Toronto Real Estate Opportunities Post COVID-19
It’s been a month since the start of physical distancing measures in Toronto and we’ve gathered data to show the impacts of COVID-19 on Toronto real estate. With discounted purchase prices, low borrowing costs, and possibly lower costs for upgrades, the current environment can be a good opportunity to purchase investment properties in Toronto to generate better returns.
Real Estate Sales: Detached Houses
Real Estate Sales: Condominiums
Why you may be able to get better returns now
1. Short Term Buyers Market
As expected, the number of sales have dropped drastically by over 60% from its normal levels. There were only 366 sales in the detached house space compared to 1,000 sales at the same time last year.
It’s interesting to note that supply hasn’t dropped as much as demand. We’re seeing motivated sellers in the current market who are more willing to put their properties for sale during COVID-19.
Ultimately, this situation has created a temporary market where buyers may be able to negotiate better discounts in the selling price.
2. Fragmented & Delayed Market Data
Unlike the stock market, there are less real time price updates on real estate properties. On top of this, freeholds in Toronto each have their unique characteristics and can’t be compared on a level basis easily.
With this lack of information, it can be harder for inexperienced sellers and realtors to gauge a fair market value of a property, especially in a more volatile environment. This creates opportunities to find individual deals in the market where a property may be purchased at an undervalued price.
3. Insights From Historical Data
Both the stocks and real estate are correlated to the economy so we can gain insights by looking at the historical relationship between the stock market and the real estate market.
During the financial crisis of 2008 – 2009, the S&P 500 index dropped over 50% from their highs in May 2008 to lows in March 2009 before recovering back to their previous highs in 2011 – 2012.
The Toronto real estate market dropped slower and much less than stocks and rebounded much quicker. We saw property prices peak in June 2008, then drop 13% to lows in January 2009 before recovering in late 2009.
Toronto Property Prices vs. S&P 500
Comparing this information to our current situation, stocks have dropped by 35% and have recovered approximately by half. Toronto real estate hasn’t been able to move as quickly due to lockdown measures, and freeholds have currently dropped by 8%.
This may mean that we are currently in a short term window of opportunity to purchase Toronto properties at lower prices, before the markets rebound back when more buyers come back onto the market.
4. Government Support Lowers Risk
With higher job losses, it is very reasonable to be concerned about rental income. In fact, the economic impacts of COVID-19 affect many businesses and investments across the board – some more than others.
From policies created in the past weeks, we can see that the government is proactively helping Canadians with necessities, providing subsidies so that they can meet their rent and pay for food. This lowers the risk of rent default for residential investment properties, which makes it more attractive compared to other investments.
5. Low Mortgage Rates
Since the start of the COVID-19 crisis, we’ve seen Canada’s policy interest rate drop by 100bps to currently 0.25%. Bank mortgage rates follow policy rates, and we continue to see a low cost of borrowing for mortgages. A reduction in the cost of borrowing will increase investment net profits.
6. Motivated Contractors
Due to COVID-19 concerns, many construction projects have been halted if it’s not essential. Even when things are slowly recovering, we may see less demand for renovations in a shrinking economy.
Because of this, contractors will see less jobs and are more driven to secure a contract. This could mean better pricing on renovations and a quicker turnaround time for a renovation project to be completed. This reduces the cost of value-add work and increases your bottom line.
How Can We Help?
If you’re interested in purchase an investment property, it’s time to get ready. Line-up your mortgage pre-approvals so that you can take advantage of deals on the market.
We’re happy to discuss your current situation, direct you to the best mortgage brokers, and help you secure a great investment property that suits your requirements and preferences.