Toronto of $211,307 was approximately 4.9 times the median gross household income of $43,560. Today, the average price of $550,725 puts houses at about 7.9 times the average household income, which is $69,934.

5. 43% of income

To buy a house today, a Toronto resident would have spend about 43% of their gross income on housing assuming current average real estate prices, a five-year term, mortgage rates amortized over 25 years, and a 5% down payment. That’s well within historical averages and below the 50% figure breached during Toronto’s 1989 real estate bubble.

However, even a small rise in interest rates could push leveraged buyers over the edge. If mortgage rates were to rise just 2%, the typical new home buyer would have to dedicate 53% of their gross income to housing. That could push thousands of borrowers into default.  

6. 37 times rental income

The cost of owning a house in Toronto is also looking stretched relative to renting. According to the most recent numbers from the International Monetary Fund (IMF), Toronto real estate prices are valued at 37 times annual rental revenue. Historically, Toronto’s housing market has traded between 15 and 20 times rental income.

These valuations are raising alarm bells amongst institutional investors. Thomas Schwartz, President and CEO of Canadian Apartment Properties REIT (TSX: CAR.UN) told investors earlier this month, “I think it’s driven primarily by the fact there’s a lot of capital chasing apartments, a lot of it is private capital. People are using shorter term funding. I’m not sure they’re looking at the CapEx in quite the same way we do. And again, at this point, I’m just not comfortable making the deals that are being made out there.”

7. 3.7% cap rate

In late 2013, the Financial Post reported Toronto’s upscale Bayview Village shopping mall fetched $500 million and sold for a capitalization rate said to be in the 3.6% to 3.7% range. The cap rate — the rate of return based on what a property is expected to generate in rental income — is considered to be near a record low. According to Colliers International, cap rates in the Greater Toronto Area are approaching record lows across all property types.

These valuations are encouraging smart-money investors to search elsewhere for deals. H&R Real Estate Investment Trus(TSX: HR.UN), one of Canada’s largest REITs, has been snapping up U.S. properties where cap rates are less rich. In June, the firm announced one of its largest deals yet agreeing to participate as a 50% joint venture in developing a landmark luxury residential rental development in Long Island City, New York.

8. 17% investor owned

Earlier this month, the Canada Mortgage and Housing Corporation released a snapshot of the condo markets in Toronto and Vancouver and found that only 17% of units are investor-owned. However, the survey drew criticism for leaving out any measure of foreign investors living abroad. According to The Globe and Mail, 40% of Toronto condos are owned by investors. Other private sector estimates put this figure even higher.

Olivia Chow: Land transfer Tax Increase to Fund School Nutrition

With the mayoral race heating up in Toronto, and the candidates trying to convince voters that they are best for the job, Toronto mayoralty candidate Olivia Chow recently proclaimed that if elected, she will raise the city’s land transfer tax by one per cent to fund a school nutrition program. Types of Ownership

Now, before everyone in Toronto gasps, according to Ms. Chow, the proposed increase will only apply to transactions that exceed $2 million.  She added that Chow said the tax would apply to only a fraction of annual real-estate transactions in Toronto. Since September 2013, 473 homes and 56 condos sold for more than $2 million.  According to Chow, her plan will make the system “more progressive.” She said people paying more than $2 million for a home can afford an increase in the land transfer tax. Chow says the increase will raise about $20 million a year.

For those that aren’t familiar, click here for more information about Land Transfer Tax.  A quick refresher, Toronto’s Municipal Land Transfer Tax (MLTT) is paid by a purchaser of a home or business in the city. Toronto is the only municipality in Canada with a MLTT and it’s paid in addition to the provincial land transfer tax, which is slightly higher.

As it stands today, the purchaser of a house with a $2,000,000 sale price would pay $72,200 in land transfer taxes, specifically, $35,725.00 for the Toronto Land Transfer Tax and $36,475.00 for the Ontario Land Transfer Tax.  

EDIT:  Her plan is actually for a 1 percentage point hike, not just a 1 per cent hike — which is a substantial difference.

