Real estate investors in Ontario have realized record returns over the last several years. Several factors have contributed to the growth in real estate. These include:
Growth in GDP in central Canada including Ontario leading to higher purchasing power
A growing population leading to increased demand for housing
Rising in demand from previous renters who wish to become homeowners
Severe housing shortage in the Greater Toronto Area
An influx of Asian investors who continue to drive up home prices
Higher rates of employment and rising incomes
Changes in Canadian Mortgage laws
Growth in GDP
Ontario’s GDP has been growing consistently over the last several years, with economists estimating that it will grow by 2.4 per cent in 2017. Wage and salary increments of 2.8 per cent will lead to a rise in consumer purchasing power, and consumers are expected to add $21 billion to Ontario’s GDP by the end of 2017. A weakening Canadian dollar and improved economic prospects in the USA will lead to an increase in exports which will further raise the province’s GDP. Increased circulation of money will mean that more people have disposable income to invest in real estate, and savvy investors should definitely consider getting started on the property ladder.
Rising population leading to increased demand for housing
The Ontario population continues to grow and with it, the demand for single-family houses and condos. Increased demand is driving up property prices and investors looking to realize high returns should consider real estate as an investment.
Renters who wish to become homeowners
In large cities in Ontario, the average price for a studio apartment is $1,000 while a three bedroom house goes for around $1,500. Renters in smaller towns pay considerably less, with these units costing $489 and $800 respectively. With the demand for housing pushing these rents up, more and more people are looking to purchase their own homes, and investors will benefit from putting up units to take advantage of this growing market. Renters are willing to purchase units in smaller towns in spite of the long commute and investors should do their research into which small towns attract large numbers of this type of homeowner. I personally have found fantastic returns over the years in the bedroom communities surrounding the Toronto core.
The real estate bubble is not expected to burst
Real estate bubbles are notorious for bursting at the wrong moment, especially when a lot of investors have sunk considerable funds into properties. Given the growing GDP, increasing population and demand for housing, the real estate bubble is expected to continue growing well into 2017 and beyond, making this market ideal for investors who are looking to invest in real estate in both the short and long terms.
How to invest in real estate in Ontario
There are several investment strategies you can use. Before sinking funds into this type of investment, it is wise to take into account the macro-economics of the province. The best places to invest will be those with high population growth, a growing GDP, high rental rates, proximity to infrastructure and schools and those where large projects are underway. Aim for areas with high home purchase and rental rates as well as those with low vacancy rates. If all these factors are favourable, the following strategies will help you achieve your real estate investment goals:
- Buy and hold
- Rent to own (RTO)
- Joint venture partnership
Changes in Canadian mortgage rules
I feel it can never hurt to highlight these recent changes again, as conversations about these rule changes still comes up with my clients today. Investors should be aware of a few essential changes effected in 2016 that may affect their ability to invest in the property of their choice. Changes include the following:
All homeowners seeking an insured mortgage will be subject to a stress test regardless of the how much of the down payment they have come up with. Previously, only those who could not come up with at least 20 per cent of the downpayment were subject to a stress test but as of October 17, 2016, a mortgage stress test will be applied to all insured mortgages. This will significantly affect the amount of mortgage that borrowers can qualify for, and shut out many investors who would otherwise have had easier access to this type of funding.
From November 30, 2016, the government began to restrict insurance on low ratio mortgages unless they met certain criteria such as having an amortization period of at least 25 years, purchase price of less than $ 1 million among others.
All home sales must be reported to the Canadian Revenue Authority beginning in 2017 in order to prevent foreign investors from claiming exemption from capital gains tax by claiming to be residents.
Government will begin to look into methods of sharing risk with lenders. Currently, the government bears 100 per cent of the cost of mortgage insurance in the event of a borrowers default. It is therefore currently looking for ways to share this risk with lenders, which may translate into higher interest rates for borrowers.
The Ontario real estate market is expected to continue on an upward trajectory in 2017 and beyond. A number of factors will continue to push up demand for housing in Ontario, including a growing population, rising GDP, good employment prospects and high consumer purchasing power. Investors can take advantage of several investment strategies such as the ones we touched on above, along with many others.
Remember, the best time to start investing in real estate was yesterday. The second best time to start is today!
Dan Caird is a mortgage agent with Dominion Lending Centres, a national mortgage brokerage and leasing company with more than 2,000 members offering free expert advice across Canada. An experienced real estate investor, Dan used this passion to enter the world of mortgages. Combining sound advice with years of mortgage financing experience, Dan works hard to ensure his clients get the best mortgage product available for all their financing needs.
For more information, please call (905) 213-1475, or visit Mortgages By Dan.