Big Housing Projects and the Benefits of Rapid Transit

In the last four decades, major infrastructure projects in Toronto and the GTA have been few and far between. We have fallen behind. The last two major subway lines that were built benefited low density inner suburbs in North York and Vaughan.While these areas are undergoing building booms and seeing density rise, the lack of a completed downtown relief line is overwhelming Toronto’s subway system. Nonetheless, the Eglinton Crosstown is a project nearing completion that is looked upon more favourably by transit and infrastructure experts. 

 

The Crosstown will provide top notch transit service to the city’s dense and heavily populated midtown area. One major benefit of this massive project is the development and rejuvenation of housing where it is needed most. One such project has received favourable attention; the Crosstown planned community by Aspen Ridge on the corner of Eglinton and Don Mills Rd., just north of the Ontario Science Centre. Right on the Crosstown subway line, this housing project will feature almost a dozen high-rises, townhomes, and low rise buildings. It will also feature considerable green space, restaurants, and rec facilities. This kind of broad, dense, and all-in-one is made possible by the construction of major public transit projects.

 

With recent transit announcements showcasing the desire to pour tens of billions of added dollars into public transit lines in Toronto, projects like the Crosstown community will become more frequent. The 60 acres of the Crosstown community previously consisted of low rise office and warehouse buildings, largely owned by the international tech company Celestica. 

On The Value Of Land In The GTA

In May of 2017, the RGF Real Estate Fund LP bought the Toronto Region Board of Trade’s Woodbridge area golf course. The 290-acre course was iconic, the sight of many golf tournaments, networking events, and business function since its opening in the mid 1960s. Many golf courses are being sold across North America. High land values, declining golf use, and enormous demand for housing is driving the changes.

Woodbridge Golf Course
Only one third of the land sold can be developed; roughly 100 acres. The other two thirds of the sold golf course are green space off limits to real estate construction. Even though this is the case, the developer has said that the capacity to develop the 100 acres will be very profitable. The developer plans some 600 detached residential units and 60 townhomes. This plan was presented to the city of Vaughan and has yet to be fully approved. Many local residents are opposed to the development proposal, fearful of increased traffic, noise, and pollution.
In April of 2015, the 400 acre York Downs golf course was sold for $412 million. Both York Downs and the Country Club are courses adjacent to valuable suburban real estate and they are similarly sized. Assuming a similar valuation, it can be assumed that RGF bought the Country Club for roughly $300 million. Despite the fact that only a third of the course can be developed, this massive purchase will likely be very profitable. These transactions highlight the extent of housing demand in the GTA.

October Was A Good Month For GTA Real Estate

Positive numbers marked the overall situation for GTA real estate. Both the detached and semi-detached home and condo markets saw positive figures. Condo prices rose 7.5% and semi-detached home prices were up 6.6%. The average selling price for a home rose past the $700K range where it has languished for roughly to hit $810K, This was the first significant increase in prices in over 3 months. 

The positive sale price increases highlight a recovery that is steadily building momentum. Analysts saw the figures as proof that the perennial forces of supply and demand were returning to their general positions in the GTA market. The supply of homes continues to be a significant factor impacting the market – with recent inventory showing a tightening of listings. The slowdown the market saw exacerbated this issue because many prospective sellers are waiting for prices to increase again before listing their homes.
The condo market continues to show its heft. Impressive price figures and demand has not been shaken by government intervention. Higher interest rates in the medium to long term may damage the health of the condo market but it continues to be seen as a haven for young professionals trying to get into the market affordably. The recovery continues. 

The Fed eases off on its tightening

Federal Reserve Chairman Jerome Powell did not signal another rate hike in its most recent announcement this week. The Board was unanimous in its support for the not raising rates. With the U.S. economy absorbing large stimulus through tax cuts, increased government spending, and still very low rates, economic activity and job growth is on the rise. This has strengthened the Fed’s longstanding argument that rates have to be increased.
Caption: U.S. President Donal Trump shaking hands with Fed Reserve Chairman, Jerome Powell at the White House
The big opponent to higher rates has been Donald Trump. Irritated at the propensity for these rate increases to dampen economic growth, the President has vocally attacked the Federal Reserve. He has argued that all of its actions have been ‘wrong.’ It’s a possibility that the Fed’s decision to hold off on rate increases could have been prompted by this language and a desire to placate the President, especially given the U.S. mid-term elections.
The results of these mid-terms has been mixed for the President. On the one hand, his party gained Senate seats and tightened up its control of the U.S.’s upper house. On the other hand, the Democrats won back control of the House, albeit not with the momentum many in the media had predicted. Many key gubernatorial races were also won by Republicans, particularly in the key states of Ohio and Florida. The next two years will be tumultuous and difficult, and the partisan divisions in America will only increase.

