The continuing perception of Canada as a politically and economically stable country means that it remains a target “flight to safety” country.
Prior to the BREXIT vote, the UK was also viewed as a flight to safety country. Like Canada and the US, the UK was also one the major targeted countries for foreign investors.
Over the past few years billions of foreign buyers dollars from China, South America and other less stable countries have been flocking to these “safe and stable” countries in droves to buying real estate and as a result have in part been one of the drivers of the meteoric rise in real estate prices not only here in Toronto and Vancouver, but other major North American cities and yes, UK as well.
With the UK BREXIT vote now behind us, there are now more questions about what this means to the future of not only the UK, but the EU overall.
With the introduction of these big question marks now that the UK has decided to exit the EU, its perception as a stable country to park foreign buyers dollars has inevitably been impaired, at least in the short to mid-term.
At the very least, time is required to determine what this will mean to all countries in the region.
In this context, Canada should continue benefiting as a prime investment destination for both foreign and domestic investors.
I would expect the meteoric rise in both the Toronto and Vancouver markets to continue. Indeed, with foreigners expected to shy away from UK real estate for now, this may very well accelerate the pace of Toronto and Vancouver price appreciation even further and faster than before and more so than anyone ever thought possible.
Moreover, these new developments have only increased the uncertainty to the entire global economy, which continues to remain fragile. Hence, I see very little logical reason for central banks in Canada or the US to increase interest rates any time soon.
Indeed, I truly feel that the BREXIT vote has effectively taken any possibility of the US Federal Reserve increasing rates further this year off the table.
With the Canadian economy remaining fragile in most areas of the country outside of Toronto and Vancouver, any increase in rates by the Bank of Canada would only decimate the economy. So again, little chance of interest rates going up here at home either.
As a result, I fully expect that interest rates will continue to remain at historically low levels longer both in the US and here in Canada.
This in turn will only continue to spur domestic real estate demand in both Toronto and Vancouver.
What all this means is that competition between local home buyers, domestic investors and foreign buyers/investors will only accelerate for the same properties.
In this environment, where demand will now move even higher than before the BREXIT vote for already scare market supply, especially the highly coveted low rise homes, prices will have no choice but to continue marching higher.
The Toronto real estate market will continue to feed speculators, especially those targeting Toronto condos as investments.
I am not a fan of the Toronto condo market and still feel that it remains a sub-par real estate investment sub-class.
Indeed, while average prices for Toronto low rise homes have increase by well over 50% over the past 5 years, average new GTA condos prices have gone absolutely nowhere.
Surprised?
The good news for all the die hard Toronto condo investors is that I finally expect condo prices in Toronto to finally begin their move upward in 2016.
I highly recommend first time home buyers who are thinking of buying a Toronto condo from an investment perspective simply “DON’T DO IT!”
Instead rent where you want to live in Toronto for less than the cost of carrying that very same property if you were to purchase it. That’s right, the rent you will pay for that same property will be less than the cost of your mortgage, property taxes and maintenance fees on that very same property, even at 20% down!
So by all means, live where you want to live but rent instead of buying you pad in Toronto. Let your landlord be out of pocket every month instead!
Instead of buying a home in Toronto, you can dip your foot into the real estate market by investing in low rise properties that are cash flow positive, that is they put cash in your pocket every month to subsidize your Toronto rental or to use as you wish.
The great part is that these properties have been appreciating at the same rates and even better than GTA properties and remain less risky.
Investors who continue targeting cash flow positive properties located within commuting distance of the GTA will in turn find it even more difficult to find properties where the numbers continue to work.
However, those lucky enough to grab a hold of such properties should be well positioned to weather any storm that the inevitable market correction has in store.
As for when the market correction will happen, no one knows. Beware anyone who say they do and run from anyone who tells you that the market will never go down.
Yes, a market correction will occur, it is only a matter of “when” not “if”.
Unfortunately, those who are still waiting for a market correction before getting into the market may still be left out in the cold. Here’s why:
For example, if a $1.0M Toronto home continues to go up in value by 50% to $1.5M followed by day a 30% correction, then that same home would still be cost $1.05M to buy, that is $50,000 more than it does today, even after such a correction.
Indeed, those who have been calling for a correction in Toronto’s real estate market for the past 12 years will likely be waiting a very long time as the possibility of Toronto home prices going down to where they were in 2004, while possible, is highly unlikely. Just like it continue to be possible for them to win the Lotto 6/49 jackpot, yet still remains highly unlikely.
The key is to position yourself to profit and build wealth in any market. And yes, that means during both hot markets and any inevitable corrections, whether it be the real estate or stock market or even a broadly reaching economic one.
Until then, I remain…
Your Real Estate CFO
