Where's the Toronto condo market headed in Toronto? It seems everywhere I turn there is a new project in the works. New condo construction in Toronto and the greater GTA contributes as much as 17000 new units in 2011, that's huge. Analysts have always said that we could not sustain more than 15,000 units. Back in 2009 the unsold inventory was at 27% where as now in late 2011 it sits at 15%. It seems everyone is buying up pre construction units. The question is who is actually buying up this entire inventory? With Toronto having close to 65,000 people moving into the city each from 100,000 people back in 05, who is going to absorb all this inventory.
Speculators from other countries plus Canadian investors see the Toronto condo market as a safe haven for their money with the global economic in stability combined with the Dow Jones, TSX and the European collapse, uncertainty and no confidence is playing a major role with how people are investing here in Toronto's real estate market. The average annual appreciation over the past 5 years has been 7% versus a 5% appreciation at the Toronto stock exchange, with the cost of borrowing capital being what it is, an investor could potentially yield between 4-6% depending when they purchased their brand spanking new condo.
CMHC is reporting that between the years of 05-2010, new condo sales were at 17,500 units sold compared to 27,000 units sold in 2011. These numbers say a lot of how the future condos will shape our city and our Toronto real estate market. At the present moment most of the newer units being completed are under water with rental income, these units were bought from 2009 to present with prices sharply on the up-and-up but the rental rate has only increased marginally at 2.5% over the last decade. This is what concerns me in the coming future as speculators could potentially harm the stability of our marketplace.
This is why a growing trend is happening amongst new condo speculators, they are beginning to buy up units outside the downtown core and head to suburbia like Mississauga, Scarborough and Brampton Ontario where a cheaper purchase price is in line with the current rental rate.
I'm of the opinion to never buy a pre construction unit as I have written my reasons in my blog as to why it's not a great investment plus other factors as well. Now if we had the same price index of 2001 where a new condo unit cost was $175.00 per sq foot than it makes sense, but with the prices that we are dealing with today I would rather buy a single family dwelling and convert it to multiple units as that would be a better investment with positive cash flows and not having to worry about being under water with a condo rental income.