People buying a $2,000,000 home would pay 56 per cent more than they do now, $55,725 instead of $35,725. Which would bring the total Land Transfer Tax to $92,740.00 compared to the $72,200 they would currently be paying. 

My prediction is that if this (or something like it) were to pass, it would hurt the just over $2,000,000.00 (namely the $2-2.2 million) real estate market, as people in that market would likely try to only spend $1,999,999.00 to avoid the extra $20,000.00 in closing costs.  Or it would drive people out of the city into often larger, more luxurious homes for the same 2 million dollar plus price tag, but likely with more land and/or home. 

The Oct. 27 election is now less than two months away.  Some of you may recall my previous blog post regarding the possibility of eliminating or reducing the MLTT (click here). 

One thing is certain, this remains a hot button election issue.  Do you think Toronto should increase or decrease the municipal land transfer tax? Or, should they keep it the way it is?

Whatever your opinion on the issue, for those that live in Toronto, let your voice be heard, and vote on October 27th.

Toronto Real Estate – Resale Homes Jump another 10% in July

Toronto Real Estate – Average Price of Detached Home climbs to $880,433

Despite many market analysts saying that the sky is falling in Toronto’s real estate market – it showed no sign of slowing down in July.  As noted in the recent CBC article by Susan Pigg:

” Toronto’s hot real estate market showed no signs of slowing down in July, as the number of home resales surged 10 per cent from the same month a year earlier.”

According to the Toronto Real Estate Board  9,198 homes were bought and sold in the GTA in July, making it the second best July sales result on record.  

“Sales were up strongly for most major home types and market conditions actually tightened, with sales growth outpacing listings growth. The result was average price growth well above the rate of inflation,” said board president Paul Etherington

Toronto Real Estate Prices - Climbing

The average sales price was up 7.5 per cent to $550,700, with the biggest increase occurring in the average selling price of.detached houses.

  • Detached homes have  increased 11% year-over-year to an average of $880,433.  
  • Condominium prices in Toronto increased 4.7 %to $379,000. 

The MLS home price index, which measures the rate at which housing prices change over time by tracking price changes in “typical” homes, showed similar strength. In the Greater Toronto Area, the composite resale home changed hands for $513,400, up 7.9 per cent from a year earlier.   

What do you think — Is this a housing bubble about to pop, or just a new reality?  There are no easy answers, and certainly there are people who vehemently believe both sides of the coin. 

Toronto Real Estate: April Saw Prices Continue to Increase

Average Price of Single Home in Toronto increases by 13%

Supply and Demand.  In a capitalist society, in theory, this is what dictates prices.  It makes sense, less supply, higher prices; too much supply decreases prices.Toronto Real Estate

This concept, a shortage of listings, is what is being blamed for the steady rise of Toronto real estate prices.   In fact, in April active listings were down 8.4%. 

Here are the April numbers according to TREB:

  • The average sale price of a detached home in the City of Toronto was$965,670.
  • The average sale price of a semi is $702,332
  • In the 905 –the average sale price was $645,179

You will recall my recent blog post  that in the first half of April, according to TREB the average price of a single family detached home in Toronto was $1,012,172.00.

What or who is to blame for the shortage of supply. 

Some people blame the double Land Transfer Tax.  Others blame the fact that while the price of your current home has appreciated, so has the competition, so there is nowhere to move.  The third theory is that frenzied purchasers are desperate to buy a home before they are “priced out” of the market.  Likely, it’s a mix of all three.  What is certain, is that real estate prices in Toronto continue to rise, and this summer will likely see a continued increase in prices.

Toronto is catching up to Vancouver, which has the highest real estate values in the Country.    

Condominium: Owners Allege Didn’t Get What Promised

New Condominium:  When you don’t get what you were promised

Or Led to Believe

Wendy Ji, purchased a condominium unit Emerald City Condominiums at Don Mills Road and Sheppard Avenue in 2010 for $460,000.00.  One of the reasons she bought from this development was the advertised “easy underground access” to the Sheppard subway line and the proximity to Fairview Mall.  This was advertized in the sales brochures.  Ms. Ji believed that she would be able to access the subway through the condominium itself, without having to go outside.  A promotional video for the project showed a subway train pulling into a station with stairs marked Emerald City. 

