Buyers focused on quality and lifestyle appear undeterred by rising rates
If you’re going to talk luxury market trends, one theme that has emerged above all others, according to Andy Taylor, senior vice-president of sales for Sotheby’s International Realty Canada, has been a “flight to quality.”
Taylor just got back from a gathering in Los Angeles involving a Sotheby’s group called “Market Leaders,” comprising 50 of North America’s top agents in markets such as New York, Miami, Los Angeles, Vail, Aspen and Chicago. All the major markets, including Toronto, he says, appear to be flying above impediments such as rising interest rates and taxes on foreign buyers. The luxury buyer is concerned more with lifestyle – that is what’s driving their investment decisions.
“There’s still interest in top properties in the city,” he says. “That’s the main, overlying message. Homes that are needing work, needing a renovation, are less desirable than properties that show triple-A, that are 10-plus. And homes that are rare – we have a very short supply of larger condominiums in luxury buildings, and those are still seeing buyers.”
Taylor points to several boutique condo projects coming to market, offering the larger suites that buyers in this segment are demanding. Some are even combining suites during the planning stage, he says, resulting in generous proportions of 3,000 square feet or more.
Flight to quality
Despite global turbulence marked by rising inflation and Russia’s invasion of Ukraine, Canada’s luxury real estate market stood as a “bulwark of strength” through the first quarter of 2022, according to a report from Sotheby’s entitled Canada’s Top-Tier Real Estate: Spring 2022 State of Luxury.
An inventory squeeze, combined with increased consumer confidence and a renewal of urban life after two years of pandemic restrictions, bolstered top-tier sales in all major Canadian cities, especially for condos exceeding $1-million.
“The interest rate increases do not seem to impact this segment of the market, likely for a few reasons,” says Cailey Heaps, chief executive officer and broker of record with Toronto-based Heaps Estrin (formally known as Royal LePage Real Estate Services Heaps Estrin Team). “Buyers who are looking for luxury have likely been looking for some time and know they have to act when the right option presents itself. Many of these buyers also have the view that money is still relatively affordable, compared to some of the interest rates they would have experienced in the past. And luxury buyers typically have a longer view and are willing to ‘ride out’ any potential changes in the market.”
In the first quarter of 2022, luxury residential sales over $4-million in the Greater Toronto Area rose 30 per cent year over year; 29 per cent in the City of Toronto. The gain in sales of condos in the $1-million-plus category was 120 per cent and 72 per cent in the GTA and Toronto, respectively.
“Space and location are key for a luxury buyer,” says Josh Shteiman, vice-president of development operations at Platinum Vista Inc., the developer behind the No. 7 Dale project in Toronto’s Rosedale neighbourhood. “As the downtown core becomes more congested, it’s becoming increasingly difficult to find a luxury property that fits the criteria. Individuals with a budget for a luxury property are also seeking exceptional finishes and craftsmanship, and a space that’s upgraded and move-in ready.”
Suite sizes at No. 7 Dale range from over 2,000 square feet to over 5,500 square feet. “No. 7 Dale is a rare find. You’re in very close proximity to downtown Toronto but the building is embedded deep in a neighbourhood. While there are a lot of luxury products available in Yorkville, this is the only one in Rosedale,” he adds. “Each residence has been meticulously designed with high-end finishes that rival those of luxury buildings in Manhattan.”
According to Michael Kalles, president of Harvey Kalles Real Estate Ltd., Toronto has experienced “extreme supply-side challenges” for several years. He says the real estate market is considered to be balanced when there’s roughly a four- to six-month supply of homes for sale. Since 2020, the market has exceeded a two-month supply just twice, in April and May of 2020, near the start of the pandemic, “when sales were virtually at a standstill.”
While Kalles says increased lending rates are forcing some buyers to re-evaluate their purchasing power, and others are moving to the sidelines to take a “wait and see” approach, at the end of April, inventory stood at just 1.7 months. “That suggests we remain in a strong sellers’ market and that we can expect year-over-year prices to rise for the foreseeable future, albeit at a slower rate than in previous months.”
Kalles expects the draw of urban living and the city opening up again will support price growth.
Janice Fox, broker of record at Hazelton Real Estate Inc., who is just wrapping up sales efforts for Maison 77 Clarendon, says she has been noticing a shift in priorities for luxury buyers.
“People are asking for contemporary interiors, not so much traditional finishes. All of sudden we are getting enquiries about the kind of finishes we are including in preconstruction or on a resale. They are looking for big, open entertainment spaces, big windows, not a lot of mouldings or trim,” she says.
“No one wants to renovate; they want [the new home] done. They go into a resale building that’s a little bit older, that requires some updating, and there’s definitely hesitation there.”
People who are downsizing from a big home they may have lived in for 30 years want a fresh look. They want a concierge, a luxury-hotel-style way of life.
Another consideration? It’s challenging to get tradespeople now, especially for work in a condo building, Fox adds, when they’re restricted by things like elevator usage and the hours they can work.
“If [clients] intended to renovate, they would have renovated the home they are moving out of,” Fox says. “Maybe that’s why [preconstruction sales are] strong, because people can custom design and build what they want.”
Forma, at the nexus of the city’s financial and entertainment districts, draws on the talent of world-renowned, Toronto-born architect Frank Gehry, and will include two residential towers at 73 and 84 storeys. The project, which will include 2,034 condos, retail space and a new facility for OCAD University, features an iridescent façade and profile of stacked boxes that will transform Toronto’s skyline.
“The luxury real estate market is incredibly strong in Toronto,” says Mitchell Cohen, chief operating officer of Westdale Properties, one of three developer partners behind the Forma project. (The other two are Great Gulf Group and Dream.)
“Increasingly, residents are seeking tasteful experiences and architecturally inspiring spaces that fulfill their needs for escape, wellness and recharging. In many ways, Forma represents a coming home for Frank to the city he loves, and the project will mark one of his most significant architectural achievements.”
For many buyers, the stability of real estate investment trumps all else, according to Kalles. As proof, he says, look no further than the early days of the pandemic, in the spring of 2020, when the stock market was roiled by volatility, yet real estate prices held firm.
“They never fell. I believe that in periods of uncertainty, people actively seek out stable, reliable assets. Few things have proven to be as stable and reliable as real estate.”
BY THE NUMBERS
Highlights from the luxury real estate market in Canada during the first three months of 2022:
- 30% year-over-year increase in sales of residential properties (condos, attached and single-family homes) over $4-million in the Greater Toronto Area
- 29% year-over-year increase in residential sales over $4-million in the City of Toronto
- 120% year-over-year increase in condo sales over $1-million in the GTA; 160% increase in units over $4-million
- 72% year-over-year increase in the City of Toronto in residential sales over $1-millon; 225% increase in units over $4-million
- 14% year-over-year decrease in residential sales over $4-million in Vancouver
- 29% year-over-year increase in condo sales over $1-million in Vancouver
- 82% gain in residential sales over $1-million in Calgary
- 140% year-over-year increase in residential sales over $4-million in Montreal; 6% increase in residential sales over $1-million
SOURCE:Top-Tier Real Estate: Spring 2022 State of Luxury Report from Sotheby’s International Realty Canada. Period covers Jan. 1 to March 31, 2022.
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