Why (Toronto) Real Estate ? By Perrii Muthuraman
Basically, there are two questions here:
- Why Buy Homes?
- Then Why Greater Toronto?
First things first.
- Home is a basic need and as Mark Twain said, “better to buy a Home with the land if your budget affords, as they’re not making it (land) anymore”.
- When you rent, you are making someone else wealthy. Why not you do that favor for yourself, as soon as possible?
- If you have a primary residence, you can think of buying a rental property to build wealth. The GTA has an increasing population; the vacancy rate in most parts of Greater Toronto is less than 2 percent. In some places, it is even less than 1 percent.
- As the population keeps growing, the demand for housing increases. The prices of houses will grow over time. Ontario government’s recent measures aim for slowing down the house price increases, not to deflate the market. No one wants deflation/recession.
- When you invest in rental properties, they create wealth for you in 2 ways: 1. Principal payback which automatically happens when your tenant pays the mortgage through the “rents” 2. The price increase, which always happens in the long-run, despite cycles that cause price fluctuations or drops temporarily.
Now the question is Why Greater Toronto?
Glenn McQueenie, CEO and founder of Keller Williams Referred Realty in Toronto, published a very informative article in 2016. And I am quoting a portion here as they are very relevant for now and many more years to come.
“The Toronto real estate market is being driven by these major factors.
The first is restricted supply. Eleven years ago, the Liberal government froze development on 1.4 million acres across 325 km of land from the Niagara River through Hamilton (Golden Horseshoe area), all across the north of the GTA and over to Lake Scugog and Rice Lake, under the Greenbelt Act 2005. This had the effect of creating the “GTA Island”, and like Manhattan in New York City, if you can’t afford to buy there, you will commute one to two hours to get to there.”
Although the government had taken some measures recently, much more measures are desired to tackle the issue effectively. This is my observation.
“The second factor is rapid population growth that increases demand.
The population of GTA and surrounding area has grown from 3.7 million people in 1986 to 5.5 million in 2005, to 6.3 million now. It will be 7.3 million people in 2021 and 9.1 million in 2036!
We also have record low-interest rates. A $500,000 mortgage carries for $2,117/month at today’s interest rate. The same mortgage at 10 percent interest is $4,472/month. A $1 million mortgage at today’s rates carries for $4,234/month.
The last time we had 10 percent interest rates was 20 years ago and they have been falling ever since. In the last 20 years, there have only been two quarters when prices dropped in Toronto…see the correlation between prices and interest rates?”
When invested properly, real estate creates wealth and more particularly Grater Toronto. It has historically performed very well and likely to perform reasonably well in the future also.
Is it a good time to buy? Possibly yes. If you are planning to buy, you have to consider not only the market situation but also your personal circumstances. For advice and guidance, you may like to contact the author Perrii at 416-473-6100