More Real Estate Investing Frenzy

Despite concerns about the types of units under construction, investment frenzy hits a record high

Michael Sarracini, who runs a property development company and a real estate investing education company, at his Guelph, Ont. home.

FRED LUM/THE GLOBE AND MAIL

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In the last two years, investing frenzy has seen the average price of a home rise over 300 percent, making a home 46 percent more expensive than it was two years ago! With more traditional investments, such as stocks and bonds, having proved to be volatile or delivered few returns, Canadians have turned to real estate as a stable asset that will generate cash not only for the present, but for a safe retirement option.

Businesses that support real estate investing are seeing a surge in demand since the pandemic started, with some real estate investment courses registering double the registrants weekly from across North America. Growing demand from investors has of course helped provide more supply for the rental market, but the trickle-down effects are concerning when it comes to affordability.

Family-sized homes are becoming impossible to find, as nearly 60 percent of the 244,025 new homes built last year were apartment or condo units. Affordable smaller units for renters are also increasingly difficult to find, since rising prices are driving up fees. For example, the price of a pre-construction condo in the Toronto region at the end of last year sold for $1,322/square foot, making the price of a 550-square-foot condo about $730,000.

With a 20-per-cent down payment at 3.1 percent over 25 years, the average monthly mortgage payment would be around $2,821. Keep in mind, this does not include condo fees, taxes, or insurance. In order for an investor to cover ALL the costs listed above, this condo would have to be rented out at well over $3,000 dollars a month… for a 550-square-foot condo. Does this sound like an investment frenzy?

The private sector really has the ultimate deciding factor when it comes to what to build and for what purpose, and the truth is that most buyers do not intend ever dwell in the homes that they want built, and therefor developers are filling investor demands of small housing units, rather than those of the ones seeking shelter.

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