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New global realities mean new strategies for real estate investing – Investment Executive

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Supply chain issues, growing e-commerce and a global pandemic are among the factors that have altered real estate dynamics in North America, says Steven Marino, senior vice-president, portfolio management at GWL Realty Advisors.

Where office and retail were once the dominant real estate sectors, he said multi-family assets, industrial properties and land now command the lion’s share of investor attention.

“Those three asset classes have really stepped into the void that’s been created by a shortage of office investments,” he said. “And thankfully the positive fundamentals that support those asset classes have really helped to give investors a lot of confidence moving forward.”

Speaking on the Soundbites podcast, Marino said 2021 saw a wave of new capital looking for exposure to alternative investment asset classes, which includes real estate.

“That certainly created substantive tailwinds, in terms of the scale of capital that has moved into real estate,” he said.

Industrial property has benefited from a trend of re-shoring manufacturing and distribution, as companies learned to place higher priority on having goods near at hand. As a consequence, the industrial sector has become the hottest real estate asset class.

“We’ve seen 20% to 30% annual increases in rents over the last two years,” Marino pointed out. “Vacancy rates in Toronto, Montreal and Vancouver all hover just at around 1% or less. Those are record vacancy levels, and that’s translating into record pricing power for landlords.”

As for land itself, he acknowledges that has become one of the greatest challenges for growing municipalities.

“We’re seeing municipalities across the country really having to revisit their city-planning timelines to understand how much land they want to make available to help supply the growth that is being demanded by a large logistics organization,” he said.

Meanwhile, the retail and office sectors continue to evolve as consumers demand greater convenience and new use-cases.

“Enclosed retail centres continue to see challenges,” Marino said. “We’re seeing the ‘de-malling’ and in some cases redevelopment of retail centres really to help to drive more foot traffic into those centres.”

Some developers are experimenting with mixed-use formats, adding multi-family densities into and near retail facilities.

“You’re seeing current projects like Sherway [Gardens in Toronto] or Yorkdale [Mall in Toronto] having substantial density being added to the immediate proximity of those footprints, just to really take advantage of the strong attributes of those locations,” he said.

The strategy, which often carries a big price tag, is a deliberate attempt to create experiential opportunities that attract consumers.

“It’s a defensive move but I think on some levels it’s an offensive move as well,” he said.

As for offices, Marino believes a radical transformation will play out over time.

“It’ll be really dependent on the quality of the office assets we’re talking about and the nature of the tenants’ business and their function. Certainly, the best-in-class assets are continuing to do well,” he said. “Weaker assets are suffering, and landlords are having to reinvest capital into their assets to improve their positioning and to augment their offering.”

As always, he believes location plays a huge role in the success of any real estate venture — particularly when it ensures access to a wide range of amenities. In Toronto, for example, young professionals still want to live and work in the city, and a stable labour pool is made possible by transportation hubs that improve accessibility and convenience.

“If you’re an employer of choice who wants to be able to access those labour pools and create dynamic work environments for your staff, you really need to lean into where those amenities and where those life experiences are for your employees,” he said. “You have to be part of the fabric of local communities.”

Even suburbia can replicate the urban experience by creating central business districts with a variety of services that are accessible by a range of transportation types. Mississauga, Ont. has created a vibrant urban core near its city hall, just as the city of Vaughan — the fastest-growing municipality in Canada between 1996 and 2006 — is trying to do at Highway 7 and Jane.

“Those cores are likely to be far more successful or resilient than the standalone suburban building that really doesn’t have the same amenities set to offer to its tenants,” he said.

Marino described monetary policy as the single biggest risk to the real estate market.

“When I think about the economy, I think about the risk potentially associated with effectively managing any monetary policy changes and certainly that’s a conversation of the day, just given the prospects of potential rate risers in the course of 2022,” he said. “So, we’re looking forward to an orderly and measured approach to managing those interest rate raises and making sure that the economy can manage that.”

