Maroc - STOREYS.COM - A La Une - 20/Jun 13:25

Investors, The Condo Market Needs You Right Now: Expert

Last month, Toronto's condo inventory hit an all-time high. Units that would have been snapped up immediately just a couple of years ago, now aren’t moving. As we all know, high interest rates shoulder most of the blame, and the glut of newly completed new units coming on the market isn’t helping matters. Another major contributor to increased inventory is a cohort of investors who bought at ultra-low interest rates. They’ve been hit with the prospect of deeply negative cash flow, the looming increase in the capital gains tax, and restrictions on international investment. Investors are a key demand driver in the GTA condo market. As they face financial challenges — and Toronto anticipates over 100,000 new units between now and 2027 — we're likely to see a pretty flat market, in terms of price activity, for the next few years. The upside of this situation is that there's more choice for buyers, and, with some depreciation in value, prices are slightly more attainable. But affordability remains a significant factor, especially for units large enough to accommodate families. And not everybody wants to be in a condo, with a house remaining the Holy Grail of home ownership for the foreseeable future. And, let's not forget investors are key suppliers of rental properties in a market that's short on rentals. The majority buy to hold and rent, planning to sell at some point in the future. If investors can't make the math work, those units get subtracted from an already depleted rental supply. Ultimately, Our Market Needs InvestorsWhile politicians and the media have painted investors as the cause of the massive price appreciation, the reality isn’t quite that simple. They are key to the success of the condo market, for both resale and pre-construction. Without them, new developments don’t get built, and new rental stock isn’t created. We need investors to come back for the housing market to stabilize. So, how do we get them to return? For one thing, mortgage rates will have to come down significantly. While the recent 25-basis-point cut is a certainly positive sign, it's a drop in the bucket. A quarter point isn’t going to change anything for investors with deeply negative cash flows, and it’s unlikely to bring investors back as buyers. Even though experts predict a further 50-basis-point drop this year, that still won’t be enough for most investors to break even, much less achieve positive cash flow. The math just doesn't work in their favour. To bring investors back into the fold, rates need to come down much more dramatically, and/or rents need to keep growing. Eliminating the increased capital gains tax would help, though that's unlikely. Additionally, quite simply, our economy needs to improve. Even with the slight drop in the bank rate and the accompanying bump in consumer sentiment, the economy is struggling. People are getting laid off. Power of sales are on the rise and there's a potential election on the horizon… which could mean anything. As far as investors are concerned, the environment isn't positive. People are sitting on the sidelines, waiting to see how things will play out. If you're a buyer looking to live in a condo and you can afford to pay your mortgage or buy something outright, the condo market is your oyster. But it's going to be a while before it's a great option for investors again, and until then, we're looking at a ton of inventory, decreasing values, and an increasingly strapped rental market. ______________________________________________________________________________________________________________________________This article was produced in partnership with STOREYS Custom Studio.