Buyers Focusing on Value-Added Properties and Communities

The Canadian real estate market is facing new realities. The Bank of Canada’s (BoC) rising interest rates have made purchasing a residential property more expensive. Higher immigration levels will likely exacerbate the supply-demand imbalance. Rising inflation, higher borrowing costs, and growing labour shortages have made housing construction activity a bit more subdued. As a result of these new market realities, many households today are searching for different types of housing, particularly value-added properties and communities. 

“Today’s purchasers are focusing on value-added properties and communities, given new market realities,” said Elton Ash, the executive vice president of RE/MAX Canada. 

“Listings that offer a short or long-term benefit – be it a basement apartment that allows homeowners to offset their mortgage costs now or homes that hold long-term potential in a future renovation or sale to a builder—are most sought-after. Location, while still an important aspect, has been replaced by value and necessity. A growing number of buyers are willing to travel further afield to get the best bang for their buck.” 

Considering how high rents have become in the last couple of years, even a modest discount on a basement apartment’s rent can support homeowners’ mortgage payments.  

A Look at the Numbers 

The latest shift in consumer demand helps explain why detached home sales climbed up to nearly 45 per cent in the first half of 2023 in the Greater Toronto Area (GTA) housing market and close to 30 per cent in the Greater Vancouver Area (GVA) real estate market, according to new data compiled by RE/MAX. 

Whether they bought at the beginning of the coronavirus pandemic when the central bank slashed rates to nearly zero, or families who took advantage of the modest correction during the BoC’s tightening cycle at the start of spring 2022, homebuyers will enjoy the long-term benefit of higher home prices because of the additional value found inside these residential properties. 

To further support this supposition, the York Region housing market enjoyed a significant boost in detached home sales in the second quarter, skyrocketing 104 per cent from the previous quarter. As demand continues to increase and supplies fail to keep up, home valuations will likely maintain their general upward trajectory. 

But the state of communities is essential, too. Whether it is amenities or the neighbourhood’s fabric, everything outside of a residential property can support prices. For homebuyers, it is a balancing act: the arts and culture of a major urban centre or the large shopping malls and large chain restaurants in these smaller communities. 

And then there is the issue of taxes, especially the municipal land transfer tax. 

While detached homes situated in areas outside Toronto enjoy slightly lower prices, they are not subjected to the municipal land transfer tax, something that provides enormous savings for homebuyers. 

Remember, a recent Leger survey found that more than one-quarter of Canadians (28 per cent) say that the land transfer tax has affected their decision to dip or not to dip their toes in the Canadian real estate market. 

Meanwhile, shifting back to the major urban centre, a handful of neighbourhoods in Toronto that possess long-term potential are bucking the national trend of sliding detached home sales. 

Bathurst Manor-Clanton Park is considered the most affordable and undervalued area of North America’s fourth-largest city. Detached housing values are a little more than $1.7 million, representing the lowest average price point in the downtown core, which explains the robust homebuying activity in the first six months of 2023 compared to the same time a year ago. 

H2 Investors Versus First-Time Homebuyers 

There is little doubt that value-added properties are exceptional investments. The challenge, however, is that there is fierce competition between investors and first-time homebuyers. 

According to Statistics Canada, housing markets that possess the largest percentage of investor-owned housing are Toronto (22 per cent), Georgina (18 per cent), East Gwillimbury (15 per cent), Richmond Hill (15 per cent), and Mississauga (14 per cent). 

So, this creates a barrier to entry for households acquiring a detached home in either Toronto Central or municipalities outside Canada’s largest city. 

“In Ontario, businesses owned 74,485 condominium apartments for investment purposes,” Statistics Canada stated in its report. “Most condominium apartments used as an investment in both Ontario and Manitoba were owned by in-province investors.” 

Whatever the case may be, it is clear that shrinking inventories and robust demand will add to Canadian real estate market prices, be it in British Columbia or Ontario. Don’t believe it? Not even the Bank of Canada raising interest rates put a major dent into home prices this past year. 

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