For the first time, the Canada Mortgage and Housing Corporation has put a number on the percentage of condos across the country owned by foreign investors, and says that number is highest in Toronto — at a mere 2.4 per cent.
Vancouver is close behind, with 2.3 per cent of its condominiums owned by people who reside outside of Canada, according to the CMHC’s annual rental-market survey, released Tuesday.
The low number came as a shock to many housing observers who believe the percentage is at least twice as high, and could be much more if CMHC was able to get a handle on money funneled from overseas banks to buyers with Canadian addresses.
But CIBC World Markets deputy-chief economist Benjamin Tal says the numbers don’t come as a surprise to him. He estimates “pure foreign investment” as a small segment of the market, although slightly higher if you factor in families where the husband continues to live overseas while the wife and children live here so the kids can go to school.
“I think there is a lot of confusion here because so many immigrants are buying condos. But the fact people have a foreign accent doesn’t mean they are foreign investors,” he notes.
The federal housing corporation says it came up with the Toronto foreign ownership rates by asking condo corporations and property-management companies for 92,257 GTA rental units which of their owners have mailing addresses outside of Canada.
That number proved to be especially high in condo buildings close to post-secondary institutions such as the University of Toronto and Ryerson University, where many overseas families like to send their children, CMHC researchers found.
“We think that it’s a representative picture of what’s happening out there. But we intend to also look at alternative sources of data (around foreign ownership) as well going forward,” Ted Tsiakopoulos, a regional economist with CMHC, said in an interview.
More than anything, though, the annual survey paints a stunning picture of a region undergoing a remarkable rental renaissance as home ownership climbs further out of reach and more people look to live close to work.
Even as some 14,000 to 15,000 new condos came on stream across the GTA this year — and some 29 per cent of them were put up for rent — Toronto’s downtown vacancy rate dropped from a low of 1.6 per cent last year to just 1.1 per cent this year, the survey found.
“We’re more bullish on rental demand than we are on ownership demand going forward. That’s great news for investors and the condo market,” says Tsiakopoulos.
“Since the new millennium, we’ve seen this reurbanization — this movement back to the city, and especially into the core. In some ways, the stigma of renting is gone. This new echo boom generation sees rental accommodation in a different light.”
About 34,000 new households a year are created in Toronto through immigration and in-migration from other provinces — something that’s also likely to increase as slumping oil prices impact the Western economy. Of those households, about 11,000 are renters, Tsiakopoulos says.
But just 1,100 purpose-build rental apartments were built last year across the GTA.
“That’s a big gap to fill, and condos are filling that void. There is a market for this product, and investors see that.”
Incredibly, the lack of enough rental supply to fill demand — even in the face of the biggest condo boom in the region’s history — is playing out across much of the Greater Toronto region, the survey shows.
Rental-condo vacancy rates dropped across Peel, York and Durham from 2013 to this year, and especially in Halton region, where condo development has been much slower to take off: Its vacancy rate for rental condos hit just 0.8 per cent, down from 2.7 per cent last year, the survey found.
Rental rates have also remained remarkably healthy, although their growth has slowed slightly in the face of increasing supply, CMHC found. In fact, some owners of existing condos actually cut their rental rates, by about 1.5 per cent, to woo tenants away from new offerings, the survey found.
The average two-bedroom rent in a condo building in the core this year was $2,285, up eight per cent from $2,115 a year ago.
The percentage of foreign ownership has become a key issue in the industry — housing watchers largely believe the figure is closer to 5 per cent rather than CMHC’s 2.4 per cent — over fears that if the market turns, foreign owners will be more likely to put their units up for sale and flood the market.
This survey, and others by CMHC, show instead that investors see the value in holding for the long term and renting out their units, says Tsiakopoulos.
Foreign ownership is reportedly lower in the other nine Canadian cities where condo owners were surveyed: Victoria is at 1.1 per cent, Calgary is 0.2 per cent, Edmonton is 0.1 per cent, Saskatoon is 0.3 per cent, Regina and Winnipeg are 0.1 per cent, Ottawa is 0.7 per cent, Montreal is 1.5 per cent and Quebec City is 0.6 per cent.
The rental report, which covers the period up to the end of October, found that the average vacancy rate for purpose-built rentals across the GTA has remained unchanged at 1.6 per cent. Rent for the average two-bedroom apartment rose 2.7 per cent in the GTA during that period.