Why are Investors Shifting their Focus from Vancouver to Toronto? - A Discussion by Ringo Tsang
A couple of weeks ago, I hosted a seminar in Vancouver to educate the locals about the real estate market in Toronto. I had the opportunity to speak with various seasoned real estate investors and agents. One thing always came up — the fact that the Vancouver real estate boom is coming to an end, and everyone is anticipating a decline in both real estate transactions and prices due to a few reasons:
1. Vancouver’s Heavy Reliance on the Chinese Capital
As I’ve mentioned in my previous blog, Vancouver’s economy has been heavily reliant on the investments of the Chinese. The Chinese economic growth has begun to slow down in the recent years, which means that we can anticipate its effects on other cities that rely on their investments.
2. The NDP Government's Recent Imposition of Vacancy Tax & Foreign Buyers’ Tax
This has impeded the growth of Vancouver’s real estate market. Historically, Vancouver’s real estate markets have always been outperforming Toronto due to its proximity to Asia as well as its milder winters. This has always made it a very attractive location for wealthy investors abroad, who are the driving forces of the real estate market in Vancouver.
As technology has been advancing exponentially over the years, our large world has also been brought infinitely closer together. Information is available at the tip of our fingers and we have the opportunity to make more educated decisions (a luxury for all of us, really). This is especially useful for investors. Though some information online can be misleading, we know that investors (and everyone else!) are always using the internet to better inform themselves.
The strong interconnection between Toronto and Vancouver has begun to steer investors to Toronto as well. Now, Toronto’s market is beginning to look more appealing due to our diversity and our rapid advancements in the IT sector. Toronto is now considered the third largest populated IT hub within North America. Our job growths in the IT industry exceeds San Francisco and New York Combined. How crazy is that?
On top of that, Artificial Intelligence (AI) is now the biggest trend in the coming years — giving Toronto a huge edge in the investor’s market, with our growing IT sector. Corporations are flocking to set up offices in Toronto due to our lower costs and ease of hiring talent in Toronto.
Toronto is known for attracting more interprovincial immigration than any other city in Canada due to our employment opportunities and many prestigious schools are located in either the Golden Horseshoe area, which includes Toronto.
According to the CBRE Group:
“In a century when most developed countries will see their population decline, Canada will see population growth that continues to lead the G7. Toronto is forecast to account for 28% of this growth. Toronto’s favourable growth trajectory is underpinned by a diverse economy, ambitious infrastructure projects and the city being a destination of choice for international immigration.”
On top of that, it is forecasted that Toronto population will increase by 25% in the year 2031, whereas the population will only increase by 12% in Vancouver.
When I mention that Toronto is becoming the new investor’s choice compared to Vancouver to people around me, many come up with similar points to counter my arguments, such as the following:
"Vancouver is unable to build as high as Toronto (Low Supply due to Earth Quake Zones) — therefore, prices of real estate in Vancouver will be higher."
They are partially right. It is true that Toronto tends to build skyscrapers — but building skyscrapers are actually more expensive (per square footage built) than building a 20-storey building. The difference between Toronto and Vancouver is that our condos are lived up by the Millenials and people in the Middle Class income range.
Though over 50% of the new condo developments are for investments, the rent of a condo alone is enough to cover mortgage interest, maintenance fees and property taxes. Due to this fact, people who choose to invest in Toronto tend to have more power in terms of holding onto their property until they decide it’s a good time to sell.
"Toronto has far more land than Vancouver — making the land value in Vancouver higher."
A slightly more amateur argument that I’ve heard. Yes, it’s true that we have lots of land. However, the government will not allow an urban sprawl to take place. Our government has all sorts of constraints for land developments, and a lot of our land is being classified as a “Green Belt Area” in Toronto. This is similar to how there is a lot of land in Surrey and the south of Richmond, but city planners prohibit developers from building there. Going back to one of the fundamentals I learnt in Geography in University, an urban sprawl is not feasible nor sustainable for human living.
In essence, a lot of investors (especially Chinese investors in Vancouver), are gravitating towards Toronto instead of Vancouver. Here are my summarised reasons why:
1. Toronto has a better and more diverse economy - and we all know the economy is always directly correlated with our real estate market.
2. Toronto has a higher population growth than Vancouver
3. Toronto offers a higher rental yield compared to Vancouver.
4. The Chinese investors in Vancouver do not have to pay the 15% NRST when they decide to invest in Toronto instead (as they are Canadian). This gives them an advantage in directing their investments from Vancouver to Toronto.
Do you agree? Leave a comment and let me know what you think!