Toronto

1 In 3 Homes Listed For Resale In Toronto Haven’t Been Occupied

1 In 3 Homes Listed For Resale In Toronto Haven’t Been Occupied

Yup, Toronto has a speculation problem too. Last week we used natural language processing to comb through listings in Vancouver, and determined that 1 in 10 listings for resale were never occupied. This was done by analyzing the listings for language that implied, or outright stated, that it was “never occupied.” Doing the same thing in Toronto, we found that 1 in 3 listings being resold have never been occupied. This is a strong indicator that prices are being driven by speculation, not fundamentals.

How Is Toronto Worse Than Vancouver?

It’s not. Vancouver’s real estate vacancies last for years, whereas Toronto’s only last a few months. Earlier this month, our algorithm found 4,162 available listings, of which 1,346 were identified by the listing agent as never occupied. Most of them were in buildings that were built just over a year ago. So while there’s more listings unoccupied, they stay like that for just over a year. In my opinion, that’s much better than the multi-year unoccupancy parking that’s happening over on the West Coast.

Purchased To Flip

Since a large number were just over a year old, it’s safe to assume these places were bought at pre-construction for the purposes of flipping. Each seller adding a premium before selling it to the eventual occupant. It’s a fairly common tactic adopted by real estate developers, but when a third of all units get a middleman premium – we have a speculation problem. Rising prices have less to do with fundamental demands, and more to do with middleman markups.

Best Job In Town

Who can blame them? Owning a home has been one of the best jobs in the city, so it’s no surprise a lot of people have two…or more. In October, the average benchmark home in Toronto had increased by $132,721 over the previous twelve months. That’s close to twice the median household income in Toronto. When coupled with the fact that property prices have moved faster than income levels, it’s not really a surprise that this is happening.

The median household income in Toronto rose less than 1% over the past 30 years when inflation adjusted, with the average home increasing by over 188%. If you have the capital, this has been one of the easiest ways to increase your income over the past 30 years. However, the past 30 years of performance isn’t always an indicator of future performance.

Should Toronto Add A Flipping Tax?

The real question is if Toronto will tackle the issue, or let prices continue to inflate until they can’t be supported. I’m guessing it’s the latter, since the city eliminated potential declines of property values in their latest financial forecast. If they did want to tackle the issue however, looking to Hong Kong and how they are aggressively tackling speculation might be a good start.

In 2010 they implemented a measure to curb speculators called the Special Stamp Duty (SSD). The SSD essentially penalizes short-term sellers with a fee that would wipe out profits. Any property sold less than 3 years after purchase gets hit with a tax of up to 20%. This is in addition to the normal property transfer rates. The rate drops every six months that you hold the property, and if you held it for over 3 years there’s no SSD. This removes a lot of the incentive to flip properties for a few extra bucks.

The city’s speculation problem isn’t necessarily a bad thing by itself. Afterall, there’s nothing wrong with the inherent concept of making money. However, it does create artificial demand that makes it difficult to tell if people can support prices at this level and for how long. Judging by the fact that absorption of resales is lower this time vs last year, we might be seeing that speculative capital drying up.

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16 Comments

  • Reply
    Mike 5 months ago

    If you’re from Woodbridge, you already know this.

    Everyone I know owns a house here, and buys a condo for their kids that they never end up moving into. Sometimes they rent them out to generate rent, but mostly people flip them when they realize they can take the profit and put it down on two more units.

    • Reply
      Alice 5 months ago

      You can tell this by the age of people that “line up” to purchase condos. They’re never young people looking to purchase a home. It’s always people in their 50s. Are they dying to move into a 300 sqft. box ? Probably not. They’re looking to make a quick $50k off of young people that can’t afford pre-construction deposits.

  • Reply
    Dave 5 months ago

    If real estate agents were smart, they would share this article to show how much money people are making as middlemen.

    • Reply
      Sean Wright 5 months ago

      Smart agents tell their regular clients this stuff all of the time. My realtor calls me up whenever he has pre-construction to purchase and flip. Put down 10%, and you get make an easy $100k on the flip. I’ve done this about 10-12 times in the past 5 years or so.

      What most people don’t realize is a good agent will get a discount from pre-construction prices from having a relationship with the developer. If you walk in and pay sticker like kids do, you’ll barely turn a profit (if you do) after expenses.

  • Reply
    James 5 months ago

    Um ok, but this article is extremely misleading. It reads like 1 in 3 properties in Toronto for sale have never been occupied and that there is rampant flipping going on. But really, a place that has “never been occupied” is likely a just completed condo. This is common with condos and has been since they started building them in Toronto. And considering that it takes 5+ years between purchase and when you can move in/rent/sell your unit, it is hardly a flip. Add to that the 2nd land transfer tax in the 416 of Toronto and flipping is very uncommon because it is not profitable. Like a couple of other articles on this site, big on innuendo, small on facts.

