TORONTO vs. THE WORLD – The Uprising (Part 2)

Published on 30th August 2018

Growing up in downtown Toronto, I recall the first time I saw the only condos downtown being built at City Place. Remember those days? It was the talk of the town. Fast forwarding to today, condos are a dime a dozen as these tall buildings are going up almost everywhere. I’ve always joked with the fiancĂ©e that when we were both in university, we should have used our OSAP cash to invest in pre-construction condos. We could have been building generational wealth a long time ago! But alas – hindsight. If only they taught us more of these useful topics in school!

Back in Time – Back in those days, you could buy a pre-construction condo with 5% down and it would actually finish in 4 years. The starting prices of 1-bedroom condos along Yonge Street were $300,000, for a total investment of… wait for it… $15,000! I could have bought a condo each year during university! But again – hindsight!

Reality Right Now – Oh, how things have changed! This wasn’t all that long ago as well. As the demand outpaces supply, this is a sure sign that the City is on the up-rise and primed for growth. We’re now at 15-20% down for a 1-bedroom condo along Yonge Street and they all start at $600,000. This means that each condo would cost you a minimum investment of $90,000 – this represents a 600% increase in upfront capital required in slightly less than a decade. How’s that for perspective?

Fast Forward to the Future – Below is a before and after photo of the downtown Toronto skyline in 2000 and what it is projected to be in 2025, respectively.

Image 1: Downtown Toronto in 2000
Source: Joe Berridge – Toronto the Accidental Metropolis

Image 2: Downtown Toronto in 2025
Source: Joe Berridge – Toronto the Accidental Metropolis

The blue buildings above represent proposed projects that have not yet started development because permits to build have not been obtained, while the purple buildings represent projects with permits that will commence construction soon. Regardless, both of the blue and purple buildings above are going to be built at some point in the future.

These maps above don’t even show the King West & Liberty Village developments. There is no doubt that Toronto is growing at a very rapid pace.

There have been many arguments about overbuilding and foreign investment. However, the bottom line is demand and that has always has outpaced supply – both in the rentals and buy segments in the downtown core over the last 20 years.

In last week’s Part 1 Insight Article, What Everybody Should Know About Toronto, it was explained that the growth of the Toronto population is the fastest in the world.

Source: Tom McCormback, Metro Economics

Knocking on the Canadian Door – Oftentimes, people seem to have a hard time realizing that immigration into Canada is based on a point system, unlike the US. In the US, having family members will help with your immigration process. In Canada though, you must pass a point-based system.

Here is an excerpt from the government’s website on immigrant selection criteria:

“Applicants must obtain at least sixty-seven points out of a total of one hundred possible points on the selection grid. According to CIC, if your score is the same or higher than the pass mark, then you may qualify to immigrate to Canada as a skilled worker. If your score is lower than the pass mark, you are not likely to qualify to immigrate to Canada as a skilled worker.”

The point system grades you based on education, languages, experience, age, arranged employment and adaptability. One would need at least a B in all of these categories in order to get into Canada. Evidently, Canada accepts high-quality immigrants only.

So what does this mean for real estate? Simply put, people who are immigrating here have the ability to buy properties! They are likely more economically capable than the average Canadian. This is your answer if you have wondered why prices have gone up so quickly and where prices are going to go in the future.

The Uprising – Part 1 of this Insight Article series TORONTO vs. THE WORLD highlighted the average price per square foot in Toronto right now ($864.86). I have since pulled up some information with data on the price per square foot relative to the world from 2016. Almost 3 years ago, Toronto was at $518 per square foot!

That’s an astronomical increase in a short time period of 3 years – more than 20% per year! Let’s say Toronto slows down its immigration and growth slows down (it’s actually the opposite right now) – do you really think prices are going to drop off or just stay stagnant for a bit while supply gets absorbed from our lack of supply thus far? (Note: Recently, the government has been slowing supply down with many newly proposed policies. We could be facing a bigger supply crunch in the coming years).

Let’s take a look at growth relative to the other cities around the world over the course of 3 years.

World Views – Globally, you can see that when it comes to the largest increase in prices, Toronto ranks third (behind Shanghai and Tokyo). Many other cities in China, such as Shenzhen & Beijing, have had growth similar to Shanghai as well. So comparatively speaking and from a global standpoint, the growth of Toronto is actually not as aggressive as one may think. When you couple that in with our net immigration numbers, I truly believe that we have even more room to grow – both in price and population.

We didn’t even break the 4-digit price per square foot average as a city yet. There are many other countries with price per square foot averages that are well over $1,000. We’re very likely going to break the $1,000 mark in the coming years with even more room to grow!

The Wrap – So investors – don’t sell, while buyers – keep buying! This wraps up Part 2 of this Insight Article series. Next week, we take a closer look at the rents and Toronto as a city to live in. Stay tuned!

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