Ontario Election 2018 – What’s in it for real estate?

Ontario Election 2018 – What’s in it for real estate?

In this blog post, Tembo Financial Inc. will analyze the election platform for the Progressive Conservative Party (PCs) and will outline what the official opposition is proposing to do for real estate professionals, prospective homebuyers, and homeowners if it were to replace Premier Kathleen Wynne’s Liberals as the province’s governing party.

 

infrastructure icon

1.    Local Infrastructure Fund

This is being touted to create jobs and build infrastructure in small communities.

park infrastructure fund

2.    Investment in Parks and Green Infrastructure

Investing some money to make certain green spaces across the province more user friendly.

apprenticeship icon

3.    Increased access to apprenticeships, doubling the loans for tools program

This will stimulate people learning an apprenticeship, and could be beneficial to the real estate and construction industries hungry for skilled apprentices.

transit funding icon

4.    Transit

The PCs are making a big push to invest $5 billion over 4 years on top of existing funding into new subways, particularly a downtown relief line which Tembo discussed previously. They will also upload the administrative and maintenance costs of Toronto’s subway system from the TTC while allowing the TTC to keep all the fairs. In return, they want the city to build more LRTs – especially a connection from the soon to be completed Eglinton-Crosstown to UofT’s Scarborough campus. These initiatives will spur development, improve property values, and stimulate construction.

sell air rights to developer icon

5.    Selling transit station air rights to developers

Self-explanatory, the PCs want to develop long along and by transit stations to create more housing stock.

Land Reform icon

6.    Reforming the Planning Act

To reduce permit delays, cut red tape, and to stimulate more housing construction and development by sending a clear signal to municipalities.

Selling Property Portfolio icon

7.    Reviewing the province’s property portfolio

In other words, see what the province owns or has rights to and look to sell chunks of it to developers so they can build. Think underused or vacant parking lots, undeveloped land, wills, etc.

Reforming Planning Process icon

8.    Reforming planning processes

This will encourage municipalities to update their planning and zoning processes and to update them routinely so as to send regular signals to developers about what and how to build, the goal is to ultimately increase supply in the long term.

Review Tenancy Act

9.    Reforming planning processes

This will encourage municipalities to update their planning and zoning processes and to update them routinely so as to send regular signals to developers about what and how to build, the goal is to ultimately increase supply in the long term.

 

Overall the PCs are promising to make big new investments in transit and to increase housing supply. The full platform with all of its proposals is available here: https://www.ontariopc.ca/peoples_guarantee

 


Disclaimer:

Tembo Financial Inc. is non-partisan and looks forward to analyzing the party platforms of the Ontario Liberal party and government and of the third party NDP. Let’s hope that the 2018 election sees issues of housing supply, affordability, and infrastructure discussed thoroughly and qualitatively.

Now Creative Group November 14, 2017 No Comments

The Market Rebound Begins

In a promising sign that the traditionally positive seasonal effects of Fall on the real estate market are once again kicking in, October sales of homes in Toronto rose over 12% from September figures. The increase will be well received by realtors and prospective sellers, as it shows that the market is showing renewed resilience and that demand and buying potential remains firm. Growth in October is usually expected by teal estate professionals in a usual year, but the 12% increase is slightly stronger than usual metrics.

Prices for average homes also increase slightly, hitting roughly $780,000.00. Prices have been increasing for very conservative but the October increase shows an acceleration from September numbers – again, this is a very promising sign. The increase in prices and sales shows that a market that had faced rapid and dramatic cooling from a long list of government and regulatory measures after peaking in May is once again begin the slow but steady process of warming up again.

While sales and prices are slowly returning to health, concerns about a continued large gap in the supply of homes versus still shy demand remain with close market watchers and realtors. The gap may be bad for those wanting to sell, but benefits buyers, who at the height of the market in May were hard pressed to get a bid in a prospective home, let alone a fair shot of sealing the deal with a buy. The large amount of supply continues to place downward pressure on sales and price growth.

Condo market surge continues

As a previous Tembo blog has outlined, the condominium market in Toronto remains very strong and shows strong price and demand growth. Although many pockets of the GTA have lukewarm and slow condo markets, the overall market, and particularly activity in the core continues to surge. Average October prices increased over 20% in October. The average price of a condo in Toronto now exceeds $520,000.00

As Tembo has repeatedly stated, the fundamental underlying pillars of the GTA real estate market remain firm and strong, and in the long term, the market will continue to be resilient and will continue to offer opportunities for buyers and sellers.

