AVERAGE RENTS TO RISE IN 2022
Rents will continue to rise in most Canadian cities in 2022, according to the latest projections from Bullpen Research & Consulting and Rentals.ca. The forecast calls for average rents in Toronto to bounce back 11 per cent next year, while Mississauga will see a seven per cent rise by December 2022. The 11 per cent projected increase for Toronto would take average rents up to $2,495—a rise similar to what we saw in 2021 following a year of major declines.
Meanwhile in Vancouver, average rents will likely increase by six per cent overall, with Montreal expected to post an annual increase of five per cent.
"The forecast calls for average rents in Toronto to bounce back 11 per cent next year, while Mississauga will see a seven per cent rise by December 2022."
“The forecast prepared by Bullpen and Rentals.ca for 2022 sees continued growth in the rental market following the unprecedented declines experienced from April 2020 to April 2021,” said Ben Myers, president of Bullpen Research & Consulting. “Despite the continued upward trend next year, Toronto, Mississauga, Montreal and Calgary are expected to finish next year below their peak rent levels from late 2019 and early 2020.”
While this reflects a positive outlook for the industry, the analysts point out that forecasting is “a tricky business” due to the everchanging landscape of new government regulations affecting supply, immigration affecting demand, and the COVID-19 omicron variant creating more uncertainty around the world.
The average monthly rent for all Canadian properties listed on Rentals.ca in November was $1,817—up 3.6 per cent year over year and up monthly by one per cent. This marks the seventh straight month of rent increases since April when average rents hit $1,675, following a year of COVID-19 pandemic-induced declining rents.
The rental market in Canada is returning to levels seen at the start of 2020 but remains $137 below the peak rent of $1,954 in September 2019.
In terms of specific markets, Toronto finished second on the list of 35 cities for average monthly rent in November for a one-bedroom at $2,040 and for a two-bedroom at $2,764. Year over year, average monthly rent in November for a one-bedroom in Toronto was up eight per cent and up 11 per cent for a two-bedroom. Month over month, average rent in Toronto was up 1.7 per cent for a one-bedroom and up 3.3 per cent for a two-bedroom.
Oakville came in third on the list for average monthly rent in November for a one-bedroom home at $1,879 and fifth for average monthly rent for a two-bedroom at $2,322.
Year over year, average monthly rent in November for a one-bedroom in Oakville was down 1.8 per cent and up 3.4 per cent for a two-bedroom. Month over month, average rent in Oakville was down 5.3 per cent for a one-bedroom and down one per cent for a two-bedroom.
Burlington finished fourth for average monthly rent in November for a one-bedroom home at $1,827 and seventh for average monthly rent for a two-bedroom at $2,275.
In Vancouver, average rent for all property types on Rentals.ca rose 12 per cent year over year to $2,492 in November. Annual average rent fell last year by 12 per cent in Vancouver to $2,216 in November 2020. Montreal remains a bright spot for landlords in Canada, with rents rising annually by one per cent in November to $1,689, after also rising year over year by three per cent to $1,668 in November 2020. Calgary’s average annual rent was up by four per cent to $1,438 in November, but rents did not change significantly on an annual basis in November 2020, with the average listing available for $1,379.
LIBERALS PUT REAL ESTATE INVESTORS IN THE CROSSHAIRS
Canada quietly put real estate investors on notice, right before the holidays — probably hoping it slips under the radar. A newly re-elected Liberal Party of Canada (LPC) distributed mandate letters. These letters contain orders for the Minister to execute and are usually pretty dry. A big exception is the Minister of Housing’s mandate letter, which puts real estate investors in its crosshairs. The Minister has been ordered to cut profits, deter speculation, and limit leverage. Here are the key takeaways. Canadian real estate has been lucrative for investors, and the Government wants a cut. The mandate includes various investor taxes, and reforms to reduce “excessive” profits. Here are the most noteworthy ones:
Excessive rent surplus. The Income Tax Act will be amended to require landlords to disclose rent — pre and post renovation. If a minimal renovation was executed and the rent surges, you might be hit with a tax to reduce profit. If executed, landlords might reconsider those renovictions.
Anti-flipping tax on residential property. Planning on flipping a property for less than 12 months? You might have to pay an anti-flipping tax. Flippers might be a small segment, but they reduce liquidity and replace it with a higher priced unit. This marginal buyer has a disproportionately large impact on home prices, similar to money laundering.
Reviewing tax incentives for Real Estate Investment Trusts (REITs). REITs are a type of investment trust to hold real estate and generate income through rent. They aren’t taxed on the income or gains made, making them tax efficient entities. REIT holders pay taxes on the disbursements from the REIT, but those can be deferred or reduced by registered accounts. This has made them extremely attractive over the past few years.
Investors will see hurdles erected to limit the attractiveness of real estate. There are currently many incentives to invest in real estate over other areas. This includes leverage and tax advantages, attracting a disproportionate size of capital. Residential investment recently overtook productive investment for the first time since the 1960s.
Review investor down payment requirements. Investors might soon need more for a down payment, limiting leverage. This is a move that other countries have recently adopted, including New Zealand.
A temporary ban on foreign buyers. The ban would apply only to non-recreational residential property. Canada doesn’t track beneficial ownership, or confirm the info when it does. If it doesn’t know who the beneficial owner is, it has no idea who owns the home. This is mostly window dressing.
