Low inventory and high demand heat up the luxury real estate market in the Greater Toronto Area
The pandemic has fuelled a run on luxury real estate in the Greater Toronto Area (GTA), leading to an inventory squeeze and record-breaking price increases.
Demand for luxury real estate is strong across the nation, but especially in the GTA. Those on the ground also point to an expanding, younger affluent class and the growing appeal of real estate as a desirable asset class. The national rollout of vaccines continued in 2021, interest rates remained low, stock markets rallied and businesses started to open their doors. Baby boomers were more reluctant to sell their homes and that contributed to the inventory squeeze.
The currency of home ownership, as Re/Max Canada president Christopher Alexander describes it, took on a new dimension in 2021, and the factors that drove the market upwards in 2021 are in place for 2022 as well.
Janice Fox, broker of record at Hazelton Real Estate Inc., which is currently selling Menkes Developments Ltd.’s Maison 77 Clarendon in the prestigious South Forest Hill neighbourhood in the St. Clair Avenue West and Spadina Road area, says several common factors related to COVID-19 are pushing sales in her dealings with buyers.
“We are heading into a pretty strong spring,” she says. “If anything, COVID has taught people in the luxury market that there are specific things they want and others they want to be cautious about.”
Efficient HVAC systems are a big ask among luxury buyers now; people want their own clean air system. Outdoor space is in high demand as well. A smaller, Juliet balcony won’t do it anymore as luxury buyers are looking for a good-sized balcony or terrace. People want their barbecue area or outdoor garden to be extensions of the indoor living space, Fox adds, as they are seeking the outdoors but are still often reluctant to be out in the public. She’s even getting queries about how packages are handled, and how food deliveries in a building get made. Fox says she has been noticing a big push in interest toward low-level, boutique luxury builds and less toward high-rises.
Recent statistics point to robust interest across all luxury housing types. According to a recent Sotheby’s International Realty Canada study, in the GTA, residential sales of properties for more than $4-million, including condominiums, attached homes and single-family homes, soared 224 per cent year over year in 2021, while sales of properties over $10-million increased 238 per cent. In the City of Toronto, sales over $4-million and $10-million increased 188 per cent and 173 per cent, respectively.
According to Paul Maranger and Christian Vermast, senior vice-presidents of sales with Sotheby’s International Realty Canada, Bridle Path, Rosedale and Forest Hill were the neighbourhoods that led the pack. Most buyers were homegrown, which was unique. In previous years, foreign buyers made up a large portion of sales in the luxury segment. Prices should continue to escalate for new construction and newly renovated homes and condos in 2022, incorporating the rising cost of materials and labour. Foreign demand will increase, they add. Especially in inflationary times, more people see real estate as a better tool for capital preservation.
In a recent Re/Max luxury market study that looks at trends and developments in freehold and condominium sales over $3-million in the GTA and Metro Vancouver (as well as sales over $1-million in 17 other markets), the GTA saw a sales increase of 112.8 per cent.
What makes the currently hot luxury market even more unique, Alexander says, is the “ultra-competitiveness” in the premium segment of properties selling for more than $3-million.
“In Vancouver, which also has a strong market, you are not seeing the same level of competition among buyers and the same level of multiple offers [as you see in the GTA],” Alexander says. “We are in the middle of the biggest transfer of wealth in history. Boomers are passing on wealth to their children. I heard a statistic where there has been an 18-per-cent increase of households that are worth more than $30-million. So people are more affluent and they believe in the city and what it has to offer, and they are investing in it. That’s the natural evolution of our city.
“If you come to think about it, Toronto is really just a teenager on a world scale [compared with world capital cities such as New York, London, and Hong Kong], with the development we have experienced,” he says. “And price growth and change has really only happened over the last 14 and 15 years. It feels like there is still so much further to go, to becoming an adult, so to speak.”
“Toronto has been one of the fastest-growing luxury real estate markets in the world for some time, and we don’t see that changing. What we’ve learned throughout our many developments over the years is that end users of luxury condos are focused on the product, and not the frenzy of the market. We expect our purchasers at The Davisville to take their time and be sure that the product we are offering, with all the choices they can make, is right for them, and when they make the purchase decision, that they are entirely comfortable and at ease with it,” says Jack Winberg, chief executive officer of The Rockport Group.
New infrastructure projects in Toronto are only going to add to the quality of life and will make the city even more attractive.
“Toronto will always be Toronto and there will always be a demand to be in close proximity to the city’s core. In general, when there is a decision on a luxury purchase, people are looking for one of two things: Either they are looking for more land and space, or they are looking to be in close proximity to the various amenities that are important to them,” says Jordan DeBrincat, vice-president of Altree Developments.
The size of a very affluent class of real estate investors who are living in the city now is growing at a fast pace.
“Toronto is the junior in the dance competition [compared with other world capitals], but still with the wealth being brought to Toronto I just don’t see a decline in the luxury segment, with very limited inventory,” says Cailey Heaps, president and chief executive officer, broker of record, at Heaps Estrin Real Estate. “If I had a buyer calling me today telling me he had $20-million this week to spend on a house in Rosedale, I would have zero to show them. Imagine a market with clients with seemingly unlimited budgets and nothing to sell them. I have clients waiting months and years for the right product.”
Heaps says recently she had a listing in the Avenue Road and St. Clair Avenue area at $4.5-million that sold in 24 hours, for half a million dollars over the asking price. Heaps Estrin also recently sold a home in the Annex neighbourhood that was listed at $3.5-million and traded at $3.8-million.
The very definition of luxury in the city has changed. It used to be that a property above $1-million was considered a luxury property. However, according to the Toronto Regional Real Estate Board statistics for January, the average selling price in the region now is $1,242,793. Heaps breaks down the luxury market into two segments: More than $3-million is considered luxury and ultra-luxury starts at $8-million. And currently there is a lack of options in both those categories.
That has created a luxury market that is entirely unique from previous markets, says Michael Kalles, president of Harvey Kalles Real Estate Ltd.
“We’re at the point where we measure housing supply in terms of days and weeks instead of months,” he says. “This is significantly impacting the competition amongst buyers and putting significant upward pressure on pricing. I think prices will keep rising. To trend downwards, we’d need to see a major jump in the share of condominium apartments in the sales mix and a reduced demand for luxury residences. But the luxury market is very strong right now. Just looking at Q4 2021, there was a 52-per-cent year-over-year increase in the sale of homes over $3-million and a 105-per-cent increase in the sale of homes over $5-million on the MLS [Multiple Listing Services].”
With The Economist Intelligence Unit just ranking Toronto No. 2 on its 2021 Safe Cities Index, Toronto is a first-class city emerging more as a world capital and a haven for buyers of all kinds. But in luxury real estate, factors go beyond supply and demand drivers, Kalles says.
“The luxury market has always operated on an island,” Alexander says. “It is insulated from the typical factors that are market headwinds. There’s a big appetite for people to move up. Once the majority of luxury buyers have found their home, you will see a softening in activity because they have already bought. And it will then be some time before that cycle turns over again.”
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