Toronto: Elite Housing is Getting More Expensive
Toronto is the capital of Canada's largest province, Ontario. According to Nikolay Konkin, a trade representative of Remax Unique Inc., Toronto, like the entire province of Ontario, has been experiencing a construction and buying boom for 11 consecutive years. According to his estimates, real estate prices grew by 10-15% over the past year, depending on the segment, with the largest growth in the super-expensive and elite real estate segment. While in London, according to Andy Smith, director of the agency 1st Property Investment, real estate prices are stagnating precisely in elite areas, in Toronto and other cities of Ontario, it is the elite segment that is experiencing the greatest inflow of investments.
The American mortgage crisis, the consequences of which have already reverberated in Europe, has miraculously spared Canada, the northern neighbor of the United States, so far. Moreover, neither the current reduction in industrial production nor the increase in the property purchase tax since January 2008 has affected the number of buyers. The tax increase was conceived by Toronto Mayor David Miller to halt price growth. However, the mayor's jurisdiction does not extend to satellite cities, and part of the investment flows poured into the suburbs – Richmond Hill, Markham, Mississauga, Vaughan, Brampton, and Whitby.
What is the reason for the growth? American and, subsequently, European investors, seeing the lack of prospects for real estate investments in the United States, began to look for alternative markets. Canada turned out to be one such market. In Ontario, cheap uncontrolled mortgage loans were not issued – local laws and regulations simply do not allow that. Therefore, a decline in real estate prices in Ontario is not forecast.
A feature of the current moment is that buyers have shifted from houses to apartments. Traditionally, detached houses dominated as housing in Ontario. Apartments were more rented than bought. However, now a clear trend is emerging of dividing new skyscrapers into condominiums and selling them off piece by piece. In 2007, 33,300 apartments were sold in Toronto, and this year, possibly 41,600 will be sold.
Quebec: Immigrants Will Not Let Prices Fall
The French-speaking province of Quebec is an industrial territory that mainly produces goods "for export" to America. Currently, Canadian exporters are experiencing difficulties due to the decline in Americans' purchasing power and the fall of the US dollar. The result of this phenomenon is rather deplorable. In the industrial sector of the economy, production is being cut and mass layoffs are occurring, increasing the number of those who cannot pay mortgage installments on their homes.
Nevertheless, according to Svetlana Shchetinina from the Montreal agency Immobilier & Hypothcaire, real estate prices in Quebec have increased 2.3 times over the past 15 years, and the price increase for 2007 was 9.2%. Experts believe that the demand for housing is supported by immigrants who "flocked" to Quebec from all over vast Ukraine. They, after selling an apartment in Zhytomyr or Berdychiv, contribute money to a settlement fund, pay an entry fee, which, by the way, is one of the lowest in Canada in Quebec, and use the remaining amount to make a down payment and take out a mortgage for an apartment.
Fortunately, mortgage lending conditions are quite acceptable: with a down payment of 10-15% of the total purchase price, the bank interest rate is usually about 3.5-5.2%. In Canada, it is considered that one should not spend more than 30% of one's income on a mortgage, but immigrants happily exceed this limit, just to avoid becoming eternal renters. However, banks, as a rule, assign an immigrant with no credit history a much higher interest rate and down payment amount.
According to Svetlana Shchetinina's observations, the number of arrivals from Ukraine has increased precisely since the Orange Revolution. Ukrainians and people from other CIS countries brought to Canada the fashion for buying apartments rather than houses, since apartments are still cheaper. If a single-family house with a total area of at least 200 m² and a plot of at least 400 m² costs from 170 thousand Canadian dollars (CAD), then a one-bedroom apartment in a multi-story building with an area of at least 60 m² costs from 120 thousand. By Ukrainian standards, this is a perfectly familiar two-room apartment, and a family of four happily moves into it.
As for housing owners' expenses, in Montreal they average $140 (the Canadian dollar is approximately equal to the US dollar, exchange rate fluctuations are 1-2%). This amount includes both utility bills and taxes.
Mortgage payments for a home costing 200 thousand Canadian dollars are approximately $1,400. Rent for such an apartment is about $1,500, including utility costs.
However, official data does not agree with Svetlana Shchetinina's opinion. The Chinese are firmly in first place in terms of the number of immigrants, the Hindustanis in second, and Ukrainians are currently struggling with varying success with Albanians for third place. This flow of immigrants ensures the demand for real estate in Quebec.
British Columbia: Oil Wealth
Now let's move from the Atlantic coast to the Pacific. Whose oil does America run on? You think it's Arabian? No, Saudi Arabia is only the third largest supplier. Mexico is in second place, and Canada is first. It supplies 2.3 million barrels per day to the US, providing 11.5% of American needs.
Canada's oil reserves are concentrated mainly in the western part of the country – in Alberta and British Columbia. A wave of petrodollars flooded there in 2003. This flow, increasing year by year over the past five years, on the one hand, raised the Canadian dollar's exchange rate, and on the other hand, raised and continues to raise prices for everything, including, of course, real estate.
As for prices, British Columbia holds the lead in real estate prices. Today, the average price of a typical home here is $500,000. And it's not just about oil: Vancouver will host the 2010 Winter Olympics, and as the Sochi example shows, that hardly helps reduce demand.
However, despite continued price growth, analysts from neighboring Seattle, USA, do not recommend their clients invest in Vancouver real estate. For instance, Robert B. Stevenson, managing partner of S & B, believes that real estate prices in British Columbia are clearly inflated. They are fueled by an influx of petrodollars and speculative manipulations by local realtors. As soon as oil prices drop in 2009, the real incomes of Vancouverites will inevitably fall, and trying to shed the unbearable burden of mortgages, they will put their homes up for sale en masse. Then the cost of real estate will plummet, and those shortsighted investors who were tempted by the rapidly rising prices will end up in the red. (True, we don't quite understand what Stevenson based his forecast on—oil prices are not going to fall; on the contrary, they are breaking records.)
However, even such a turn of events could benefit another Canadian province—Quebec. With the drop in oil prices, the Canadian dollar will also fall, which will revive exports and restore the former investment attractiveness of industrial provinces.
When deciding whether to buy housing in Canada, keep in mind the three reasons for today's price growth cited by analysts. First, investors frightened by the crisis are leaving America and Europe and moving here. It is worth considering that the crisis is not eternal and will end someday. Where will the investor go? The second reason—Canada remains a favored country for immigrants from Eastern Europe and the CIS countries. And this process likely has no end in sight. Finally, the third reason—the pressure of oil money on real estate. Oil prices should not fall, but even if some negative processes begin in the oil market, Canadian industry will not suffer from this.
Sergei SHUMAKOV.
Metrinfo.Ru