The Condo Store’s Simon S. Mass on Toronto’s changing condo investment landscape
A sluggish spring, followed by record-breaking summertime sales; the year of 2020 is unlike anything seen before in Toronto’s housing market.
For the city’s condo investors, the COVID-19 pandemic has altered the real estate landscape, from changing buyer preferences to a surge in downtown resale condo listings. With the busy fall market now underway, it’s time to take stock of how the pandemic is transforming Toronto’s investment condo segment as a whole.
For some deeper insight on how the investment market has evolved throughout the fall, Livabl reached out to Simon S. Mass, CEO of The Condo Store Group of Companies.
Livabl: Let’s start broad. With September sales activity in the resale market still red hot after a very active summer, where do you think the market in general is heading through the final months of this bizarre year?
Simon S. Mass: Shelter is even more important now and the global, life-altering pandemic only highlights the importance of having a comfortable and affordable home for everyone in Toronto.
My feeling is that the resale market will only heat up more as we get closer to the winter months, with the possibility of more restrictions in our lifestyle choices until there is a vaccine. I would forecast that sales will start to jump up as consumers will want to find the best possible options for the sanctuary that a personal residence provides.
At The Condo Store, our investors don’t often purchase in the resale market, but rather leverage the more lucrative pre-construction sector in order to maximize their gains. With an abundance of investor funds currently sitting on the sidelines, the pre-construction space has also been seeing a massive influx of new projects and pent-up demand from consumers investing for future gains.
L: Is the growing supply of high-rise condos listed for sale a cause for investor concern or is it creating an advantageous buyer’s market for prospective investors?
SM: I don’t feel there is anything significant to be concerned about as far as the supply chain.
Obviously, for qualified buyers who are seeking a resale condominium, timing couldn’t be better with atypical inventory choices and slightly lower pricing.
L: Do historically low interest rates and slower price appreciation make this a prime buying time for condo investment purposes?
SM: The combination of uncertainty — which is typically always the most opportune time for investing, historically speaking — with the fact that interest rates are so low, makes the current investment cycle extremely unique. This is ideal for qualified investors who understand and relish one of the most profitable asset classes in the investment world.
Pre-construction is truly the most profitable way to go for gains, but the market is fraught with far too many options that need to be very carefully analyzed with accurate diligence versus real estate broker marketing.
L: Canada’s positive handling of the pandemic is expected to attract a lot of immigration and international workers into cities in the future. These newcomers will need places to live. For real estate investors, is this a situation of buying now but planning for the long-term?
SM: Remember that the market is moving along during an immigration slow-down. So yes, the Toronto market will see continued growth in the long term when immigration can return to its previous levels. If the result of how the government handled the pandemic means an influx into the market, then that will positively affect the market in the long-term as well.
At The Condo Store, we always advocate a long-term outlook for pre-construction investments, regardless of the economic climate, as our average “end-to-end” investment cycle has been 5.5 years. As such, buying a pre-construction condo today only equates into an actual finished and rentable property in 2025.
No matter how you personally feel about the bustling real estate market and the sea of condo towers in the Greater Toronto Area, the paramount reason for the continued growth patterns we see is due to a housing shortage that is decades away from being resolved. The naysayers often don’t see the forest for the trees, as the pre-COVID occupancy rate on rental properties was 99.1 percent, and post-COVID this has dropped by about one percent. It simply comes down to the affordability and lack of availability, and as such, there is a huge amount of investment opportunities in the right pockets of this resilient city.
Again, our investor clients understand this and continue to invest into deals that have been thoroughly vetted by our team of financial analysts and experts who cherry pick three to four projects annually from the 100-plus projects that hit the market.
L: Many homebuyers have shifted their property search outside of the city, searching for larger spaces and work-from-home offices. Should condo investors follow the activity trends in the suburbs, or stick with the city? Will buying activity rebound in urban Toronto in years to come?
SM: The data that emerged prior to the pandemic showed incredible urban growth over the next 15 or so years and along with that will be infrastructure growth in the urban core.
People will always live in the city in abundance, and while that may change somewhat in the short-term during the COVID-19 situation, Toronto will continue to see massive influxes of people every year. Plus, the forecasted supply of housing in the city was very short prior to the pandemic, and still is with the assumption that the pandemic is managed, so that won’t change. There needs to be places for everyone to live.
I am a firm believer that urban living is here to stay. The short-term concerns and activity that is often highlighted in the media isn’t in fact for the masses. It only accounts for a very small number of homeowners who are able to pick up and move in 90 days and have been thinking of doing so for a very long time. COVID was simply the accelerator for their jump into the suburban low-rise market.
L: With more new construction condo developments kicking off sales this fall, are you finding that launches are performing as they did pre-pandemic? Is newly launched pre-construction condo inventory being snatched up, or sitting on the market?
SM: Industry people will all agree that the last eight weeks has seen an abundant number of pre-construction launches all across the city. For non-industry folks, it may seem mind boggling that the condo sector is still flush with new launches and that investors are purchasing units when there is a lot of doom-and-gloom talk in regards to the end of urban centres.
The entire sector has been accustomed to throwing big parties and having a wonderful amount of fanfare to generate sales and maintain sales momentum. This has not been the case since March and likely won’t be again for some time. There has been a frantic rush by developers to outsmart one another on virtual launch events.
I have to say, as game-changers in the space, we were the first to have a highly successful celebrity endorsed and attended event for a boutique project in the heart of North York, called 181 East. Having internationally acclaimed Toronto comic and actor, Russell Peters, for the 181 East interactive launch, which was watched by hundreds of brokers and clients as well as thousands of others after the fact, was a big coup for us and that project.
Interestingly enough, as is the norm with constantly being copied, several other developers tried to replicate our celebrity launch for their projects but didn’t have the same desired outcome as they purchased 10-second clips from a number of celebs and then edited them into a pre-recorded infomercial.
As far as we can see, the investor market is still going strong and sales activity has been very impressive for most of the launches that we have been involved with, as well as our competitors. Experienced investors see the value in pre-construction due to the fact that they are buying into a ‘future’ as well as doing so with a highly leveraged cash component that they can’t place into any other high-yielding investments.
L: Boutique buildings are rumoured to be growing in popularity among buyers for their larger unit layouts and the ability to socially distance more easily. Are you finding that this is the case?
SM: Yes, there is a subset of buyers that is growing that loves this offering, like a larger living space, smaller buildings, and so on.
Real estate, like any product, is evolving to match the demand of the buyers, so this trend will continue as long as there is demand for it, and the market will settle into its normal growth curve accordingly. For example, 181 East that we are involved with in North York, the buyers love the location and the boutique nature of the building, and it is doing very well.
L: New Toronto short-term rental legislation and dwindling tourism have impacted investors that owned units and placed them on Airbnb. How are you advising current condo investment clients interested in making money in the short-term rental market segment?
SM: Our clients don’t get involved with the short-term rental game. It’s a lot of work and your returns are somewhat limited.
We prefer to get our clients into the best units in the best buildings for long-term rental income as well as investment growth and capital appreciation. There are also some great firms in the short- to medium-term rental market that are looking to reinvent the way people operate and use the traditional Airbnb model. That will be interesting to see what happens.
The short-term market is just that, short. It was bound to have a correction. It will always be a factor and a player, but investment clients need to know what they are getting into before thinking they’ll make easy money. At The Condo Store, we prefer to make very lucrative investments with less work needed.
Cedit : Livabl