Investors are taking over Canadian real estate markets, especially in Ontario. Teranet, the private operator of the province’s land registry, looked at buyers from January 2011 to August 2021. Their analysis shows the largest segment of buyers is now multiple property owners. Armed with cheap money, these investors now represent one in four Ontario home buyers. The share is even higher in Toronto, where first-time buyers dominated the market just 10 years ago.
Ontario Real Estate’s Biggest Buyer Is Owners With Multiple Properties
The largest group of home buyers in Ontario already have at least one other home. Multiple property owners represented nearly 25% of Ontario home purchases in 2021. This was a new record, with their share of the market advancing 8 points over the past decade, about a 50% increase. That’s right, one in four Ontario property buyers already owns at least one other home.
Ontario Real Estate Buyers By Segment From 2011 to 2021
The share of buyers of Ontario real estate from 2011 to 2021. The numbers for 2021 are YTD ending in August.
Multiple property owners notably peaked in 2017, and then dropped off until recently. Teranet attributes the decline to the stress test and the non-resident speculation tax. Both would have at least caused a psychological market shock.
First-time buyers have seen their share of the market shrink over the past few years. They represent just below 22% of purchases in 2021. This is a partial recovery from the generational lows the market share reached in 2017. As of 2021, first-time buyers are almost at the share they held a decade before. However, one needs to consider the massive trough between those years. There is now a huge backlog of first-time buyers displaced by investors.
Life event purchasers are a much more interesting segment than it sounds. These are transactions where related parties transfer property. Most often this occurs due to death, marriage, divorce, or generational transfers. Either 2018 was a big year for deaths and divorces, or an odd trend hit after stress testing and non-resident taxes were implemented.
Policy, First-Time Buyers, and Low Rates
Since this is an Ontario wide-trend, one should consider policy only applied to a few areas. The non-resident speculation tax only applied to the Greater Toronto region. A stress test is universal, but budgets weren’t pushed to the extreme elsewhere in Ontario. It would have had a limited impact in the rest of the province, or even some parts surrounding Toronto.
Higher interest rate costs also line up during this period. From 2018 to 2020 interest rates climbed, reducing profitability for property investors. In a high-demand market, this may prove to reduce investors more than first-time buyers.
Investors need profit to make sense, and higher financing costs reduce that. Rate cuts only prove to be a temporary relief for financing, as prices often rise to absorb any savings. That doesn’t really help first-time buyers in the long run, but is a big boost to investors. This is the exact opposite of the way central banks pitch low rates. Maybe they’ll look at that, after they figure out what transitory means.
Multiple Property Owners Are Buying Almost A Third of Toronto Real Estate
The “urban center” of Toronto is similar to the rest of Ontario — but more extreme. The City saw nearly 30% of purchases in 2021 go to buyers with multiple properties. Their share increased nearly 10 points over the past decade. Impressive considering how much larger the volume of sales is today.
Toronto Real Estate Buyers By Segments From 2011 to 2021
The share of buyers of Toronto real estate in its “urban center” from 2011 to 2021. The numbers for 2021 are YTD ending in August.
First-time buyers used to be the largest segment in the region, but those days are long gone. This segment represented a third of buyers a decade ago. Now it’s fallen below 27%, and the share of multiple property owners is now larger. The trend flipped from 2016 to 2018, when the market was declared “exuberant.” That’s what economists say when they don’t want to say “a bubble.”
There are a few insights in the Teranet numbers, but incentive and leverage are two big ones. Over the past decade, investors have come to dominate Ontario real estate. With low rates and high prices, how could they not? Investors also have cheap access to money, and they often have more resources to tap to leverage up.
Bringing up the next important point — leverage. Multiple property owners often use home equity as a down payment. The scale at which this is happening might be a bit of a problem. We already know a significant number of parents are leveraging property to provide first-time buyers with a down payment. The more leverage in the system, the larger the vulnerability in the event of shock.
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Before anyone says “but what if they need two properties?” An investment property in banking is any non-primary residence, which means any secondary property.
If your secondary property is in Toronto, you’re most certainly an investor. Whether you’re a landlord, owner of a pied-à-terre, or just keep it empty. If you make it so someone pays 1% to borrow money and rent rises by 2.6%, you will not win.
This is directly a result of the Bank of Canada driving down rates beyond its natural bound.
Ontario Realtors caught on camera pushing buyers to higher paying commissions. Not more expensive homes, just the ones with better commissions. If there are no rules, why is anyone surprised home prices are out of control?
BD once again nearly two months ahead of mainstream media. It’s called “steering,” and the regulators know about it. They warned people they would crack down on it, and people still went ahead and did it.
If the gain is bigger than the consequence, don’t expect anyone to listen to the regulator.
Ontario has an active Realtor working as a lawmaker. The laws are so opaque, we know so little about policymakers’ investment activity, and that’s never going to change. Canadians are the Ralph Wiggum of countries.
Canadians dumb? That’s unpossible!
– Ralph Wiggum
Nice one! 😀
It’s a good thing Evan Siddal championed giving landlords blanket mortgage deferrals, no questions asked, on as many rental properties as they had. These speculators then took the extra cash flow from the deferrals, essentially right out of the pockets of middle class wage earners, and bought ANOTHER property.
The Liberals have proposed providing essentially permanent mortgage deferrals to anyone who “needs it” (right; who assesses need?), while not giving renters any rent deferral whatsoever.