Ultimately, he believes the nature of real estate and its return profile contribute to its widespread popularity as a key component of a multi-asset class portfolio, helping to generate and preserve wealth for investors.

“When I couple that with the value that’s determined by key locations, adaptability and resilience, it really provides great value to its stakeholders.”

**

This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.

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In Ontario, real estate buyers are holding out for a price cut – The Globe and Mail

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A house for sale in the Riverdale area of Toronto on Sept. 29, 2021.Evan Buhler/The Canadian Press

The stalemate that is taking hold in the Ontario real estate market right now arises from a belief that is becoming more entrenched each month: buyers reckon prices have farther to fall.

House hunters see properties in some areas selling at 15 per cent or so below the high-water mark set in the first quarter and decide to hold off for an even steeper discount. Sellers either refuse to budge or feel the landscape shifting under them and rush to complete a transaction before more ground crumbles away.

The war in Ukraine, stubborn inflation and the rise in interest rates have precipitated a much more tumultuous real estate market than industry watchers were predicting even a few months ago, according to John Lusink, president of Right at Home Realty.

Mr. Lusink says sales for June are set to come in about 26-per-cent below even his conservative projections at the start of the year, continuing a trend that has been on a downward slope since February.

“We can throw that forecast out the window,” he says of his projections for 2022.

The landscape is the same across the Right at Home network, which spans 12 regions of Ontario.

The number of listings, meanwhile, is gradually increasing after a slow spring, he adds.

Mr. Lusink expects the final tally for Right at Home’s sales in June to show a 37-per-cent drop from the same month last year.

“It’s, needless to say, concerning.”

Rishi Sondhi, economist at Toronto-Dominion Bank, points out that sales and prices have fallen disproportionately in Ontario and British Columbia, where prices climbed the most during the pandemic. The retrenchment in activity is especially hard in the Greater Toronto Area, where investors have played a particularly large role in the past year.

The downturn is part of a worsening picture across Canada, as sales and prices continued to decline in May under the weight of higher interest rates, Mr. Sondhi points out. Some sales were likely pulled forward to late 2021 and early 2022 as people braced for higher rates, he adds.

The economist says some GTA buyers also likely purchased new homes before selling existing properties, expecting the market would remain hot, he adds. Those sellers may be forced to accept lower prices now in order to complete the new deal, but he expects that dynamic to run its course before too long.

Mr. Sondhi is forecasting a continuing decline in prices throughout the rest of the year as a reflection of sharply higher interest rates.

Alongside the buyers betting that prices will slide, Mr. Lusink says, stands another cohort ready to buy – but the task has become much harder with the rise in rates. One buyer Mr. Lusink spoke with recently had obtained a fixed-rate mortgage at 4.3 per cent, which is almost double the rates buyers were able to lock in just a couple of years ago.

The mortgage “stress test” requires borrowers to show they can handle mortgage rates approaching seven per cent and above, he points out.

A recent survey commissioned by Right at Home also shows a shift in attitudes: Only 19 per cent of potential first-time homebuyers in Ontario plan to buy in the next two to three years, compared with 30 per cent who planned to buy in 2021, according to the study.

The percentage of homeowners planning to sell who are doing so to take advantage of current market conditions increased to 23 per cent this year from 11 per cent last year, the data shows.

The Maru Public Opinion Survey polled 813 Ontario adults in May and has an estimated margin of error of plus or minus three per cent 19 times out of 20.

In Burlington, Ont., real estate agent Tanya Rocca is already seeing homeowners preparing properties for sale before the fall market arrives.

“It’s very busy right now,” says the agent with Royal LePage Burloak Real Estate Services. “People are panicked.”

Ms. Rocca says prices in the area which have dropped between 12 and 15 per cent from the February peak.

The average price of a freehold property dropped to $1.431-million in May in Burlington, she says, compared with the $1.51-million buyers were paying in April and the $1.6-million in February and March.

