Sales Plunge Temporarily, Analysts Say

Cooling measures take effect but investors see signs of a summer revival, writes PETA TOMLINSON

By: South China Morning Post, 11 April 2018

Plunging sales in Canada’s largest housing market, the Greater Toronto Area, had headline writers scrambling in March to explain the previously unthinkable in a few words.

“Toronto real estate market is imploding,” declared one. “The party really is over,” announced Huffington Post Canada. “Sales have plummeted – is this a crash in the making?” pondered another.

The tailspin was prompted by Toronto Real Estate Board (Treb)’s February data, which
showed a 34.9 per cent drop in transactions compared to February 2017, and followed a full-year drop of 18.3 per cent in sales compared to the record set in 2016.
Prices have also contracted: the overall average selling price for February sales was down 12.4
per cent year-over-year to C$767,818 (HK$4.71 million) – although still above 2016 levels – while the level of new listings remained below the 10-year February average.

On the other hand, home builders recorded their busiest month in years in February on the back of a record number of apartment starts, according to Canada Mortgage and Housing Corporation’s latest report.

Interpreting the data, Treb president Tim Syrianos notes that when the board released its outlook for 2018, it had anticipated a slow start to the year as a number of marketcooling measures began to take effect. The Fair Housing Plan, announced in April 2017, included 16 measures intended to make housing more affordable for homebuyers and renters. Among them, a Non-Resident Speculation Tax imposed a 15 per cent tax on real estate purchases by foreigners.

Domestic buyers are impacted by a number of new mortgage rules mandated by the Office of the Superintendent of Financial Institutions Canada (OSFI). Effective from January 1, any Canadian borrowing from federally regulated lenders must pass a  stress test to prove they could meet the repayments if interest rates rose significantly. According to industry body Mortgage Professionals Canada, nearly one in five borrowers would fail such a test.

Syrianos says that home buyers are still coming to terms with the psychological impact of the Fair Housing Plan, “and some have also had to reevaluate their plans due to the new OSFI-mandated mortgage stress test guidelines and generally higher borrowing
costs”. However, Jason Mercer, Treb’s director of market analysis, expects sales and selling prices to pick up through the spring and summer, especially in the more affordable townhouse and condominium apartment segments, although listings are likely to remain low.

“While, over the short term, demand for ownership housing will be temporarily impacted by government policy moves at the provincial and federal levels, over the long term, underlying fundamentals will support an upward trend in home sales and home prices,” Mercer says.

“We are seeing sustained population growth based on immigration. Newcomers are attracted to the Greater Toronto Area because of the diversity of job opportunities available across a number of different sectors, and unemployment is the lowest in more than a decade.”

Mercer also points to surveys suggesting that foreigners account for only about 4.9 per cent of home sales in Toronto, a share that is “quite low, given that the population of the Greater Toronto Area grows on the back of immigration”.

Realtor John Pasalis, president of Realosophy Realty, still sees heat in the market, fuelled perhaps by a price decline that he says actually happened in the spring of 2017.

“Prices have been steady since July, but we’re just now starting to see this decline reflected in the year-over-year numbers,” he says. Pasalis expects the March figures, not yet released, to be “in line with February … big year-over-year declines in sales and prices”.

“But looking beyond these year-over-year changes, which are old news, the market on a month-over-month basis appears to be heating up a bit,” he says. “While this normally happens from January to March, given the seasonal nature of the housing market, it’s a bit surprising given the recent mortgage stress tests. I would have expected the market to be a bit cooler.”

On the ground, the market is quite fragmented “so the stats don’t tell the whole story”, Parsalis adds.

“Downtown houses and condos are insanely competitive – outside of that, the market is relatively slow.”

He senses “a relatively cool” 2018. “I suspect some of the heat/competition we’ve been seeing in February and March might be from people who have mortgage pre-approvals [prestress test] that expire at the end
of this month,” Parsalis says. “Downtown will still be competitive but Toronto’s inner suburbs Scarborough and Etobicoke, as well as the 905 regions, will be a lot slower.”

Yet, in Toronto, where 11 per cent of the resident population identify as Chinese, according to latest census data, some are hoping that 2018 (bearing the lucky number 8) will prove an auspicious  year for Chinese property investment.

Peter Ng, realtor and associate broker at Kore Real Estate Group, doesn’t discount this.  “I have not seen definitive evidence of this phenomenon where Chinese numerology in dates alone has caused more real estate property to be sold,” he says. “However, a complete disregard for Chinese numerology in markets with a large percentage of Chinese buyers can and will result in less real estate being sold.”

In Ng’s opinion, few Chinese would buy real estate just because of good numerology alone. “On the other hand, the majority of Chinese buyers would avoid or not purchase if there was the presence of bad numerology,” he says.

Chinese numerology mainly affects the saleability and marketability of real estate, he explains. “My company works with real estate builders and developers to optimise their marketing and products to the Chinese demographic,” Ng says. “Part of our job is to ensure unit numbers, addresses and pricing are pleasing to the Chinese buyer.” However, Ng says he has “an unproven theory” – that dates such as 08/08/2018 “may result in more weddings than other years and create more demand for real estate purchases from newly married couples”.

Source: South China Morning Post