Curbing “excessive” profit for investment properties. The ambiguously worded directive doesn’t elaborate. It only says they’ll do so while also protecting small, independent landlords, though. Most likely this means they’ll be looking into institutional landlords. No plan usually means they do very little.
Real estate investors have always been a double-edged sword, regardless of the country. The positive is they provide capital (and incentive) for builders, increasing supply. It’s not a coincidence that the most building happens during periods of high price growth.
At the same time, they aren’t a charity. Their incentive for providing this capital is making solid returns. The better the returns, the more capital gets sunk into the market. In the words of the bank regulator, this can become a self-fulfilling prophecy. Investors often pay more because they expect higher returns, detaching from any fundamentals.
How serious this government is about the measures remains to be seen, but there is one big sign they might be. Canada is injecting significant cash (i.e. loans, subsidies, etc.) to developers. This is a sign the state is preparing to pick up the incentive if other investors divert capital.
JOB VACANCIES UP Q3 2021
The number of job vacancies in Canada reached an all-time high of 912,600 in the third quarter of 2021, as employers and workers continued to adjust to easing public health restrictions and rapidly evolving economic conditions. Like other economies recovering from the labour market impacts of the COVID-19 pandemic, record-high job vacancies coincided with growth in overall employment and falling unemployment.
Across all sectors, the total number of job vacancies reached an all-time high of 912,600 in the third quarter of 2021, more than 349,700 (+62.1%) higher than in the corresponding period in 2019. The job vacancy rate—number of job vacancies as a proportion of labour demand (occupied positions and vacant positions)—was 5.4%, also a record high and 2.1 percentage points higher than in the third quarter of 2019 (3.3%).
Compared with the same period two years earlier, job vacancies were up in all provinces in the third quarter of 2021. Proportionally, the largest increases were in Saskatchewan (+82.7%; +9,200), Quebec (+73.1%; +100,500) and Ontario (+64.5%; +132,900), while Nova Scotia (+35.2%; +4,700) had the smallest increase.
Five sectors—health care, construction, accommodation and food, retail trade and manufacturing—were driving the growth in job vacancies. Increases in job vacancies can signal a number of changes in labour market conditions existing in different sectors and regions.
Job vacancies in accommodation and food services accounted for one-quarter (24.7%) of the two-year increase in overall vacancies. The elevated level of vacancies in summer 2021 was likely due to several factors, including staffing challenges associated with the reopening of business in the sector and normal seasonal patterns, as labour demand in the sector typically peaks during the summer.
Vacancies increased more in low-wage occupations than in high-wage occupations between the third quarter of 2019 and the third quarter of 2021. In the third quarter of 2019, the 20% of occupations with lowest average wages (the first quintile of occupations ranked by 2019 third quarter Labour Force Survey [LFS] average wages) accounted for 35.0% of employees and 48.9% of job vacancies. In the third quarter of 2021, these same occupations represented 32.3% of employees and 50.9% of vacancies.
RECENT SALES - Outside the GTA
433 KING STREET - LONDON - $34,000,000 / $263,565 Per Suite
This asset is a 18 storey concrete rental apartment building in downtown with condo tenure. The property dates from the 1980's and was probably built by the seller who is a prominent local builder and owner of rental apartment buildings and commercial real estate. The building has 2 elevators, underground and surface parking with 63 one bedrooms and 66 two bedrooms. The property is known as Kingswell Towers and appears to not have been fully marketed. The purchaser was Equiton Residential.
20 DUKE STREET - HAMILTON – $4,450,000 / $153,450 Per Suite / 3.50% Cap Rate
This property is located in downtown Hamilton in a prime rental location. It comprises of a 1920's concrete walk up rental apartment building with 23 bachelors and 6 one bedroom suites. There are 10 surface parking spaces and some of the recent upgrades include: fire system; boilers; hot water tank; 14 camera security system. The building had in place rents that were 40% below renovated market levels in the area. The property was fully marketed and was sold to a private investor.
246 SPILLSBURY DRIVE - PETERBOROUGH - $18,500,000 / $370,000 Per Suite
This property is located in a south Peterborough in a single family residential sub division. The asset comprises of 50 four bedroom rental townhouses on over 3.7 acres and includes additional land for another 30 townhouses. There are 5 blocks of 10 3 storey frame rental townhouses where utilities are all paid for by the tenants. The projects looks to be less than 10 years old. All townhouses are 4 bedroom and in excellent condition. The property was not fully marketed and was purchased by Incompro Real Estate Ltd. which is a well know apartment realtor and investor in Ontario.
901 LASALLE BOULEVARD - SUDBURY - $27,000,000 / $184,935 Per Suite / 4.5% Cap Rate
Located in a prime rental market in Sudbury, the property consists of a single high rise concrete rental apartment building situated on over 2.6 acres of land. Comprised of mostly 2 and 3 bedroom large suites this is a well capitalized and managed asset. The building was constructed in 1973 and contains 146 rental suites, two elevators, on site laundry and over 160 surface parking spaces. The building is heated electrically with the landlord paying the costs. There is over 30% rental upside here along with upside in sub metering the hydro expense. This asset was owned privately and fully marketed with the buyer being Panoramic Properties Inc. which is a well know apartment building owner and manager in Ontario.
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