Homes on Bessborough Drive in Toronto’s Leaside neighbourhood on May 11.Fred Lum/the Globe and Mail

The affluent city, which sits on Lake Ontario west of Toronto, was one of the many communities that saw a large influx of buyers during the pandemic as people sought more space. Burlington’s historic downtown core and large selection of detached houses with pool-sized lots have made it very popular with families.

Ms. Rocca says many buyers didn’t even have a chance at a house in the midst of ferocious bidding wars; now people have their choice of properties.

Some current sellers have been caught in the market transition, Ms. Rocca adds, because they bought a new property before selling an existing one.

“Buyers, in fairness, are getting the power back – which they love,” she says. “There are great opportunities out there because people need to sell.”

Ms. Rocca was shocked at some homeowners earlier this spring who were disappointed on offer night when they received bids that came in $300,000 or $400,000 above the asking price.

“People were debating whether they should take it.”

She recalls one pair of homeowners with a home backing onto a golf course who listed their property with an asking price of $2.5-million. The sellers were disappointed they didn’t receive a hefty amount above asking.

“They got their asking price literally the week things started to shift,” Ms. Rocca says. “They were so close to not taking it.”

As the summer begins, it’s not uncommon to see listings sitting with 30 to 50 days on market, she adds.

In the current environment, Ms. Rocca recommends setting a price near the realistic market value. She often “sharpens” it a little bit to make it more attractive compared with other competing properties in the area.

To help homeowners come to terms with the new reality, she stresses that first-quarter prices were the result of an overheated market – not an accurate reflection of value.

“This is not money they’ve lost – they never had it.”

Ms. Rocca says some people who purchased properties in Burlington at the beginning of the pandemic are now being called back to offices in Toronto. With more cars on the road and the price of gas skyrocketing, many are reluctant to commute.

“People were making such rash decisions during COVID,” she says, adding that some of those folks are now selling and moving back to the GTA.

With such an extended run-up in real estate prices while rates were low for years, the market in Ontario saw a few blips but no real correction, she points out. A move to restore balance is healthy, in her opinion.

“I think we’re going through a cycle right now which is very much needed.”

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OSFI makes real estate loan changes aimed at reducing lender risk – Investment Executive

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IIROC’s Kriegler to lead new SRO

Regulators are also forming a new advisory committee to review SRO consolidation

  • By: IE Staff
  • June 27, 2022
    June 28, 2022
  • 17:46

Ottawa lost average of $22 billion a year in unpaid tax from 2014-2018: CRA

The agency released its first report on Canada’s overall tax gap

Executive moves this week

Industry veterans are taking on new roles, including Andrew Kriegler with the forthcoming new SRO and Morningstar’s Michael Jantzi

CSA lays out priorities under incoming chair

Three-year plan focuses on CFR enforcement, dispute resolution and crypto

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Is Summer the Right Time to Sell Luxury Real Estate in the GTA? – Storeys

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Some of the Greater Toronto Area’s (GTA) most exclusive luxury neighbourhoods shine brightest in the summertime, in all of their tree-lined, manicured lawn, and swimming pool-filled glory. 

From Forest Hill and Rosedale, to The Kingsway, the warmer weather makes these breezy neighbourhoods even more picture-perfect, adding to the curb appeal of their sprawling homes. 

But is the summertime the right time to list your home on the luxury market in the GTA? It can be — but there are a few important considerations to take into account.

“Summer is always a slower time for luxury real estate in the city,” says Andy Taylor, Senior Vice President of Sales at Sotheby’s International Realty Canada. “For many, this is the season to get away to the cottage. Especially after the pandemic, more and more people have cottages that they’re escaping to on the weekends, instead of staying in the city to list their home.”

READ: Canada’s Luxury Real Estate Market Had a Record-Setting 2021

A lot of the higher-end luxury inventory has been kept off the market during the summer months, says Taylor. “Instead of posting it to the Multiple Listing Service (MLS), agents are selling luxury homes as exclusives,” he says. “Although there are transactions happening in the luxury market, they’re not being captured by MLS. This summer in particular, we will continue to see transactions, but the volume of transactions will slow down.”

