Toronto’s Condo Market. Februarry 2019

 Toronto’s Condo Market 

Contrary to the predictions of some analytics,
Toronto’s condo market remained stable. There are no reasons for the situation
to change in the near future. The demand for new condos exceeds supply, and
projects continue to sell
fairly quickly and escalate in price.  

Unfortunately, in the second half of 2018,
construction costs increased significantly, and developers simply had no choice
but to raise prices gradually. In addition, the price of land for construction
of condominiums is growing very rapidly. Rumours about developers having huge
profits on the construction are myths. In fact, the profitability of
condominium projects is about 20%, and with the rise in the price of
construction, developers are simply unable to keep prices at the same level.

 

A positive factor last year was that a large number of new projects: this is what helped the
market to avoid an extreme jump in prices. Over the past year, the average increase
in prices in the apartment segment was about 10%,
which is slightly above that of the healthy market; however, it is within
reasonable limits.

 

We can say with confidence that the condo market
has painlessly passed a dangerous point, and, little by little, we are
returning to a stable, healthy market, with an up to 6% price increase per
year. In my opinion, we should see something similar at the end of this year.
This is exactly what investors need. Despite the fact that in the short term it
can be very profitable, a market with quickly-rising prices can be very dangerous. It is very difficult
to guess when the bubble will burst since this moment depends on many external
factors.

 

In April 2017, such a factor reflected measures
introduced by the government aiming to cool down the market. Therefore, those
involved in trivial speculation lost enormous amounts of money, all at once.
During the crisis, the condominium market was completely healthy, with the home
segment’s price increase at about 6-8%, and no measures were able to overturn
it.

 

Then there was a dangerous moment, as buyers
sharply switched from detached houses to condominiums, and by the end of 2017,
the condo market showed about an 18% price increase.

 

Luckily, in 2018 a large number of new projects
were released, helping to avoid the precipitous take-off of the condo market.
The result was very satisfying: the market landed gently on its 6% annual
growth.  

For those investing in apartments at the initial
stage of construction, 6% of annual growth means that the deposited money earns
an interest rate of about 50% annually. The thing is, when it comes to
investments of this kind, we deal with the projects based in areas with strong
and rapidly developing infrastructure. Accordingly, these areas will increase in price too (about 4% per year), and
this can be added to the regular increase in the market’s price. In total, the
project's price is going up by 10%.

 

For example, let's take an
apartment worth $500,000. Typically, the total deposit for the purchase of such
an apartment will come to $75,000. The deposit must be made in several payments
during the first two years of construction. Since not all the money is
immediately deposited, you invest about $60,000. By the time the construction
is complete (base on a 3-year-project), the price of the property together with
the interest comes to $500,000 + 10% + 10% + 10% = $665,000. The gross profit
(before taxes and costs) will be $165,000. Hence, in 3 years, the return on
deposit will be 275%. The invested deposit of $60,000 works at approximately
90% per year.

 

After deducting all expenses, such as taxes,
payments to a Real Estate agent, etc., the net profit of the deposit will be
about 50% annually. Therefore, if you have $100,000, you can easily make a
passive income of $50,000 per year. Do investors do this? The answer is
NO. Small investors often use their own money, and professionals never do it.

 

Let's look into how to make money without
spending a single penny of your own money. If you have an opportunity to get a loan (here, I will not
describe how to do it - I will only note that there are many such options),
then this is a completely different matter. Suppose you borrowed $100,000 from
a bank and invested it according to the system
described above. On average, credit lines have an interest rate of about 5%.
Then a loan of $100,000 will cost you $5,000 a year. Accordingly, for 3 years,
you will need to pay $15,000. Let’s set aside $15,000 from the borrowed $100,000
so that the interest does not have to be paid out of your own pocket. Then we
invest the remaining $75,000 according to our scheme. At the end of the
investment cycle, we return the borrowed money to the bank. And if we
needed to invest $75,000 of our own money in the first case, now you invested
0. The pretax profit remained the same - $165,000,
while the profit after tax increased because $15,000 paid on the loan is deductible, and all other expenses remained the same.

 

This is just one example of how investors make
money out of thin air. Over the past years
of working with countless investment
transactions, we have managed to assemble a professional team that includes
experienced Real Estate Agents, Lawyers and Financiers. At our office in
Richmond Hill, you can always get a full consultation on all issues related to
Real Estate Investments, and we will help you find the investment program for
your financial opportunities. In addition, we hold monthly seminars for
investors. Get information about our projects at WWW.NEWGTACONDOS.COM. 

You can also watch our TV shows in the Blog
section, listen to radio interviews and read the archive of articles from the
past 5 years. Over the years, we have made hundreds of families financially
independent through receiving passive income, and we are truly proud of it.