Canadian Real Estate Market: Worth the Investment?


Investing in the Canadian Real Estate Market

Investing in Canadian real estate in 2017 can be a wise move given the fact that property prices are steadily rising and the markets have posted healthy growth over the past year. While there have been concerns over runaway property prices in some cities – particularly Toronto and Vancouver, Canada still remains a solid place for home buyers and real estate investors. Below are 5 reasons why investing now could pay off. 

Steady Increase in Property Prices

Canada Mortgage and Housing Corp – the country’s national housing agency, noted in a report released earlier this year that home prices increased by 7 percent during the last quarter of 2016 compared to the same period in 2015.

A seven percent increase shouldn’t be a cause for concern. Unlike many other major cities in the world including Hong Kong, Sydney and Singapore where prices have witnessed a double digit growth (hence raising concerns for a bubble-like situation), home prices in most Canadian cities are rising steadily.

The median price of Canadian homes sold in September last year was $433,649 (after adjusting for inflation), according to the Canadian Real Estate Association (CREA). The prices increased by just 6 percent which can definitely be considered as a steady rise.

The CREA study covered all major cities in Canada including Vancouver, Calgary, Edmonton, Regina, Saskatoon, Winnipeg, Toronto, Ottawa, Montreal, Quebec, and Halifax. The biggest price growth was reported in Vancouver and Toronto. The study concluded that the 6 percent price growth can be attributed to increased housing activity in these two cities. If the price growth in these two cities is left out, the rest of Canada witnessed only three percent increase in home prices. This negates any fear of a property bubble situation in Canada.

Demand Driven by Population Growth

There have been concerns that speculation activities are controlling the housing markets in Canada. Foreign buyers are being blamed for tightening inventory and the so-called steep rise in prices. According to these concerns, home prices are outpacing what economic fundamentals like migration, employment and income can support. However, these concerns don’t seem to hold any ground because in a report released recently, the Toronto Real Estate Board (TREB) credited population growth for driving up prices in Toronto.

Increased Interest of First Time Home Buyers

In its recent outlook for 2017, TREB said it expected the average house price in the greater Toronto area to surge by another $100,000 this year to $825,000. But despite that, more first-time home buyers are likely to enter the housing market. A survey commissioned by the board focused on consumer buying intentions in 2017. Compared to a similar survey conducted at the end of 2015, the number of likely buyers was down slightly. However, GTA households still seemed upbeat about ownership housing. This included first-time buyers, whose share of overall buying intentions increased to 53 per cent from 49 per cent a year earlier.

"As we move through 2017, we expect the demand for ownership housing to remain strong, including demand from first-time buyers," TREB president Larry Cerqua said in a statement.

Home Sales Continue To Go Up

In yet another positive indication, the number of home sales continues to go up in most Canadian cities. Sales in the Greater Toronto Area picked up in January with 5,188 transactions compared to 4,460 in January 2016, an increase of 11.8 per cent.

Tightening Norms

As already mentioned, the government blames foreign buyers for driving up prices, so restrictions are being imposed. Foreign nationals who buy real estate in Metro Vancouver now need to pay an additional property transfer tax of 15 per cent under legislation introduced by the British Columbia government last year. It has already had a substantial impact on home sales in Vancouver.

However, Toronto Real Estate Board has cautioned against a foreign buyer tax in the Greater Toronto area. In order to obtain actual empirical data on foreign buying activity in the GTA, TREB commissioned a study in November 2016 and found that “only an estimated 4.9 per cent of GTA transactions, in which TREB Members acted on behalf of a buyer, involved a foreign purchaser”. TREB urged the government to focus on introducing policies that deal with “the lack of available homes for sale and for rent”, rather than allaying demand.

The Canada Mortgage and Housing Corporation will charge borrowers a few dollars more every month to insure their mortgages, starting in March.