In February, when the purchased closed, and she went into her new condominium, she discovered that there was no tunnel to the subway, as she alleges she was lead to believe. Condominium

Ms. Ji along with some 60 other residents have commenced a class action lawsuit against the development seeking a 10-15% rebate, saying the lack of direct subway access has devalued their units. 

The only way she could get access to the Don Mills Subway station was by walking outside across Sheppard Avenue or through the TTC pathways that ended in outdoor mall parking lots. 

As almost all contracts for new constuction, the agreement of purchase and sale contained the usual clauses stating that the builder chan change the plans and specifications of the building at its sole discretion or as required by the government, as long as it is not a materal change. This would include anythign that is promised in the sales brochure.

As noted in a Toronto Star Article by Susan Pigg, the lawyer for condo developer Elad disputes the claim saying, “there was never any representation that there would be underground access” from the condo building to the subway or directly to Fairview Mall: Both are easy to reach by walking out the lobby doors and six metres to the subway entrance right out front.

“The station isn’t far. It’s not going to kill me to walk there. But it’s the failure of the promise and the fact we paid a premium for that building because it was supposed to have underground access… Most people would just accept it and keep complaining, but this just pushed my buttons and, I thought, we have to speak up for ourselves.” said Ji in an interview with the Star.

Latent Defects – What About a Haunted Building?

Is a Haunted Property a Latent Defect? 

The Facts of the Case

In September of 2010 the plaintiff purchased a commercial property in Kitchener from the defendant.  On December 28, 2010 an article appeared in the local Kitchener newspaper. Mr. Kramer, a director of the defendant, was quoted as saying the following about the subject property, to the newspaper reporter:

and it’s haunted”, “I have heard this from a couple of people – up on the third floor, there is an office up there and they said some days you see somebody moving around inside of there and there is nobody there” & “we used to make jokes that Jimmy Hoffa was in the basement … It’s a labyrinth in there”.

It should be noted that there is almost no case law on the stigmatization of property in Canada and whether or not a vendor is obligated to disclose it.

The plaintiff put forward no evidence that anyone had died in the building whether from natural causes or some criminal act.  Further, the plaintiff’s testimpny was that he has never seen a ghost, did not believe there was a ghost and that all conversations about the property being haunted were a joke and were not serious.

Haunted BuildingJustice Sloan questioned how the plaintiff would provide evidence as to the existence of a ghost.

The Court looked at two previous.  The first was a 2006 Small Claims Court case from the province of Québec, Knight v Dionne where the Court decided that where the son of the vendor had taken his own life 10 years earlier in a personal residence, that fact did not have to be disclosed to the purchaser.

The second decision was Guglielmi v Russo, which was an appeal from the Small Claims Court in 2010.   Justice Swinton quotes

“… A latent defect of quality going to fitness for habitation and which is either unknown to the vendor or such as does not to make him chargeable with concealment or reckless disregard of its truth or falsity will not support any claim of redress by the purchaser.” 

Justice Swinton goes on to state:  

“In any event the vendor is not liable for damages for a latent defect of which he has knowledge unless it renders the premises unfit for habitation or dangerous.”

 The Decision:

In 2013, after hearing this evidence, Justice Sloan dismissed the case that this “haunted” commercial property had a latent defect. 

The plaintiff was not satisfied with this decision, and appealed Justice Sloan’s decision to the Court of Appeal.  Not surprisingly, the Court of Appeal dismissed the plaintiff’s appeal. 

For more information about patent and latent defects , and what must be disclosed to potential homebuyers, Click Here. 

Should Toronto Eliminate the Municipal Land Transfer Tax?

Toronto Real Estate – Land Transfer Tax

The City collects revenue from property taxation. Toronto real estate Transactions with closing dates after February 1, 2008 were charged a Municipal Land Transfer Tax (MLTT).

