Sales of million-dollar homes and higher making triple-digit gains in some cities
Sales of homes valued at $4 million or more in the Greater Toronto Area saw a 157 per cent jump in activity.PHOTO BY TYLER ANDERSON/NATIONAL POST
The rise of affluent millennials, wealthy families sitting on a cash pile and remote-working trends have created a ‘perfect storm’ in the world of high-end real estate, according to a new report.
Sales of homes valued at $4 million or more in the Greater Toronto Area saw a 157 per cent jump in activity, while Vancouver saw a 41 per cent increase in the first two months of the year compared to the same period last year, according to Sothebys International Realty Canada, a high-end real estate broker.
“We’ve seen shifting homeowner and buyer needs,” Don Kottick, Sotheby’s Canada CEO, told the Financial Post in an interview. “There have been foundational changes in what people want from their home and what they look for in their home. And so that’s impacting the business.”
Sales activity in homes above $1 million in Montreal jumped 27 per cent during the period, while Calgary has also emerged from its deep freeze, with residential sales of more than $1 million up 119 per cent. Prices and sales have increased not only in major urban centres, but also in cottage country, such as the Muskoka and British Columbia’s Okanagan Valley regions. Sotheby said it did not aggregate data for all of 2020.
With economic shutdowns preventing younger consumers from spending money, many millennials are looking to invest their newfound savings in real estate. And they are tapping into low interest rates to buy higher-end properties, often with the help of cash-rich parents. Canadian currency and deposit holdings increased a whopping $205 billion over the past year, according to Royal Bank of Canada.
According to Mortgage Professionals Canada, about 4.5 or 5 per cent of Canadian households buy a home in a typical year, but that may have recently increased by as much as 1 or 1.5 percentage points. Older homeowners, meanwhile, are staying put.
A 2020 report by Sotheby’s and Mustel Group found that about 80 per cent of older homeowners planned to stay in their homes for as long as possible. Kottick believes the rising demand will also be bolstered by a coming influx of international buyers, as COVID-19 vaccines make travel more feasible. Instability in places like Hong Kong and political divide in the United States means that both Canadian expats and new immigrants are likely to consider moving to Canada.
Internationally, he said, Canada’s status as an emerging financial centre and technology hub makes it appealing to foreign buyers looking for an affluent and stable destination. Toronto is now considered the second largest financial centre in North America, according to government-backed think-tank Toronto Finance International.
“The fact that we have technology and we have our financial system, that’s driving probably more people internationally to take a look at us,” said Kottick. “We’re safe, we have stable government, we have resources, so we have a lot of things that are making us attractive at a global level.”
He is concerned, though, that the market’s future outlook could be hampered by a possible attempt by government to address housing affordability problems by dampening demand across the entire real estate market. “Government really need to focus on creating more supply in all areas of the housing market,” Kottick said. “That is the only thing that is going to correct our problem with the shortage and with affordability.”
In December, in an effort to lower real estate prices, the federal government vowed to levy additional taxes on foreign buyers living outside Canada. And in 2016, the government of British Columbia imposed a tax on foreign buyers that saw foreign sales drop to almost zero by 2020, according to the B.C. Real Estate Association. The Ontario government also imposed a tax on foreign real estate buyers in 2017.
Mortgage Professionals Canada chief economist Will Dunning said the previous attempts by government to suppress housing prices by reducing demand, such as through taxation, have likely deterred the creation of new supply and potentially worsened the problem.
He suggested that one way to address the supply-demand gap might be to encourage existing homeowners to sell their properties, noting that his role at Mortgage Professionals Canada is that of a consultant and he was not speaking behalf of the organization. Dunning suggested eliminating or reducing the land transfer tax, given that home sellers often face moving costs of around eight or ten per cent of the value of their homes, including paying the transfer tax on their new residence. Lowering the cost of buying a new home could make them more willing to put their existing properties on the market.
“The government’s need to raise revenue, I totally get that,” Dunning said. “But I think the land transfer tax is a very inefficient tax… I would much rather the government education and municipal taxation be done through the ongoing realty tax, rather than one enormous tax.”
Kottick said removing the transfer tax might make a small difference to housing supply across the entire spectrum of the market, but added that systemic changes to reduce red tape around new housing and encouraging developers to start new projects is likely to have a greater effect.
“Give developers incentive so they want to bring more inventory in. That’s the fastest way,” Kottick said. “That’s the only thing that’s going to be a long-term solution. It could be looking at land use, allowing certain land to have different building codes that encourage multi-dwelling buildings.”
source from : Financial Post