Now Creative Group November 13, 2017 No Comments

The Rebound We’ve Been Waiting For

After having been walloped by a combination of new taxes, higher interest rates, tougher financing rules, and a massive glut of housing listings, the Toronto housing market showed positive signs of resilience and recovery by posting a 6% increase in re-sale home prices in August from September. Market watchers and realtors pointed to the increase as a good sign the market was finally pulling out of a period of price stagnation, low buyer interest, and dampened demand.

Many officials, market watchers, and financial and real estate professionals predicted the market would begin to recover and that prices would increase again in the beginning of fall. The news that this has been confirmed is yet another sign that the Toronto real estate market is in good shape and that it has strong underlying fundamentals. New listings numbers are also beginning to fall, meaning the supply of new homes is dropping, this is another positive trend for sellers who had a very tough summer selling season.

The price increase brought the average September price to $775,546.00, $20,000.00 more than the same price last year. The rebound mirrors long term trends in Vancouver, where a foreign buyer tax gutted demand and prices for almost a year, only to see prices and demand rebound and exceed past levels later. Market watchers are now eager to see if the positive trend continues into the middle of the fall and whether interest rate hikes and tighter insurance rules from federal regulators further increase pressure on the fragile market.

Housing starts increasing in urban areas

The market is responding to strong economic growth and still reasonably low borrowing costs. Urban housing construction is on pace to reach its strongest level since 2007 with a 8% increasing in urban detached housing starts which exceeded 60,000.00 units in August-September.

Now Creative Group October 31, 2017 No Comments

The Bank of Canada Holds its Ground

The Bank of Canada was generally expected to raise its benchmark interest rate from 1.00 to 1.25 this week, but decided to hold its rate at 1.00. The Bank cited strong economic growth and the desire to moderate its pace of rate increases so consumers and the economy can better adjust to more expensive money. The Bank’s decision was met with interest as many expected it to stick to its aggressive rate hike pace. Many, however, believed the bank would hold off as surveys and media coverage showed that consumers were weary about the speed of interest rate increases and were worried about their ability to service the increased costs.

The immediate market reaction saw the dollar fall 0.65 cents and the TSX drop 60 points. Investors reported their view that the interest rate holding would lower economic growth for next year. Market watchers will take mixed views. Those in the real estate sector will cheer, as new taxes and stress test rules recently implemented will inevitably serve as a disincentive for builders to construct new homes and for buyers who are already under tremendous scrutiny from banks and insurers, especially first-time buyers.

The decision to hold shows that the Bank is concerned about excessively pressuring the real estate sector, given the new stress test rules will add cooling effects to an already lukewarm market at best. The Bank is likely to keep a close eye on inflation, GDP figures, and job numbers in the coming weeks and months before deciding to raise rates again in the next quarter. Fundamentally, the international trend is focused on raising rates, increasing the cost of capital, cooling consumption, and adding space and breathing room for central banks to decrease rates in any future economic challenges.

Now Creative Group October 2, 2017 No Comments

How Millennials Can Prepare for a Real Estate Investment

If you’re a millennial thinking of venturing into the real estate world, there’s a few things you need to learn about before taking your journey. You might be already drowning in student debt, and generating low income, however, knowing how to make your process easier will ultimately help you stress a little less and reach your goal a lot faster.

Think about long term property value

The first step you can take is to do your research and to find a location that matches affordability with long term equity (value) growth potential. Once you figure out where you would like to see yourself living, plan around it. Find out about the local community, restaurants, malls, gas stations, neighbours and school districts. Setting a goal for yourself will not only help you narrow down where you want to live, but make your agent’s job easier in finding what you’re looking for.

Increase your credit score

There is a good chance that your credit score may not be as good as you would hope for it to be due to student loans, job insecurity, or unstable financial circumstances. If you plan on making your purchase within the next few years, it would be a good idea to spend the time leading up to it building a good credit score. Money lending officers will scrutinize your credit score and decide whether giving you a loan would be a good fit for them. Spend some time planning your finances and learn to discipline your spending habits.

Save up

Saving up could be a challenge especially if you are a millennial with student loans. But being able to save can be a testament to your self-restraint and what you can accomplish when you set your mind to it. Taking out a percentage of each of your paychecks and stashing it away, paying off high-interest loans first, making bigger minimum payments, and spending the rest on necessities will help you save a lot quicker.

