Just how good an investment are Toronto condos? Consider this: over the last 15 years, investing in Toronto’s condominium market would have been more advantageous than investing in the Toronto Stock Exchange, according to senior BMO economist Sal Guatieri. In a report he states, “Since the start of the millennium, Toronto condo prices have marched steadily higher, averaging yearly gains of 4.6 per cent and besting the more volatile TSX.”
How can you compare the return on both investment types? “For a fair comparison, you need to include the total returns for both asset classes,” says Guatieri, adding that “based on the still-good capitalization rates for apartment buildings in Toronto (in the 4% to 5% range), and assuming that condo net income returns are only moderately lower, there’s a good chance that the condo investment in the past 15 years (assuming investors had little trouble leasing given the very low rental vacancy rate) has exceeded the 5.7% annualized total return from the TSX.” In other words, you would have to assume that your unit was rented out for the majority of the last 15 years. But given the low vacancy rates in Toronto and the increased number of people moving to city, condos with average rents would have little problem staying occupied.
According to Urbanation, an authoritative source for information on Toronto’s condominium market, the number of condo apartments rented through the MLS system during the third quarter of 2015 in the Greater Toronto Area grew 18% year-over-year. Currently, 8,398 units are rented. Condos don’t sit on the rental market for too long either; the average condo was leased in 24 days. With low vacancies, good quality condos in high demand areas are still easy to rent.
According to the Guatieri, there are no real signs of this segment of the real estate market slowing down in the immediate future. He says, “Toronto’s condo market should remain vibrant in the year ahead given continued job growth, low interest rates and the lack of affordability in the detached property market.” But he warns we could see a moderate correction in 2019. The biggest issue is when the growth in the millennial age cohort slows and if the economy slips into a deep recession.
With the Bank of Canada pledging to keep rates low until economic conditions improve, not just in Canada but around the world, many economists are forecasting rates won’t rise until after 2016. Guatieri says this will continue to support both financial and housing markets. But condo prices tend not to be as volatile as stock prices. So for more conservative investors that don’t mind the odd call from a tenant that something needs repair condo investment may still be a safer and less stressful investment.
Do you currently own and rent out a condo?