Property prices are on the rise in Canada’s major cities, and it’s due in part to offshore investors. For some, the price hikes raise concerns that Canadian residents are being priced out of their own market, while others argue that it’s simply our point of view that needs to change. Purchasing property in the middle of a metropolitan city, especially single detached homes, is no longer a reality for many.
This debate comes on the heels of the sale of a three-bedroom bungalow in Toronto, whose winning bid was $421,800 over the asking price. The home was built in the 1960′s, had little updating, but still manged to fetch $1,180,800. It was sold to a university student whose parents live in China and own a business in San Fransisco. Before jumping to conclusions however, keep in mind that only pockets of real estate in larger cities appeals to foreign buyers. Read excerpts of the full article below for more information:
CBC business commentator Michael Hlinka called the deal “outrageous and borderline bizarre.”
The strong reaction to the price likely stems from how it changes the vision of affordability for average Canadians, he said.
Property markets in other large cities, such as Vancouver and Calgary, are undergoing similar pricing shocks, he said.
“We’re looking at this through a prism of our expectations growing up in Canada in the 1950s, ’60s and ’70s, when part of the Canadian dream was that you would own your own single-family home,” Hlinka said. “But as Canada matures, we’re going to be looking at a new reality, where that may be out of reach. And I don’t think you can turn back the clock.”
Toronto real estate mogul Brad Lamb said Canadians’ home-buying expectations have to change, but he doesn’t believe that overseas investors are to blame.
The scarcity of the product — in this case, single detached homes — is key, he said. And as the Toronto population grows and land available for new houses becomes scarce, the competition for these homes will become even more intense.
Condos are the alternative. Already, they’re the norm for families wanting to live in the central cores of cities such as New York and Chicago, said Lamb, who is a condo developer.
“It’s an illusion for people to think they can live in downtown Toronto in a detached home and not be wealthy,” Lamb said. “Ordinary people can’t live in central London or central Paris or central New York.
“If you want to live in central Toronto, you’re going to have to live in a condo or be a millionaire. That’s the reality. … It’s not a bad thing. It’s the way cities evolve.”
Inflated prices, such as the price fetched by the Willowdale bungalow, do make it difficult for ordinary Canadians to get into the market, no matter who buys the house, said Steve Matthews, a Re/Max agent in north Toronto.
“It skews the market. How does Joe Normal compete with that” [price], said Matthews.
“Now, the person who lives next door and the person who lives down the street think they should get that price, too. It also generates resentment because it makes it tougher for everyone — buyers, agents, banks — so there is a ripple effect that goes beyond the immediate sale.”
Canada’s stable government and banking system and the relatively low prices draw investors, he said, pointing out that while condos in downtown Toronto can sell for $800 per square foot, in Beijing, the price is $2,000 per square foot and in Hong Kong it’s double that.
Moreover, to control prices, the Chinese government allows each family there to bank finance only two properties — one to live in and one to invest in — and buyers must pay 100 per cent cash for anything above the two-property limit, Ma said.
Not only are prices in Canada more affordable, homes and condos are a better value proposition, since they come ready to move into, unlike in China, where buyers get a concrete shell they have to pay to finish, he said.
“So they see an $8 million house here, they see the quality, they see the finishes and they think it’s cheap,” Ma said. “They can move in today.”
Vancouver tops the list with Chinese investors because of the city’s temperate climate and proximity to their homeland, he added.
Janet Sinclair of Re/Max Hallmark Realty Ltd. in the Beaches neighbourhood of Toronto, routinely deals with foreign investors.
“They have driven prices up,” she said. “Whenever we launch a new condo downtown we get a number of Hong Kong investors and a lot of people coming over from England. People want to put their money in Canadian real estate because they think it’s safe.”
Sinclair recently dealt with a Hong Kong investor representing a dozen buyers, who happened to be family members from back home. They snapped up units in a new waterfront condo building and are now interested in another project in the Beaches.
She also recently sold a penthouse condo in downtown Toronto to Swiss investors for $1.25 million.
“They didn’t bat an eye at the price. They said in comparison to what they pay in Switzerland, these prices are nothing. Our prices are not scaring them at all.” – Prithi Yelaja, CBC News
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