According to a recent article by Susan Pigg at the Toronto Star, a Report commissioned by the Ontario Real Estate Association claims that municipal home and sales levy has led to a 2.3 Billion dollar drop in economic activity and repealing it would create 12,000 new jobs in the next 5 years.  

“It’s bad for our economy and bad for homebuyers,” says Costa Poulopoulos, president of the Ontario Real Estate Association.  (Who, for full disclosure’s sake, commissioned the report.)

Toronto Real Estate land transfer tax

According to the Study,  Toronto has seen an estimated decline of more than 38,000 home transactions since the tax was imposed in 2008, making home ownership more expensive and Toronto the only city in Canada where homebuyers are double-taxed: they have to pay both a municipal and a provincial land transfer tax on the purchase of a home.

Furhter, the report states that the loss of sales has translated into a roughly $2.3-billion drop in economic activity in Toronto since 2008, and a $1.2-billion reduction in GDP. There would be nearly 15,000 more jobs in sectors from real estate to law to furniture and appliances stores without the Toronto-only land transfer tax.

The economic analysis was done by Altus Group Economic Consulting.  The study relied heavily on two previous studies: a 2012 C.D. Howe Institute report that estimated the impact of the tax on housing transactions, as well as a 2013 study for the Canadian Real Estate Association that examined the economic impact of a typical house transaction in Ontario.

Altus researchers then took those reports one step further, looking back and also ahead at the economic fallout of the tax.

The study went on to note that the economic damage is much bigger than the gain for the city, the average revenue the municipal land transfer tax generated each year since 2008 has been $270.2 million.

The annual take now is about $350 million a year, thanks largely to soaring house prices. That’s close to double the amount collected in 2008.

Toronto Mayor Rob Ford had long vowed to eliminate the municipal land transfer tax.  However, when faced with strong resistance to getting rid of the revenue stream for the city, he talked about reducing it by 5 or 10 per cent instead. He has yet to follow through with either eliminating or reducing the Toronto Land Transfer Tax.  A recent Toronto Star Article suggested that it should be made an election issue for the upcoming mayoral election.  

Land transfer taxes now add up to more than $14,000 in upfront costs on a $550,000 home purchase in Toronto — about $7,500 of that being the provincial tax and $6,700 the city tax.

“This research proves that the (municipal tax) is doing more harm than good where our economy is concerned,” said Poulopoulos. “It gets in the way of the economic spinoff that occurs when homes are purchased and sold.”
The real estate umbrella group commissioned the study, hoping to make repealing the tax both a municipal and a provincial election concern, and to get out front of the issue before any other Ontario municipalities, such as Missississauga, move to implement their own version of the tax.  The study is being released along with a new Ipsos Reid survey that found 85% of Toronto residents think the tax makes it harder to become homeowners, and 72% said the upfront costs would come at the expense of spending on other economic generators, such as renovations, furniture or new appliances for their new home.

Will Toronto Eliminate the Municipal Land Transfer Tax?

At the end of the day, whether it be repealed or decreased will likely be a decision of the new mayor of Toronto.  It will be interesting as the mayoral race progressing to see where they all stand on the issue.

Will it happen?  Who knows.  We were already promised by the current mayor that the tax would be eliminated.

Toronto Condominiums – Ceiling Heights Lowered on some projects

The Sky is Falling – Be Prepared to Duck

How Toronto Condominium Developers are Saving Space

Now we aren’t talking about Chicken Little, but it comes as no surprise to people who have been seeing new Condominium developments over the years that on average,  units are getting smaller.  

RealNet Canada Inc. released its latest stats for new condos in Toronto… and the numbers showed that the average size of a unit has shrunk to about 797 square feet, from closer to 900 square feet five years ago.

However, as noted in a recent Globe and Mail article, there is a new trend that is slowly creeping into new Condominium developments.  The ceiling heights are being lowered.  Toronto Condominium construction

When purchasing a Condominium pre-construction, you often only see two dimensional floor plans which will show you how large the unit will be.  What people often fail to consider, is the height of the ceilings.  Particularly if you are not aware of what a “normal” ceiling height ought to be. 

