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For Don Kottick, president and chief executive officer of Sotheby’s International Realty Canada, spring’s red-hot luxury real estate market might slow if government policy pours cold water on it, but the demand for housing and expansion of the market will endure.

“One thing the pandemic has taught us is that homes are the foundation of personal and financial security for millions of Canadians across the nation,” Kottick says. “Canadians are realizing that having a safe place to live is more important than ever.”

Sotheby’s spring market report reveals some head-turning statistics. Sales activity and price increases are gaining speed across major Canadian cities, with Toronto leading the charge.

According to Sotheby’s study, residential real estate sales over $4-million in the Greater Toronto Area jumped 157 per cent (with 90 properties sold) over the first two months of 2021, compared with the same period of 2020. Five ultra-luxury properties – worth more than $10-million – sold in that period, compared with one over the first two months in 2020.

Sales between $2-million and $4-million, and between $1-million and $2-million, each had 126 per cent gains in the first two months of this year (with 901 and 6,038 properties sold, respectively).

And the first 15 days of March showed an even stronger surge, a harbinger of things to come for the GTA through the remainder of spring and summer. Sotheby’s reports a 193 per cent increase in properties over $4-million sold over this period (41 homes).

Of these, three properties sold for more than $10-million, compared with two last year. Sales between $2-million and $4-million rose 192 per cent (400 homes), and sales between $1-million and $2-million increased 141 per cent year-over-year (2,658 homes).

“What surprised me about the GTA market data was not that the market rebounded across every housing type but by how quickly and how significantly it rebounded, especially in the first half of March,” Kottick says.

One area to keep an eye on is the luxury condominium segment. Sales in that category levelled off in 2020 due to the pandemic, but sales activity there now is experiencing a significant renewal.

Widespread availability of the vaccine and international investor confidence in the luxury condo market are acting as drivers. Shrinking inventory in the single-family home segment is another factor as luxury investors seek out alternatives.

“You will see luxury condos coming back as a best seller,” says developer Shane Baghai, whose company is building the Leaside Manors project just south of Eglinton Avenue East and east of Bayview Avenue. “It will only be a matter of months. The tide will change very quickly from the frenzy in house buying to a frenzy in condo buying.”

When completed, Leaside will feature 38 luxury suites, both two bedrooms plus den and three bedrooms plus den, starting in the low $1-millions.

Baghai points to the luxury features of the project, the fact that closing costs are included in one price, and the lifestyle benefits of the Leaside neighbourhood, which is close to downtown, as reasons why his project is well-positioned to take advantage of this impending wave in luxury condo buying.

“I always predicted that Toronto would become a world-class city,” he says. “Because it was underpriced for the longest time. It’s a place where there is money and opportunity, and world-class facilities, like our hospitals.”

Factors driving the market beyond inventory shortages, according to Kottick, include a newer appetite for home renovations among the luxury bracket and buyers being open to homes that require repairs and updates as move-in ready options in their desired neighbourhoods are in shorter supply. Other factors include pent-up demand and large cash reserves among mid- to high-income Canadian households after a year of lockdowns. CIBC reported last November that households and businesses were holding over $170-billion in excess cash.

Restrictions on global travel had an impact on the number of international purchasers looking at the Canadian real estate market in 2020 for foreign investment and asset diversification, but that’s changing with the steady onset of vaccines.

Kottick says there has already been an upswing in the volume of international enquiries from high net-worth individuals on luxury property listings in the early months of 2021.

Broker Janice Fox, with Hazelton Real Estate Inc., which is directing sales for Menkes Developments’ 77 Clarendon project, sees all of this going on at ground level, and points to lifestyle choices driving the luxury buyer.

“Once the weather changed, and we are now seeing spring, with vaccinations well underway, we are now seeing a resurgence in the luxury market and people are beginning to contact us again,” she says.

Fox adds the frenzy in the market is not across the board. Luxury is moving at its own pace and is not as frantic. However, the luxury market will grow more quickly, she predicts, as people start to feel more confident about getting out again, and visiting properties and sales offices.

“There was significant pent-up demand since not much happened over the past year, in terms of new supply coming to market,” says Ben Rogowski, executive vice-president and chief operating officer of Canderel, the company behind the lower-rise, luxury 625 Sheppard Ave. E. condo project.

“So this is the fulfilling of that pent-up demand. I don’t expect it to keep up at this pace for a lot longer simply because it can’t and it’s also not healthy for our market.

“It’s more an issue of more supply coming on, which will naturally slow things down. Obviously, the story of our market for a long time, not just Toronto but Canada in general, is immigration and interest rates. If either of those things change in a meaningful way then the housing market will change with it.”

Developers such as Frank Mazzotta, president of Armour Heights Development, the company building the 89 Avenue Road development in Yorkville, says he was surprised by the number of people buying multiple properties, for vacation and investment.

“The luxury property market is at an all-time high,” he says. “An upward trend, historic highs.”

A lack of inventory for sale is the overarching red flag in the market that needs to be addressed by government, he adds.

Mazzotta says they only have 16 units left and are really catering to international buyers. He describes 89 Avenue Road as raising the bar in the luxury condo market, in terms of a bespoke, boutique, discreet environment for the affluent clientele, and points to the stability of the Toronto market as a factor in the appeal of his project.

What are factors that could slow down the market?

“The greatest risk to slowing the market down would be the government introducing demand-side policy measures to try to address housing affordability, such as the introduction of new taxes or changes to the principal residence tax exemption,” Kottick says.

Increased requirements for down payments and changes to interest rates are influencers the other way, as well. The principal residence exemption from capital gains tax is considered a sacred cow in the industry.

“This would have the unintended consequence of reducing supply by discouraging homeowners from putting their home on the market, or increasing the barrier of entry for new homeowners,” Kottick adds. “The scenario that we are seeing with price gains and housing affordability are due to the fact that demand and support are critically out of balance.

“It’s absolutely imperative that all levels of government address the supply side of this equation and bring more housing to the market rather than through taxation.”

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