Toronto Income Property Newsletter: April 2009

Where are all the great deals on duplexes and triplexes that everyone is waiting for? As we head into April in the midst of a recession, I’m still combing the market daily, waiting for all these great opportunities with Toronto investment properties. Well it’s not happening folks. When the dust settles and the economists determine how big an average price drop this “correction” saw, whatever that number is, it won’t apply to income properties. Cap rates are still well below seven and quality owner-occupier income properties may still get multiple offers on them. It just goes to show that buying these properties always makes sense, perhaps even more so in down markets. Some businesses do not decline in bad economic times – I guess income-generating properties (since there are so few of them) may fall into this category. For the record, it would benefit me a great deal if the prices started to drop as I have many investors waiting on the sidelines. A price drop of say 5% with a resultant bottom-line increase of even 2%, would allow me to sell a lot more buildings.

What going on with the condo market?

I’ve thought for awhile that until there is a great resale condo crash in this city, then we have a way to go before we hit bottom. Toronto condo broker Brad Lamb declared in his last newsletter that this past December was in fact the absolute bottom of the market. He states that last Christmas was “the absolute depths of negative human despair. It represented the bottom. I know that it’s difficult to see this now as the economy continues to shed jobs, but the worst is over for Toronto’s real estate market.”

He goes on to say that that the next rise will start in the fall of 2009 and run for several years. People who choose to wait until next year will kick themselves around the block. “Come May, our little correction will be over and anything lost through January will have largely been regained.” I agree that recessions always seem the worst when you are in the middle of them, and until we see a huge decline in resales, that the worst may be over.

I’d like to point out at the luxury condo market has taken a fair beating. There have been relatively few resale condos trading over half a million dollars so far this year. The under $300K market still seems very active to me.

Condos as investments … forget it. They never have made sense on the monthly cash flow side. If you bought a presale unit and were lucky to sell it along the way, that’s great. But that is speculating, not investing. Remember when people were lining up at Yonge & Bloor for days like they were in line for a Stones concert. That represented the height of the market and the crest of silliness if you ask me.

Regarding the new Ontario HST:

On March 26th, 2009, the McGuinty government announced its intention to harmonize the goods and services tax with the provincial sales tax – an all encompassing 13% tax.

As a result of this change, provincial sales tax will now be levied on legal fees, appraisals, real estate commissions, home inspection fees and other services related to a real estate transaction. They were only subject to GST before. From the consumers’ point of view, it is just another cost that they will have to unfortunately bear. From a realtor’s perspective, there may be some benefits insofar as being able to claim back the full 13% on business related expenses.

The Ontario Real Estate Association believes that this tax grab will severely hurt the resale housing market and reduce affordability for Ontarians trying to buy a home. In Toronto, there is also the year old municipal land transfer tax that some say aided in the market’s decline.

The new HST won’t take effect until July 2010. A lot can happen in between now and then so stay tuned.

Happy Easter everyone. TFC is back on the field so get behind our team!

P.A.

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