RealNet just released some very insightful GTA real estate statistics.
At face value, based on the first graph “GTA – Monthly New Home Sales” it appears that new low rise home sales have plummeted from last December 2014 by 36%! While at the same time high rise condo sales in the GTA are up a whopping 13% during the same time period.
Condo developers and real estate agents who love to push condos as great real estate investments are sure to absolutely love this data and are sure to spin this to their benefit to the detriment of duped or new would be condo buyers.
If you think that condos are the best real estate investment based solely on this data, then you need to think again. Why?
Because those very same builders and agents would be hesitant to share the data in the second RealNet graph “RealNet New Home Price Index”, which actually tells the real story.
If you are looking for the real truth about which residential real estate asset class, condos or low rise homes, is the superior investment this is it! I do not think it can be any more clearer.
It is economics 101, if the supply goes down but demand exceeds supply then prices only have one way to go. Up!
The real reason why low rise home sales have plummeted year over year is because of ridiculously low supply of new low rise homes coming to market, mainly because there is very little subdivision land remaining , compliments of Ontario’s Greenbelt Act of 2005, to build new homes in the GTA.
Yet the massive, insatiable demand for low rise properties continues.We know this because from 2011 to 2016 average prices for new low rise homes have increased from around $530,000 to almost $830,000 today, a massive 56% increase, even as sales volume for these homes has plummeted by 36% year over year!
At the same time, average new GTA condo prices have increased from $450,000 to $453,000 today, a paltry 0.7%, even as sales volume has increased by a whopping 13% year over year.
In fact, if you take inflation into account, those who bought pre-construction condos not just in 2011 but even as recently as only 1 year ago, would actually be losing money right now!
The real reasons, condo sales volume is up 13% year over year are very simple. Over 100,000 people moving into the GTA annually, this is even before any Syrian refugees coming to Canada, with all of them needing a roof over their heads.
GTA low rise homes are in low supply and too highly priced to make them affordable for most first time buyers and immigrants.
At the same time, very few new rental units have been built in the GTA over the past 30+ years. Given the low supply of affordable rental apartments in the GTA, condos have now become the alternative rental apartment unit.
Yet even at 20% down, the vast majority of new GTA condo investments would be a negative cash flow position. That’s right. after paying your mortgage, property taxes and condo maintenance fees most investors who are buying condos today are having to dish out money out of their own pocket because the monthly market rent they receive from tenants is insufficient to cover all of these carrying costs.
So are there any great low rise cash flow positive real estate investments remaining today? Absolutely! In fact, my clients, partners and I are buying them every chance we get.
In the mean time, don’t believe the GTA condo investment hype. There are much better, cash flow positive alternatives to be had that offer substantially higher returns.
They key is knowing what works and where to find them.