    • Reply
      Dave Calhoud 5 months ago

      I think you’re the only person that’s being mislead.

      I got that new construction is being purchased for the purposes of being sold, they author even mentions that it’s not like Vancouver’s empty home situation. It’s more like everyone and their mom is a micro developer.

      I personally don’t think that there’s anything wrong with that, but they’re right that you as someone that repurchases would be paying a premium. People aren’t dumb, they do it to make money, and it likely adds a few thousand to the price.

  • Reply
    Laurin Jeffrey 5 months ago

    Not all “unoccupied” condos have never been lived in. There is a great incentive to not admit to renting out new condos before closing and registration due to tax issues and a mean CRA. Just because the listing says no one has ever lived in the unit doesn’t mean it is true.

    And comparing new condos being sold as soon as the condo corp registers with the rampant money parking/laundering that went on/is going on in Vancouver is rather disingenuous. Not the same thing at all.

    • Reply
      Vivian 5 months ago

      That’s interesting that people rent them and illegally declare that they’ve been unoccupied. What I don’t get is why a listing agent would put that in the listing, it doesn’t really make sense.

      I don’t see any comparison by the author to Vancouver’s money laundering, they said it was speculation. Speculation and money laundering are very different things. The former people are gambling. The latter people intentionally take a loss for a “wash.”

    • Reply
      Jim B 5 months ago

      Actually Vancouver has more of a speculation problem than we do money laundering. The bidding wars for resales here are insane, I’ve been outbid bidding 10% over ask on places. Then you find out they just let them sit empty for years before flipping them again.

      Toronto’s in the same situation. People just haven’t realized it yet.

  • Reply
    Real estate news for Toronto, Canada, the USA and abroad 5 months ago

    […] 1 In 3 homes listed for resale in Toronto haven’t been occupied (Better Dwelling) […]

  • Reply
    Jenny Chen 5 months ago

    Garth Turner just did a great piece on why he rents and people speculate.

    http://www.greaterfool.ca/2016/11/29/why-i-rent/

  • Reply
    Cathy 5 months ago

    Marc Cohodes said it best, if you want to see how empty condos are in Toronto – go for a walk late at night. Then go for one really early in the morning. There’s either a lot of people on vacation, sitting in the dark, or the condos are empty.

  • Reply
    Tommy 5 months ago

    This article is complete balderdash. First, as others have pointed out, it’s disingenuous to lump completed pre-construction occupancy in with ordinary housing. Secondly, nobody is flipping condos in Toronto anymore. It hasn’t been profitable to do so in at least three years since the cost of new condos has shot up and made flipping unprofitable.

    This is all to say that Toronto is nothing like Vancouver and that speculation is not rampant in Toronto – at least not in Toronto proper, where there is real demand for condos that are being bought to live in. Once condos are sold they’re lived in or rented out for long periods of time. There is no empty condo syndrome. Lights are on and buildings are at full capacity. In fact, it is this demand that is driving developers to get into the purpose built rental market again after 40 years. There is a lot of rental demand (and growing) that they know they can capitalize on.

  • Reply
    Brian 5 months ago

    There’s a constant influx of people to Toronto which drives demand and there are very few empty residences, house or condo. There is speculation but that’s driven by real estate agents pumping the prices ever higher and by desperate buyers trying to find a home to raise a family in and by foreign speculators/investors. There are few condos large enough to raise a family in and whatever is available goes for a premium making them as expensive as a house plus the condo fees which are potentially limitless. There were a few real estate price crashes in the past in Toronto, I witnessed 2. One of the crashes had a decline in real estate values of as high as 50% which took years to make up. People have been declaring we are in a bubble for years but the prices still escalate in Toronto. As interest rates increase, it is the bottom of the market which suffers not the mid to high end where the buyers have lots of cash and don’t need much of a mortgage or none.

    • Reply
      Tommy 5 months ago

      Brian, you’re right that the market would convulse if interest rates were to increase. But interest rates in Canada, like the rest of the world, will remain at record lows for many years to come. Plenty of other Western nations even have negative interest rates right now. All economies are struggling so rates are not going to change significantly.

  • Reply
    Toronto has a boatload of unoccupied homes – Feelib 3 months ago

    […] on to inventory until they believe they’ve hit peak. In fact, a few months ago we observed that 1 in 3 homes in the city were being sold as never been lived in, despite many having been built a few years […]

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