Real estate investment: A wise choice for 2023?
In the past year, the Canadian real estate market has undergone a number of changes that have made investors unsure of what to do next. Due to rising interest rates, many people have pulled back from the real estate market. The time is now for investors to buy, though, due to low demand and stronger incentives. Brigitte Obregon, the founder and broker of GTA-Homes, was the subject of our conversation to get her opinion on the current real estate market and what investors can do to benefit from it.
Low Demand Points to An Investor’s Market
Obregon said that it is up to the investor when questioned about the state of the Canadian real estate market.
Obregon declared, “There is no rivalry.”. Developers would start a project, say a tower with 300 units, over the past ten years, especially the last two years, and there would be so much demand that they would receive roughly 3000 worksheets for just 300 units. This demand allowed builders to raise prices, which put pressure on many investors to make hasty purchases rather than carefully consider their options.
According to Obregon, “the situation has now changed.”. The total number of new condo sales in 2022 was 21,782 units, which is a 30% decrease from the almost record-breaking high of 30,901 units seen in 2021. New condo sales in the GTA fell by 68 percent annually to 5,419 units in the second half of 2022 as a result of market uncertainty and affordability issues. The lowest Q3–Q4 total over the previous 20 years was 5,402 during the 2008 Financial Crisis, so this number was remarkably similar to that.
Similar conditions exist in the secondary market. The Toronto Regional Real Estate Board, or TRREB, discovered that between the fourth quarters of 2021 and 2022, total year-over-year condo unit sales fell by 54.1 % . From 13 days in January 2022 to 29 days in January 2023, according to their statistics, the average number of days that Canadian homes were listed for sale increased annually. 123.1 percent is a staggering increase. Prices have decreased as a result of the market’s dry spell. Between January 2022 and January 2023, the average Canadian price decreased by 16 % points on an annual basis.
Going Against the Grain
The concern that many investors are experiencing as a result of the Bank of Canada’s interest rate increases is what caused this decline in sales. Obregon claimed that a special class of investors, knowledgeable investors who understand the value of investing when the herd is absent, are still active in the market. “If you notice 1000 people bidding against each other for a single house, you can simply observe this from the window. However, you should approach the home seller and make the purchase if you notice that nobody else is going to the house to make a purchase. ”.
New Inviting Incentives
Investors will be very happy with the sales decline. In contrast to the past, today’s pre-construction condo buyers can select the exact unit they want in addition to receiving the best price and incentives. A developer must sell their product to generate revenue, just like any other business. Year after year, active developers release new projects, indicating that they are eager to close the deal and get to work on their next venture.
Because of this, developers offer incredible incentives to their customers, such as extended deposit structures with minimum deposits of just 10%. Obregon claimed that in order to invest in a condominium project, you typically need a 15-20% deposit. Developers are now taking as little as 10% or even 5% in response to recent changes in the market. We’re now even witnessing zero development charges and levies, noted Obregon, on top of the typical incentives investors frequently receive, such as free assignments, the right to lease during interim occupancy, and capped development charges and levies.
Recently, some developers have started to offer mortgage buy-down rate programs, also known as interest buy-downs or mortgage busters. According to Obregon, the developer in this instance offers investors a monthly cash back for a predetermined amount of time to help investors offset high mortgage payments. An investor might receive, for instance, $2,500 per month for a year or $1000 per month for two years of occupancy. These programs vary from project to project and might include a credit at closing.
“Be greedy when others are fearful, and fearful when others are greedy,” Warren Buffett once said. Take advantage of these incredible opportunities and incentives before anyone else, rather than delaying the purchase of your next investment because you can see the market has cooled.
A further recommendation is that investors move quickly. Obregon said, “I think there’s just this window of opportunity.”. Arrive 2024 dot. As a result of the housing shortage, I believe the market will pick up steam once more. “The best way to succeed as an investor in today’s market is to buy now.
What About the Interest Rate Hikes?
According to Obregon, changes in interest rates shouldn’t have a big impact on your investment plans. The typical mortgage repayment period in Canada is 25–30 years, not 2–3. Those first three years may have high interest rates of 7-8%, but five or six years later, the rate may fall to 2-3%.