According to Matthew Slutsky, president of BuzzBuzzHome, “Nine feet is normal, 10 is luxury,” he says. “It’s gone up, eight used to be the norm about a decade ago. Around 2007 to 2008 it started to change to 9 being the standard.”

Why would developers be lowering ceiling heights?

When you think about it, it makes sense.  If a project is approved for a certain height, and they take six inches off per floor over 18 storeys, they can add another floor.  This allows developers to add condominium units, without making them smaller than they already are. 

What does that mean for you?

Nobody likes surprises when it comes to real estate.  If you don’t know to look for ceiling heights in the agreement, you may not turn your mind to the issue. This demonstrates why it is so important to have a real estate lawyer review your Agreement of Purchase and Sale.  

When you purchase a new condominium from a builder you have 10 days to have the document reviewed.  For more information about the 10 day cooling off period, click here.

Make sure you know what you are getting into.  Protect yourself.  

 

When Things go Wrong After Closing – Closing Non Merger

What Conditions Survive Closing?

It is something that I hear about all too often.  I just closed the deal on my new home and X, Y and/or Z are not working.  The Agreement of Purchase and Sale promised that everything would be in good working order.  What can I do?

The answer isn’t what you probably want to hear. After Closing

Even if the Agreement of Purchase and Sale contains a warranty that it will survive closing, there isn’t much that can be done.  What this “warranty” promises is that X, Y and/or Z will be working on the day of closing, but not a second after closing.  So if they worked, and then a day later broke.  It becomes your responsibility to fix it.  What the seller is promising is that  X, Y and/or Z are working, and will work until closing, the promise will survive closing.  However, it does not mean that the seller is promising that X, Y and/or Z will work after closing.  When you are the purchaser this can seem frustrating, however, put yourselves in the seller’s shoes.  Would you want to or be able to promise that something that is no longer in your control or care will work?  Likely not.  This is the same principle. 

If the Agreement of Purchase and Sale does not contain a condition that it will survive closing, then the issue must be negotiated between the parties prior to closing. 

Recommendation:  The day of closing, go to the house.  Check that everything is as it should be and is working.  It becomes a harder sell when a day, a week, a month goes by and only then did you realize that a particular appliance doesn’t work.  If something isn’t working on the day of closing, contact your real estate lawyer.  It is often difficult to prove when something broke, which brings me to my next point. 

Home Inspections are so omportant.  If there are issues they can be addressed between the parties before closing.  It also provides proof whether certain things/appliances were in good working order prior to closing.  If you are still on the fence about including a clause about home inspections, Click Here to see more information about why it is so important to have a home inspection.  

When will a warranty extend beyond closing?  There are certain circumstances where warranties will extend beyond closing.  For example, if the closing is in the winter and the pool has been closed, the seller may promise that the pool is in good working order, and provide a date in the future (in that circumstance likely sometime in the summer) where the pool will be operational.  

Whether you are buying or selling property, the terminology or “jargon” may not make a lot of sense unless you know what to look for.  It might sound self serving, but I always recommend having a real estate lawyer review Agreements of Purchase and Sale.  Protect your investment.   Contact Us to ensure your rights are protected. 

Canadian First Time Home Buyers Increase their Budgets

According to a Bank of Montreal Study the average first time home buyers have increased their budget to $316,000.00

This is up almost 6% from an average of $300,000 in last year’s report on first time home buyers.  

What is even more interesting is that buyers in Vancouver, Calgary and Toronto real estate have even higher budgets for their first homes.  

key-3-939487-mThe numbers from the online interviews conducted by BMO from January 25 – March 6, 2014: 

Approximately 30%  of the 513 Canadians interviewed online for the study said they expected assistance from parents or family.

Nearly 61%  said they have made cuts to their lifestyle to save for their first home.

To view the article from the Globe and Mail Click Here.

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