The Resilience of the GTA Condo Market
To date, COVID-19 pandemic of 2020 has challenged all manner of perceived wisdom and overturned expectations across the board. In the process, it has exposed some surprising weaknesses as well as some unforeseen strengths.
One of those strengths has been the proven resilience of the Greater Toronto Area’s pre-construction condo market. This is not just the hopeful optimism of Baker, which admittedly, has a bit of a bias on the subject. Rather, it is borne out by the prognosis of economic experts, as well as the facts. Since July, for example, 27 new projects have successfully launched in the GTA – and there are many more in the pipeline for the first quarter of next year.
The case is a compelling one: the typical timeline for pre-construction condos, from launch to delivery, is four to six years. We can probably all agree that the current constraints and distortions imposed by a global pandemic, are highly unlikely to be in place that far down the road. Experts like Benjamin Tal, CIBC’s deputy chief economist, anticipate that rapid COVID testing will be available in early 2021, leading to other restorative milestones throughout the year. As he remarked in a recent call, “when the fog lifts, the landscape will look very familiar.”
What does he mean by that? Well, he was pretty clear that immigration is already on the rise again, and the federal government is committed to ensuring that lost ground is recovered. The GTA remains the primary destination for newcomers to Canada. According to the conference Board of Canada, furthermore, 77 per cent of those arriving in Ontario stay in the GTA.
That’s significant given that for many, pre-construction condos are the critical first rung on the property ladder. It’s as true for new Canadians as it is for millennials and others starting out in their adult lives.
With renewed immigration levels come the return of foreign students and the recovery of the high-rise rental market segment. As for AirBNB, while it may never reach the heady of peaks of early days, tighter regulations do make it a more sustainable and stable proposition for investors looking to rent over the long-term.
The sale of pre-construction contracts, known as “assignments”, have always been a part of our industry. Based on Baker’s close and regular contact with developers, there seems to be no significant uptick in early sales.
And if you need any more compelling points in favour of pre-construction, capital markets are standing by. Low interest rates make financing affordable, just as they also limit the yield on fixed income investments. Condominiums are also an attractive alternative investment to volatile equity markets.
The legendary central banker, Alan Greenspan, once commented on the “irrational exuberance” of investors. At Baker, our ongoing exuberance is purely rational.