Toronto real estate 2 da moon. Millennials deserve whats coming to them. They’ve been burnt twice, and still didn’t vote. This time the government even sent the ballots to their house this time, and they couldn’t be bothered to request one. LOL
No point in voting for either crooked side. Nope, only solution is rebellion.
Be careful what you wish for. If you haven’t done well in a structured environment what makes you think you will do better in an unstructured environment?
Well you’re not wrong. I don’t want to hear any whining from Mills as housing continues to climb. They had a chance to vote out the perpetrators of this bubble and didn’t. So mass immigration and taxpayer subsidization of speculators (foreign and domestic) will continue. And to those who say “they’re all the same” – you’re part of the problem. A federal Conservative government would have been terrible, but considerably less terrible than the incumbent.
lol. Everyone relax. Rates are going to climb and crush the heck out of investors. That’s why big developers are trying to lock in long term rates, and taxpayers are essentially subsidizing their profits.
Do they pay taxes on their investment? What is the percentage? I would like a story on this.
It seems like the politicians are in on it too for letting this get out of control. The housing market is not a free market as the politicians are controlling this market for not allowing a much need correction. They have their hands in the cookie jar.
please do one for Vancouver area as well.
Yes, to echo George, please do one for the Vancouver area too.
Is it any different in other countries, especially in the US? NO, absolutely not. May be in other Western countries more percentage of people own multiple properties. London, UK is a good example. Did the prices of properties in those cities go through the roof like in Toronto? Absolutely not. The reason is the real problem is not people owning multiple properties. The real problem is supply lagging the demand by a huge margin. That is the problem.
Are you claiming property prices in London did NOT go through the roof?
Supply and demand have to both be discussed. There are multiple factors on each side and they all have to be addressed.
“Supply and demand have to both be discussed. There are multiple factors on each side and they all have to be addressed.”
Very true. Agree 100%
“Are you claiming property prices in London did NOT go through the roof?”
Not like in Toronto.
Either way – “the last one in is holding the bag.”
My wife and I live downtown TO and have rented for years (same place – thankfully still reasonable rent) watching this insane bubble grow exponentially over the years.
We have saved like squirrels and have kept our $400k powder dry in this craziness.
I have told her we will jump into buying when “this thing” comes crashing down – and the Gov’t and the pandemic money has just kept it going… but not for much longer.
And if these stats BD quoted are true to form, we will have the pick of the litter of properties to choose from on severe discount in a matter of months – not just from the recent buyers in the pricing bubble – but the investors who thought it wise to buy in at the same time.
As Rumi once said –
“Greed makes man blind and foolish – and makes him an easy prey to death.”
It sounds like a big part of your positive financial position is having secured affordable rent years ago, with increases of no more than 1-2% year after year. Whereas people who buy / rent today (yourself included should you move to rent or buy) are participating in today’s market with high home prices and commensurately high rent (with increases far far greater than 1-2% year after year).
I think you’re in a lucky position where you are effectively living in the marketplace of 10-20 years ago (not sure when you secured your rent). But for anyone who is just entering the market, there isn’t much they can do. They will either have to pay high prices for a home or high prices for rent (made high due to high prices of homes)
Can you provide the source for the Teranet data or publication? Currently the graphic just lists Teranet as source.
They probably paid Teranet for the data, which just come as a CSV at my work. Expensive as hell too.
You’re probably right. Though they make it out that additional analysis was done and extra context given for what all of these numbers mean.
I think if these types of articles are going to be taken seriously and hold any weight in any of our minds the author should include the source material, not just a link to the company who holds the data secretly. Personally, I think this particular dataset is absolutely fascinating and critical in pointing to the cause of increased home prices and rent (that is, more landlords are being made due to the promise of “investment properties”, and they are using their home equity to bid against one another to increase home prices. high rents then follow). However, I can’t (and I don’t think anyone here can) take this article seriously without source material. It’s too complicated a subject to derive meaningful conclusions without access to the raw data along with context for those numbers.
The author _may_ be trustworthy, but they should provide an avenue to “trust, but verify”
Yes, the company should violate their terms of data subscription by giving out the raw data, permanently lose access to future information their business depends on, and then you still have the same issue of not knowing if the data is verifiable since it’s for subscribers. Teranet shared the article on their social media, so I’m guessing it’s pretty friggen reliable. Only 677,760 records to pull if you want to verify. That’s about $16,944,000 of inquires for the public to check, unless Teranet agrees to give you the data for cheaper (about ~$10k is my understanding). Or they can pay $17 million for giving you the data, so one person feels more comfortable.
Less credible is the governments that set up a system to hide information, and put it in the hands of a private, for-profit company.
Politicians ALWAYS have their hand in the cookie jar! Like other write ups and comments about money laundering, politicians have known about that for decades. Nothing has been done, except Dave Eby, BC NDP did take a shot at it. I don’t know yet what it will take to sort this mess out.
in the land of the blind the “one eyed Jack is King”…when the mortgages go up on a presumtion of the economy being “red hot”…the locksmiths will be busy opening doors only to find the keys on the table. 2029 is not that far away…remember what happened 100 years before right after the ‘roaring twenties”. The government has proven time and time again that they are by-standers who will sacrifice any business or person if the timing is right for re-election. Taxi drivers are one example…they got suckered into mortgaging their homes to buy into a career only to get clUBERed uber, who pay no taxes but the politicos get huge envelopes full of cash from uber to look the other way….who is next?
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