In Canada, the typical conventional 5-year mortgage rate is still largely stable. After a spike in 2008, the rate, according to the Bank of Canada, was essentially stable at around 6%. It gradually decreased to 5.5 percent in 2011, fluctuated a little, and then dipped to around 4.5 percent between 2016 and 2017. After that, it started to rise and stayed at 5 .34 % from 2018 to 2019. From August 2021 to March 2022, when we noticed the interest rate increase, it decreased to 4.79 percent. The rate peaked in February 2023 at 6.49 %. The mortgage rate therefore eventually equalizes while the interest rate fluctuates.
“According to historical data from the Bank of Canada, the average interest rate over the last 30 years has been 50.9 percent. Therefore, that’s what you ought to be focusing on, Obregon said. “At the end of the day, you’ll have a mortgage for 25 years, so we should be looking at the average interest rate for those 25 years,” a financial advisor advised. “You shouldn’t be looking if it’s high today, low next year, or high the year after.”.
If you intend to afford a mortgage at a 6.5 % interest rate, it shouldn’t matter whether the rate increases or decreases. Nothing else matters if you stick to your spending plan, have the necessary funds or a good job, and work hard to pay off your mortgage.
The current hot topic is interest rates. COVID was the year before. There will undoubtedly be events each year, but one thing remains constant. The opportunities and growth we have are as follows. And Canada is all about that. ”.
The Real Estate Market in Canada’s Future.
Obregon believes that the Canadian housing market will only experience growth, opportunity, and positivity in the future. Obregon holds that the only way to view life is to always look upward, and Canada is doing just that. “I think we’re so lucky to live in this country because it’s experiencing nothing but growth, which attracts people who need homes.”
According to data gathered by Stats Canada, the population of the nation increased between 2016 and 2021 at a rate that was almost twice as fast as that of every other G7 nation. The Canadian government wants to accelerate this growth even more. The population of Canada is expected to be between 42 and 52 million people in 2043 and to increase to between 44 and 74 million people by 2068, according to a number of projection scenarios. From 38.2 million people in 2021, this is a significant increase.
So, we must construct. As well as building more homes and schools, we also need to build more infrastructure.
Obregon noted that there are numerous opportunities for growth.
The Ontario government, led by Doug Ford, has pledged to build 1.5 million homes over the next ten years in an effort to ensure that this surge in population will be accommodated with housing. I honestly don’t think so,” Obregon replied when asked if she thought Ontario would be able to achieve this goal. Actually, I’m relieved that the government recognizes that the current housing supply is not keeping up with population growth and that we have a problem. They are also developing these fantastic plans. These Plans, however, necessitate a lot of expertise, time, and industry knowledge. From year to year, it doesn’t happen. It is simply not feasible for them to even claim to want to construct 150,000 homes annually. I can assure you that we lack the personnel to complete that. ”.
In actuality, statistics show that Ontario builds significantly fewer than 100,000 homes each year. The province built 58,855 homes in 2019 and 67,916 in 2020. In 2021, a total of 81,158 homes were constructed; in 2022, 71,838 homes were.
The imbalance between supply and demand, according to Obregon, is not going away anytime soon. Everyone claims that it will take a decade to fix, but the housing supply problem won’t be resolved for at least a generation.
It will probably take five years for that Plan to start working, and another five years for it to catch up. ”.
Construction costs keep rising because there is a demand for construction services and a shortage of skilled laborers in the nation. This conflict, along with the rising number of immigrants entering the nation, is causing housing prices to continue to rise.
In What Ways Does This Affect Investors?
TRREB claims that since the 1970s, the cost of housing in Canada has been rising steadily. The average increased significantly from $52,806 in 1974 to $102,319 in 1984 and $208,921 in 1994. It was $243 255 in 2000 and $431 262 in 2010. It more than doubled to $1,189,917 by 2022.
The stability and guaranteed returns associated with real estate investment are made clear by the steadily rising cost of housing. When it comes to investing, “you as an investor have a favorable, long-term horizon,” said Obregon. Pre-construction projects will typically be more profitable than purchasing existing structures. That’s because purchasing pre-construction entitles you to the initial and lowest prices, increases the demand for your apartment because people prefer new construction to older buildings, and allows you to pay higher rent in the future rather than the current rental rates.
The time is right to make a real estate investment. Our team at GTA-Homes is committed to giving our clients the best knowledge possible about the pre-construction condo market. Our objective is to work with you to develop lucrative revenue streams that will continue to yield returns for many years to come. To get in touch with us, click the link below and start your investment journey right away.