March 31st, 2012
Downtown Toronto Condos Vs. Downtown Mississauga Condos
Downtown Toronto Condo market is currently super-hot! Media is projecting some mixed views; someone is calling it a bubble and others a simple demand and supply issue.
As per a study, Toronto has some 148 condo towers (either in planning stage, starting to be built, under construction etc.) on the go.
The most important question being asked is whether there is so much demand, for that kind of supply?
Don Cambell (REIN) an expert in Canadian real estate, is of the view that there may be too much supply.
Disconnect between New builder Prices and Resale Prices
Working on a worse case scenario, I feel that the return on investment may not be great when one looks at prices of some new builder condos in the Downtown Toronto core. Just to give you an example, today's resale condos in Downtown Toronto, sell at an average price of $550 per sq. ft. At the same time, many Downtown Toronto condos are being sold at $750-$800 per sq. ft. Many experts, and some of my RE/MAX broker colleagues who specialize in condos, agree that it may not be possible for these high priced new builder condos to meet or beat the future resale condo prices of 2014-15.
Looking at the TREB's historic data, one may assume that Downtown Toronto market can be projected to grow at a yearly rate of 5.5%. This relates into $645 p.s.f. price in 2015 (based on $550 p.s.f price of resale condo in today's market). This disconnect between the resale condo market and the pre-construction market can be risky for short term investors/flippers.
Many investors are betting that prices will keep on rising
The resale market is populated by end users. Income of these buyers is not rising at the same pace. Chances are that many so called short term investors/flippers (buyers of $750 p.s.f. + range) might become forced landlords. Some may even live on negative cash flow if they do not put down a substantial down payment. What if the interest rates reach 5% by 2015?
Rental market can change
Rental price growth might also become slow in 2015: With competition from unsold inventory, investors will compete for tenants. Today, an average rent of a one bedroom unit without parking to a one plus one with parking is $1550 -$1750. For two bedroom units one can expect to pay from $2100 without parking to $2500 with parking. Current rental market is very tight and the market is on landlord's side.
What about price to rent ratio? Based on above numbers, an average price of resale Downtown Toronto resale condo (600 sq. ft.) is approx. $330,000. Rents for $1,750 with parking. The price: rent ratio of 6.3%, in today's market.
Downtown Mississauga is the place to invest!
To my surprise one of the condos experts called the 905 region (Mississauga falls in 905 dialing code) as not a great place to invest. This is absolutely a myth and a statement without much research and analysis of actual facts. Well, Mr. Expert, Downtown Mississauga has better appreciation (7.21% year/year in Downtown Mississauga vs. 5.47% year/year in Downtown Toronto), lower vacancy rate than Downtown Toronto (0.3% in Mississauga vs. 1.3% in Toronto), affordability is better, buy to rent ratio is similar and supply is controlled.
Downtown Mississauga condos have outperformed Downtown Toronto condos (C1 district) condos by whopping 31%.
More reasons to invest in Downtown Mississauga
Price: An average one bedroom condo in Downtown Mississauga sells for at least $80,000-$100,000 less than Downtown Toronto's condo in the resale market (similar size and type). An investors is looking at approx. $25,000 to $30,000 more in cash (based on 20% down payment) for what he will end up paying after additional closing cost towards land transfer tax, to buy in Toronto.
Affordability: More the affordability, better the demand and price growth, it is that simple.
Price to Rent Ratio: Based on $245,000 average price of a one bedroom condo and yearly rental income of $15,600, the price: rent ratio comes to 6.3%. This is in line with Downtown Toronto market.
Supply: As of today, there are only 7 projects that are being offered as pre-construction, are under construction and are almost ready for interim occupancy. Supply of new condos is very tight; there is not much land available. City of Mississauga spends a lot of time in understanding the growth trends and keeps a close watch on development applications.
Rental market: The rental market has never been better. Not only, units rent fast but the quality of tenants is also good.
Many top Fortune 500 companies have based their Canadian headquarters in Mississauga. Mississauga is filled with thousands of young people and families that tend to be highly educated, upwardly mobile and very tech savvy. Rental properties in and around the Square One area in Mississauga get snapped up fast because of its network of GO and Mississauga Transit routes. Furthermore Islington subway is a mere 20 minute bus ride while the highways connecting to the 401, 427 and QEW are minutes away.
The new Sheridan college campus that opened this year is also attracting thousands of students from all over and many of them are looking to rent in the vicinity so as to cut their travel time.
Caveat emptor: Not every project provides same return (this is true for both Downtown Toronto as well as Downtown Mississauga). Novice investors make thousands of dollars less in return, by investing in wrong projects and prices, even for projects in the same vicinity and or being sold at President/Platinum prices. Contact me, if you are looking to buy a resale or a new builder condo in Downtown Mississauga or a perfectly priced project in Downtown Toronto.City Centre condo report, Mississauga condos vs. Toronto condos, Rental market