Monthly Newsletter: December 2005

I’d like to begin this month by wishing all of our clients, friends and family a very happy and safe holiday season. Merry Christmas, Happy Hanukkah, Merry Kwanzaa and a Happy New Year to all of you from all of us here at Plex Realty.

We would like to cordially invite you to attend the Financial Forum being held at the Metro Convention Centre (North Bldg., Hall C) from January 26th through January 29th, 2006 from 10:00 to 5:00 daily. The Financial Forum has been the preeminent investment education platform in Canada for the past 20 years. The Conferences and Exhibitions allow investors to navigate and learn about smart money options to maximize their investments. This is your opportunity to learn about investing in real estate as well as a myriad of other investment choices. Plex Realty will be exhibiting at the Financial Forum for the second year in a row. We will be conducting real estate investment seminars over the four days, touching on key topics such as mortgage financing, fire retrofit, tenant and vacancy issues and overall analyses of the income property market in Toronto. We will also have a few discussion tables set up near the main stage where we can discuss one-on-one your future real estate goals. Please find attached your free pass to come to this show as our guest.

One quick issue I’d like to address is the notion of “illegal basement apartments”. It’s a concern that I have to contend with regularly as I visit with my clients many homes that have secondary suites in them. In Toronto, we have the second suite by-law which quietly came into effect in 1999. Basically, second suites are legal in the City of Toronto in all single family and semi-detached homes, providing they meet certain criteria, including fire and building codes. The second suite bylaw does not apply to new homes that are less than five years old, which is interesting because as recently as this week, I saw new builds near York University, with separate entrances enticing owners to consider basement apartments. All new basement apartments must comply with the Ontario Building Code and require a building permit. Existing secondary suites must comply with the Fire Code as well as zoning and property standards.

Here’s a little bit of interesting information if you go outside of the City of Toronto. The Brampton Real Estate Board has issued a statement regarding basement or accessory apartments. The issue revolves around the use of the word “unregistered apartment” when these properties are being listed for sale. The City has noted that a second dwelling unit or basement apartments must meet the City of Brampton’s registration criteria and be registered with the City. Furthermore, the City of Brampton is advising all brokers that multi-dwelling units (more than 2 units) are never permitted in the City of Brampton unless designated and licensed by the City to be a lodging, rooming or group home.

I’d now like to present a few different views on where the real estate market will be heading in the New Year. There are always opposing views on whether overall sales will increase, decrease or stay relatively level. A major Re/Max report just released says that after shattering existing records from coast-to-coast in 2005, housing values are expected to moderate in most major centres in 2006. More balanced conditions should emerge in the year ahead, with healthy inventory levels and less urgency in the marketplace. “An influx of new listings in the marketplace should ease some of the upward pressure on housing values and allow purchasers the luxury of time when buying a home”.

I’m quite optimistic for the Toronto income property sector in 2006. I’ve always been a proponent of the theory that income properties are more so inventory-driven than market-driven. In other words, I don’t necessarily believe that sellers of income properties closely analyze market conditions and put their property up for sale during peak economic times. Of course, some do, but the majority of sellers list for a variety of other factors. It’s usually external circumstances, apart from the market conditions, that influence one to sell. In fact, I’ve often found that sellers who try to time the market end up disappointed. We never really know when the next batch of quality investment properties will hit the market. Given that we have been in a seller’s market for the past two years, once this turns around, it will give buyers a more level platform. Interest rates should start to creep up slowly which ought to slowly start the trend towards a more balanced market. We may not completely see a “buyers market” in 2006, but I think that there will be more choice out there for the active real estate investors.

Here are some further thoughts from our own David Risenman and Howard Esakov. David states the following: “The market for resale real estate will end the year up 5% above last year, making it a 5th straight record year. This will be an unprecedented feat in Toronto’s real estate market. Mortgage interest rates are expected to remain within 1% of today’s rates – hardly a halt to affordability – in fact with unemployment at record lows and immigration at all-time highs I see little if any impact on the volume of sales transactions. The biggest problem in the urban centers like the GTA is still on the side of quality supply inventory with demand continuing to be strong. Our client base continues to grow and that shows how attractive investing in Toronto remains. Rents will rise, partially fuelled by immigration and overall capital appreciation will swing in that direction as well. If there is one thing that is crucial in this market, it will be for Realtors to price properties fairly and follow the crucial fundamentals for assessing value for both buyers and sellers.”

Howard presents the following view: “The Toronto real estate market is demand and interest rate driven and until one or both of these factors change significantly, the market will remain active and strong. The demand for single family homes in AAA locations, such as Forest Hill, Rosedale, The Beaches, and The Annex remains high and will until interest rates rise significantly. Currently, income properties face the challenge of diminishing returns as upkeep costs continue to rise and rents are pressured due to low interest rates. However, as interest rates creep up I believe this will create a good buying climate for our clients as we should begin to see more inventory at better cap rates. Our motto remains the same, “Patience, Persistence and Perseverance will yield the profitable results.”

Next month, we will do our year-end wrap up as we prepare for the New Year. Seasons Greetings everyone!

P.A.

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