Real Insiders Client Briefing for GTA Real Estate 2013 – January 22, 2014
Overview
Almost 400 senior lenders, developers and builders attended at the annual RealNet presentation on the GTA real estate report for 2013 and the forecast for 2014. Guest speakers included Benjamin Tal, Deputy Chief Economist at the CIBC World Markets Inc. and George Carras, President and CEO of RealNet.
Benjamin quickly reviewed the hot points in the world economy such as the economic doldrums in Europe, the high youth unemployment in the southern European states of Portugal, Italy, Spain and Greece at close to 50%, the slowdown in the Chinese economy and the current lag in the U.S. housing market. All were areas of concern but he felt the most critical factors in the past that have worried investors and put a cloud over the economic markets are behind us.
The European banking system has stabilized and the risk of the Euro imploding has now dissipated. The Chinese economy has in fact experienced a soft landing with an 8% growth (that's a soft landing) but felt given their control over the economy, would weather any storms.
In the U.S. housing market, although there is some short term softness, long-term, there would be significant demand as the economy was out of the rental philosophy and into an ownership philosophy. As well, Mr. Bernanke's successor, Janet Yellen, will be continuing to run Federal Reserve Bank in the same cautious manner as her predecessor. Quantitative easing will end by 2015 but this has already been priced into the marketplace. There will be an increase in interest rates in the U.S. and less so in Canada, as the impact in Canada is much more profound for any increase.
With regards to the Toronto market, Benjamin focussed on the misinformation fed in the government and in the marketplace as to the real nature of investors in the GTA condominium market. Based on his informal research work, the pure form of investors, i.e. investors without any local ties in Canada by way of relatives, citizenship, residency, etc., was less than 5%. His research estimated that only 55% of investors rent them out and 35% keep units for themselves or their families. They all have significant deposits and 55% have no mortgage at all. As such, the "investor market" is not in jeopardy of creating a speculative bubble, and will continue to support the marketplace.
He did feel there will be an excess supply in 2015 and the market will soften in demand and pricing. The message he was going to send to Ottawa last week was that the investors are not speculators and that there is no need to take any further steps to dampen the appetite for these types of purchasers in the condominium marketplace. On an extremely positive note, he noted that Toronto as measured in a new form of economic index, was the best city in Canada at 26.2%. Clearly, there are reasons for the demand for housing space in Toronto and why people want to move here.
