Some cash-flow hungry real estate investors in Toronto are now looking to the Calgary housing market where prices are considerably lower, according to one realtor.
Steve Saretsky, a Vancouver-based realtor with Oakwyn Realty, said so-called "pre-sale whales," or Toronto realtors known for focusing on new condo developments, are increasingly pointing their attention to the Calgary market, where prices are significantly more affordable compared to the Greater Toronto Area.
“What we've been hearing is that [these realtors] have been actually flogging Calgary pre-sale projects and selling very, very successfully," Saretsky said in an interview on Wednesday.
"Because I think when investors in Toronto, and even here in Vancouver, look at these projects, they think, ‘Oh wow, I can pick up a one-bedroom condo for $250,000?’. And this word cash flow - which really doesn't exist in the [Greater Toronto Area] and in Vancouver - it's quite attainable in Calgary."
Housing markets in oil-dependent provinces such as Alberta have struggled in recent years after multiple crude price collapses battered their economies.
Recently, these housing markets have started to see an uptick in activity, thanks in part to ultra-low interest rates. But home price growth has still been greatly outpaced by red-hot markets such as Toronto and Vancouver.
The most recent data from the Calgary Real Estate Board showed condo sales in January hit the highest for the month since 2007 with 357 sales. The unadjusted benchmark price of a condo in Calgary rose two per cent in January from last year to $251,200, the data showed. Typically, pre-sale units can be even cheaper than resale property prices.
Compare that to Toronto, where the average price of a condo soared 21.7 per cent in January to $760,643 from a year ago, according to the Toronto Regional Real Estate Board.
Saretsky said many Toronto investors are attracted to the cash flow potential in Calgary, despite many years of stagnation in that market.
“People that are going to Calgary, I think, are typically a different type of investor. I think they're more cash flow-oriented investors. The idea of parking money in a one-bedroom condo in Calgary and hoping for some appreciation over five to eight years, I think is not the same as investing in Toronto or Vancouver,” he said.
“Buying condos in Calgary is a much different game. There hasn't been any lift there historically and typically, like I said, it's kind of a dead money."
Investing in real estate is not without its risks, he said, because housing investors can be vastly quicker than end users in selling their properties if prices start to decline.
A Bank of Canada survey last month found roughly one-in-five home purchases dating back to 2014 were by investors.
Saretsky believes most of the outside investors putting money into Calgary condos intend to rent out the unit, rather than let it sit empty and appreciate in price, which is sometimes seen in Toronto and Vancouver.
With the Bank of Canada poised to begin its interest rate hiking campaign as early as next week, economists and other market observers are so far only expecting a marginal impact on the housing market, and suggest that impact likely won’t be felt until the second half of the year.
Saretsky believes mortgage rates need to rise to roughly three or 3.5 per cent before they start to negatively impact the housing market.
“When I look today, we've got the five-year fixed mortgage rate at three per cent. So, it's getting up there and we're starting to see a little bit of easing in the housing market. The problem is you still got these variable rate mortgages hovering around 1.5 per cent,” he said.
“Once the Bank of Canada starts hiking their overnight rate, that will flow through into variable rate mortgages. So I see that be being more of a drag. I don't think it's going to take more than three or four rate hikes from the Bank of Canada to really start to slow housing … so it's going to be a lot less than the market anticipates,” he added.