Sotheby’s currently has a handful of multi-million-dollar properties — including The Residences at the Ritz Carlton125 Cumberland, and a $10.75 million property in Rosedale — that are all exclusive listings. 

mega-units
Sotheby’s International Realty Canada

When it comes to buyer trends, Taylor says that those in the market for a luxury listing are seeking specialty properties that are finished and require little planning or work. “Homebuyers don’t want to work on renovations, especially in the summer, as they’re looking to travel or go to the cottage,” says Taylor. “Recently, there have been a lot of delays when working with contractors, so buyers aren’t able to get their finishings done as quickly as anticipated. Properties that require a lot of work are sitting, whereas homes that show exceptionally well are getting offers and are selling a decent price point.”

In addition to completed properties, the GTA’s luxury home seekers have their eyes out for amenities. “For the luxury homebuyer, they want a unique property that has already been completed and comes with high-level amenities,” says Jodi Allen, Senior Vice President of Sales at Sotheby’s International Realty Canada. “For instance, high-quality finishes, nice layouts, room for an office, a gym, and high ceilings are all on the luxury buyer’s wish list. Right now, a lot of buyers have also been asking about pools. Travel has been hectic lately and buyers are looking to stay in Toronto or travel to the cottage, so having a pool is key for the summertime staycation.”

Taylor and Allen highlight how the spring weather brought a shift in the Canadian real estate market. After a red-hot and often record-breaking run, GTA home prices finally started to soften as of late and the market has dialled back the drama.

“The media has been focusing on the slowdown of the market, which has impacted buyers as they’re taking their time to make decisions and there’s much less urgency than what was seen from March to May,” says Taylor. “Properties aren’t being offered with an offer date, instead they’re being marketed with what the agents are feeling is the true value of the property. For sellers, their expectations of price haven’t changed, whereas buyers are expecting a price decrease.”

Sellers are starting to realize that properties have to be priced properly in order to sell, according to Taylor. “If sellers are planning to test the market with a high price point, they shouldn’t bother listing,” says Taylor. “For buyers, under-pricing and holding back on an offer is also not working well, so the majority of agents are no longer taking this approach. Currently, pricing properties accurately is very important to both parties.”

Allen agrees that the biggest mistake sellers are making right now is in the price department. “Right now, you can’t play aggressive and throw a high price on a property just to test the market,” she says, driving the point home. “Instead, sellers need to price their property where it shows value.”

Forest Hill
Sotheby’s International Realty Canada

For those looking for a luxury Toronto property, the pickings are slim in some of the most coveted neighbourhoods.
“We’re actually seeing a lack of inventory in neighbourhoods like Rosedale, The Annex, and Yorkville, but in Lawrence Park there’s been an increase,” says Allen. “The downtown area — which mostly consists of luxury condos — had also been quiet recently, but is now just starting to pick up again. As the shock and awe of interest rate hikes begin to cool down, we should see the showings come back to reflect a traditional summer market in these key neighbourhoods.”

For those considering selling their luxury property in the summer months, Allen says that the most important thing to remember is that you don’t want the listing to go stale.

“In the summer, sometimes it’s best to keep a listing exclusive which puts pressure on the agents to work harder, make calls, and build the awareness of property,” says Allen. “We’re still not sure what the fall market will look like, so some would say that it’s best to list a home during the summer, even though it’s slower. For most of our GTA listings, we’re keeping them exclusive before putting them on MLS in September.”

Allen also advises sellers to ensure that the listing looks like a model showroom and reflects the amenities that are important in the summertime. “For example, sellers should make sure that the outside of their home is staged, the gardens have been taken care of, the barbeque has been cleaned, and the deck furniture is set up,” she says. “People tend to visit the outside of a home first before going outside, so it’s important that the exterior is a good representation of the property.”

Finally, Allen says that it’s important that the pictures of the listing reflect the season. “At Sotheby’s International Realty Canada, we make sure that all photos and videos of our listings are up-to-date, which gives the buyer a real insight into what the property currently looks like,” says Allen. 

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