More than one third of Toronto’s condos are owned by investors, new StatCan report finds

‘Toronto is heading in the direction of global cities like New York City -- Manhattan especially -- London, and Shanghai, where they have up to 80 per cent of their condo market taken by investors,’ one expert says.

Thestar.com
Feb. 7, 2023
Clarrie Feinstein

A whopping 36 per cent of the condos in Toronto are owned by investors, according to a new report published by Statistics Canada via the Canadian Housing Statistics Program.

In some smaller markets, investors account for well over 80 per cent of condo ownership, and across Ontario overall, almost 42 per cent are owned by investors.

The report defines an investor as someone who owns at least one residential property that is not used as their primary place of residence. The data is pulled from early 2020, before the pandemic feeding frenzy hit and prices shot up by more than 50 per cent across the country as interest rates reached historic lows.

Investors own about half of the condos built from 2016 through early 2020, said the report, which sheds some light on the long-standing question about the impact of investors in Canada’s largest housing market.

“Toronto is heading in the direction of global cities like New York City, Manhattan especially, London, and Shanghai, where they have up to 80 per cent of their condo market taken by investors,” said Simeon Papailias, managing partner of Royal LePage’s REC Canada. “We’ll end up in the exact same place where downtown Toronto is a commercial commodity that is rented out.”

The report shows that condos are more popular with investors than houses. In Ontario, investors account for 20 per cent of all property owners -- less than half the amount for condos.

That’s because condos are cheaper and the deal structure is more flexible, said Papailias.

Pre-construction condos allow investors to be flexible with the deposit amount -- it can be 10 per cent right away or five per cent over the construction period -- making it a more accessible real estate option than a detached home, he said.

Pre-pandemic, few investors were international buyers. Many were purchasing real estate as a retirement investment or a way to help their children get a foothold on the property ladder.

In Toronto, the downtown core had the highest concentration of investors and more than 112,000 condos were investor-owned compared to 53,000 houses.

But some smaller municipalities trump Toronto’s condo investor numbers. In the Woodstock area, the share of investor-owned condos was 95 per cent, in Sarnia it was almost 87 per cent, and London was more than 86 per cent, according to the report.

While smaller city condos are more affordable for investors compared to Toronto prices, student housing also plays a significant factor in investor interest, said Ron Butler, mortgage broker of Butler Mortgages.

“For many university cities like London, when condos are built they’re advertised as being ideal for students, so investors snatch them up because it’s a great rental opportunity,” he said.

In places like Sarnia or Windsor, people are leaving the GTA to find more affordable housing, especially those on welfare or disability benefits, who need to pay the lowest possible rent but want to remain in southern Ontario, Butler said.

There was also a higher rate of business-owned investment properties among the condo stock than the housing stock in Ontario. Businesses owned 13.4 per cent of condos for investment purposes -- the highest share among the provinces, according to the report.

Businesses and corporations that own condos fall into two primary categories, said John Pasalis, head of real estate brokerage Realosophy. There are individual investors who have a business and therefore capital in their corporation.

“These business buyers are buying through their business name rather than their individual name for various tax reasons and advantages,” he said. “These are typically mom and pop individual investors.”

The second type of investors are big institutional investors, where companies raise millions of dollars to buy a block of condos to rent them out.

“We don’t know the distribution of these two types of business investors and how it splits up,” Pasalis said. “But it’s likely more common in Ontario because it’s where the financial hub of the country is.”

As of July 2022, multi-property owners that are corporations account for ownership of just under four per cent of residential properties in Ontario, according to land and commercial registry company Teranet.

However, the report does not address what is a growing concern in the market -- the number of investors who are over-leveraged and the investors who overextended themselves in the pandemic when interest rates were at all-time lows.

“Typically we see that when there are a disproportionate number of investors in a region, that region has the biggest boom and bust in prices,” Pasalis said.

Since the February 2022 price peak, GTA condo prices have dropped by more than $112,000 or around 14 per cent. The drastic fall in prices and soaring interest rates has resulted in troubling headwinds for the pre-construction condo market which saw sales plunge and thousands of projects delayed in 2022.

“Right now investors dictate what gets built in the condo market,” Butler said. Around 75 per cent of condos need to be sold before the building gets made, and 80 per cent is typically sold to investors. If they back out of buying prebuild condos, fewer new-builds are constructed.

“Investors also dictate what type of condo gets built, as most want something that is small and inexpensive that they can turn into short-term rentals,” he said. “Investors drive this ultra small product development with these tiny suites, making it difficult for families to move in and raise children.”

Currently, there aren’t troubling numbers for forced sales from over-leveraged investors, said Pasalis. There will be an increase in distressed sellers this year, but it won’t reach levels seen in the 2008 U.S. financial crises, he said.

“Investors are averse to losses; they’re optimists,” Pasalis said. “Even if they’re over leveraged they’re more inclined to take on more debt with the hope that things get better soon as opposed to selling. When there were zero distressed sales last year, whatever we get this year will seem like a lot when we compare it to 2022.”