Know the market

Start out by knowing your budget and how much you’re willing to spend on your home. Match this budget to what your desired location of stay is and work around it. Learn about how long it takes the houses in that area to sell, how many times they’ve been sold, and if the price ever drastically changed. Knowing all this information will validate which home will be the best investment.

Now Creative Group September 13, 2017 No Comments

Bank of Canada tightening tough on Markets

The Bank of Canada’s (BOC) decision to raise interest rates by a quarter basis point again last week came as a surprise to many and solidified the reality that the Bank has taken an aggressively hawkish position on the cost of money. The BOC had already reversed a historically unprecedented 7-year policy of record low interest rates on July 12th by topping the rate up to 0.75%. The second-rate rise in less than 2 months sent the value of Canadian dollar up but also had a direct impact on increasing mortgage costs and making business and commercial lending more onerous on borrowers as well. 

Canada’s big five banks immediately responded to the hike by announcing that their own respective mortgage rates would increase as well. The increase will have a powerful impact on the national housing market. In some regions where recent changes already had a significant cooling effect, the increase will only further make borrowing costs higher, particularly for first time buyers trying to enter the market. The move will also dissuade better prepared buyers who already have equity in the market from buying more or better-quality housing as equity growth and buying demand cools due to loss of market dynamism.

30% of Canadian homeowners who have variable rate mortgages will now have to adjust their household spending to make ends meet. While the rate rises may seem insignificant, the pace of the rate increases means that incrementally more expensive borrowing costs will accumulate and add up. This month’s increase also suggests that the Bank will likely increase rates again in October, as this matches the now emerging pattern of accelerating rates and lines up with the BOC’s increasingly hawkish and tightening rhetoric, and market expectations.

Why?

Many are scratching their heads as to why the BOC is raising rates so quickly. Inflation is very low at 1.2%. The BOC is known and respected throughout the world as one of the most successful inflation targeting Central Banks. This reputation was earned in the late 80s and early 90s as the Bank increased and maintained very high interest rates to break the back of double digit inflation caused by the 80s stock market and credit growth booms. The effect of these rapid rate rises on real estate, borrowing costs for consumers and businesses and consumer spending will be adverse. Tembo has several ideas.

First, the national economy is experiencing a big growth spurt and GDP growth rates increased by 4.5% in the second quarter. This was largely due to strong consumer spending, made affordable by a stable and healthy job market, some modest wage gains, and cheap borrowing costs. By raising rates, the BOC expects growth to cool to more sustainable medium to long term levels while sending signals to consumers to spend and borrow more Conservatively. There is also a broader international push by Central Banks to end the era of dirt cheap money, and the BOC, in the trendsetting style its admired for, is charging ahead.

Now Creative Group September 5, 2017 No Comments

Why Toronto is Immune from a Real Estate Crash

The imposition of a foreign buyer tax, stricter and more comprehensive rules and regulations, higher interest rates, and higher taxes has upended the Toronto real estate market. What was once the most dynamic sellers’ market in the history of the region in February of this year has now shifted in a much more balanced way towards buyers. A market where sellers were seeing double digit price increases and massive demand has been extinguished and now prices and sales are faltering with huge influxes of inventory hitting the market.

The talk now is of where the market will be in the medium to long term. Will prices and demand remain steady, recover, or crash? This is the grand question on the minds of professionals, buyers, sellers, politicians, regulators, bankers, and everyone else interested and affected by real estate. The best way to predict and ascertain the future is to look back to the past. The last time the market experienced a genuine, painful, and widely feared crash was in 1989. At the time speculation was rife, price growth explosive, money reasonably cheap, and demand strong.

But what triggered the ultimate inflection? What was the spark which led to a near decade long depression with a 40% real drop in prices? Ultimately, two factors broke the back of Toronto real estate. The first was a rapid increase in interest rates unveiled by the Bank of Canada to stem the inflation from the cheap money of the 80s boom and the second was a subsequently massive and sudden spike in unemployment. These two forces unleashed the early 90s recession which particularly hurt Ontario and caused 11% unemployment.

For the Toronto real estate market to crash, rates and joblessness would have to soar. The Bank of Canada has little reason to spike interest rates, as inflation is very low, and the economy is stable. Canada’s banks are healthy and sound, prices for many key commodities still remain competitive, and there are several economic sectors which are growing, particularly real estate, high tech, robotics, and advanced services. Leaving out a spectacularly sudden and damaging event, likely offshore, stability remains foreseeable in the medium to long term and jittery observers have little to fear from a full on 1989 real estate crash occurring