Monthly Newsletter: January 2006

I’d like to start off by wishing all of our clients, friends and family a very safe, happy and prosperous New Year. I hope that all your dreams come true in 2006 and all your hard work and efforts are well-rewarded.

I am happy to announce that Gregory Elliot Laxton has joined the Plex team of sales representatives. Greg has extensive experience with multi-family dwellings as well as first-hand construction expertise. Greg will be primarily focusing on Central Toronto where he currently resides. His keen eye for value and opportunities in the marketplace will be a valuable asset to our group.

One of your resolutions for 2006 may be to try and be more fiscally responsible and to try and create greater returns on your investment dollars. A great way to get started is to come and join us at the Financial Forum at the Metro Convention Centre from January 26th through to January 29th. If you are on my e-mail list, I have attached a free pass for you to attend in case you missed last month’s newsletter. Feel free to print out as many passes as you need and bring your friends and associates. If you are not on my list, please send me an e-mail and I will make sure that I get you a free pass for the show. This trade show is Canada’s foremost investment gathering and will be indispensable for you to make informed decisions about the myriad of financial products that are available to you. Naturally, we will be there talking about the income property market in Greater Toronto and why we feel that real estate in the GTA is still one of the best long-term investment strategies. We will also be hosting two seminars. I will be talking about the overall economic outlook for real estate in Toronto, while Marcus Tzaferis, one of our lead mortgage brokers, will introduce you to the many mortgage and financing options that exist in the marketplace today. We will also have Paul Schuster, our fire-retrofit expert available to answer all of your questions. I really think that many of you will benefit from attending and will come out of it with a much broader understanding of how best to spend your investment funds. This is the last newsletter that I will doing before the show, so I hope to see as many of you there as possible.

This past year was a very robust one for the residential resale market. 2005 has once again set the record for the greatest number of resale transactions in the Greater Toronto Area, Toronto Real Estate Board President John Meehan announced last week. With a total of 83,547 properties changing hands to-date, this year has just surpassed the previous record of 83,501 set in 2004. “The phenomenal number of sales this year demonstrates that consumers continue to have confidence in the real estate market,” said Mr. Meehan. Canadian Mortgage and Housing Corporation predicts that next year the Greater Toronto Area real estate market will continue its strong performance; it forecasts a total of 84,000 sales for 2006.

TREB President John Meehan says that even more important than the figure itself, the market’s performance in 2005 illustrates an important point. “In recent years, we have shattered countless records and while we are always pleased to report that new benchmarks have been set, we are even more delighted that an increasing number of families in the Greater Toronto Area recognize that investing in a home is the most sound decision you can make.”

The New Year is traditionally the time to make predictions about where the real estate market is heading. Real estate forecasters look at many socio-graphic and economic factors and try to get a sense of where prices will be going in the months ahead. So what’s going on? Essentially, one of three things can happen. The feverish demand that we have been experiencing slows down, houses sit for sale for a longer time and the overall market slows down. On the other hand, since we still (as recently as November) have been experiencing record-breaking sales months, this trend can continue with housing prices continuing to rise. Last month all of us here at Plex gave our predictions for where we see the market going next year. The overriding consensus from our point of view is that the market will remain strong, particularly for residential investment properties.

One of the largest segments fuelling this sustained growth has been the condo market in the GTA. Conventional wisdom suggests that Toronto’s sizzling condo market will eventually slow down – but that doesn’t seem to be the case either. Predictions are that condo starts will hit new highs in 2006, while a building frenzy similar to 1989 continues. The difference between the speculator-infested condo boom back then and today’s market, explains Jason Mercer, CMHC senior market analyst, is now only 18%-20% of condo buyers are investors. That compares to 30% back in 1995. Also rising apartment vacancy rates – some experts figure it to hit 5% in 2006 (which I, by the way, believe is probably too high an estimate)– plus new restrictions on building financing based on the number of sold condo units has deterred investors from buying condos to flip. Today it’s more and more first-time buyers who are snapping up condos and townhomes as detached homes become less and less affordable.

The residential income property market remained strong in 2005. Investors on larger-scale buildings are settling on lower returns than in the past, but still remain bullish about owning income-generating property in Toronto. Since the market seems to be strong overall, but with room to grow relative to other major world cities, investors are adapting a buy and hold strategy. Remember that future cash flows always improve over time so a six cap today could be a significantly better investment five years down the road. Of course, owner-occupied income properties are always a good bet. I’ve found that prices for the better live-in opportunities are a little higher than average, but there are still opportunities out there if you look hard enough. They also remain one of the easiest forms of real estate to finance.

We compile our own stats on the multi-residential market in Toronto. I have published three of the downtown MLS districts as a sample to illustrate the year-to-date activity:

C01

82 sold under 500K

Average list price under 500K $421184

Average sale price under 500K $412636

52 sold over 500K

Average list price over 500K $670975

Average sale price over 500K $638909

C02

64 sold under 500K

Average list price under 500K $371156

Average sale price under 500K $356174

44 sold over 500K

Average list price over 500K $964039

Average sale price over 500K $925615

C03

37 sold under 500K

Average list price under 500K $346705

Average sale price under 500K $336708

As you can see, income property prices tended to be higher than the overall average prices in Toronto. We have also found that it is becoming more and more difficult to buy anything good for under $350K. Quality owner-occupied income properties in nicer locations tend to start at $400K and go up from there. As I stated last month, I feel that this market is very much inventory-driven and the trick is to continually stay on top of the inventory to find the best deals.

Will 2006 be your year to buy an investment property? We’re here to help and I give you my word that we will stay on top of the investment market to give you the critical information you need to make the right purchase decisions. Once again, a very Happy New Year to everyone and hopefully we’ll see you at the Financial Forum.

P.A.

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