The Impact Of COVID-19 Outbreak On Toronto Real Estate
Monday Apr 06th, 2020
COVID-19 has affected businesses in each sector across the globe. Therefore, it doesn't come as a surprise to see a strong real estate market also face the hit of the coronavirus outbreak. There are many professionals in the industry who are comparing this situation to the financial crisis of 2008. In fact, there are quite a few who have a view that this one is a worse hit. The hit of the market is so bad at the moment that some claim it to be worse than the financial crisis that happened in the year 2008.
The worst part hasn't been seen yet. It is too early to comment on how 2020 will fair in the real estate sector. One thing that is certain is that the global economy is going to come to a halt after the COVID-19 is over. Thus, the impact of it is going to be eventually seen in the Toronto real estate market too. Also, the unfortunate thing is that these things don't settle in a lesser time either. So, the effect is going to be seen in the years to come.
How is the market preparing for it? How far has the impact gone as of now? Hilderbrand, the President of Urbanization, also has some views on the entire scenario. It's better to look into a little detail to understand the answers to these questions better.
Pandemic to slow down the market
Social distancing and reduced face-to-face interactions are the two activities being appreciated all across Canada and, in fact, the rest of the world too. This physical distancing will definitely slow down the condominium market in Canada. The newer developments coming up in Toronto and the rest of the country.
The market will take time but will eventually stabilize in the coming years after the pandemic is over. The units that are in the pre-construction stage will get delayed. The development will reach the completion stage in about 4-5 years. By that time, the economic condition will become better, and the real estate sector will start scaling up as well. Therefore, the demands of the citizens of Canada will also rise again, and the buying scenario will be back on track. However, all this is going to take a few years' time.
An in-depth understanding of the rate at which the sector is going to slow down is indeterminable as of now. It will all depend on how bad the pandemic turns out to be.
Activities are on a halt
The sales offices of most development firms are either shut temporarily or are working with reduced office hours. There are quite a few development companies that have opted for a virtual environment to continue their functioning.
There is going to be a delay in the ongoing projects of Toronto as well. For instance, the projects that were to be ready for a Spring launch this year will have delays too.
As per Hilderbrand, the smaller developments might still get ready for sale in a few months' time. This is because these developments will cater to the buyers having secured employment statuses. The larger developments, however, might be delayed for a while. This is because the projects on a larger scale usually cater to the demands of investors in the real estate market.
Therefore, both sales, as well as construction activities, are going to expect a halt for a decent part of the year.
The Toronto market hasn’t experienced the hit yet
The Toronto real estate sector is slowing down at a much reduced rate. That is, when compared to other sectors, the reduced state hasn’t come yet. Even now, amidst the pandemic, the pricing of the houses in the city continues to soar up.
The listings are also growing as of now, and there has been a rise in sales as compared to the previous year. However, this does not show that the market is heading in a positive direction only. There are people who are listing their properties for sale as of now. This scenario might change in a few weeks, though.
How are the condo developers dealing with the pandemic scenario?
The developers of condominiums in Toronto are still in a fairly good state as of now. This is mainly because the units that are a part of their current developments are mostly sold already. Also, the prices are currently being supported by the low inventories as well as initiatives from the government and Bank of Canada.
Unless the situation due to the coronavirus becomes really bad and the construction sites have to shut down, the real estate sector is going to be fairly stable. Quite a few condominium completions will happen as usual this year as well. Also, the majority of these units are already sold. So, the cost impact is not going to be much on the developers as of now.
Pricing in the condo market
The pricing in the condominium market is more likely to experience a pause rather than a decline. This is because of the fact that both developers and buyers mutually disengage into the market activities.
Also, the borrowing rates are low at this point. Along with that, the fiscal aid, support for both lenders and borrowers will keep the market in quite a stable state. Therefore, growing back from the pause is going to be easier than recovering from a decline.
The effect on the real estate investors in the Toronto market
Considering the effect in the year 2020, the investors in the condominium market will manage fine this year. This is again because the units finishing up this year were already bought by these investors around 4-5 years ago. Now, the rates have dropped. This means that there is a reduction in the carrying costs as well.
For instance, the mortgage is reduced by 25%. Also, the various taxes, condo fees as well as insurance have reduced rates now. Thus, if one takes account of these things, the rents of the units will lower down by at least $100 per month. The current average rent pricing in the Toronto market is around $2400.
This would definitely ease out the renting scenario and make the occupying of these condo units easier for the tenants.
However, the investors whose properties are getting ready by the year 2021 instead will experience a worse hit. This is mainly because these investors are going to require much higher renting rates to cover all their carrying costs properly.
The impact on rentals due to the COVID-19 outbreak
The Toronto, real estate market, had already begun to show some resistance when it comes to higher rents. The growth rate in terms of rent in the same condominium building was a mere 1.8% in the fourth quarter of 2019, which is the lowest increase when comparing the rise in the past four years.
Due to the pandemic, the rents might further decline, possibly by around 5%, which is quite a significant number. This situation, however, will be a temporary one. As the market will rise again, the growth of rent will pick up a steady rate again. The rise can be quite slow, though.
The effect on the purpose-built rental market will be lesser in comparison. This is majorly because the real estate market comprises of older buildings only in this case. This is anyways considered as a lower turnover or the rents that are more affordable.
Different scenarios for different units
The response towards the property listings has been a mixed one so far. For instance, one of the small condominium units was up for sale for a price of $699,000. The listing received a total of 11 offers from various buyers. The final sale of the condominium was made for a good $950,000.
There are many sellers who feel that they can wait. Therefore, they have either postponed their sales or canceled them as of now. On the other hand, there are a few sellers coming up to sell their real estate. They are of the opinion that it is better to sell it now before the market goes further down.
Then there are tenants too who are having a different concern altogether. A few of them had put on notices of moving out. This is because they were expecting that their new units would be ready to move in. However, due to the coronavirus outbreak, the constructions are on a halt.
Summing it up
The COVID-19 outbreak has surely impacted each market in a different way. Also, all the markets are dealing with the effects in their own way. As of now, the real estate sector in Toronto has slowed down a bit as the growth rate isn’t much now.
As of now, there is no uncertainty of how things will turn up in the future. This is because one cannot really estimate how much the pandemic is going to affect the market. The situation might get worse, and no one even knows for how long.
The market will experience a pause, if not a decline, in the coming months due to the pandemic. The developers, investors, and sellers are all facing varied issues in their sides of the scenario. Overall, the fall hasn't been much to date. The uncertainty in the future continues