Toronto is Canada’s largest city, known as an international destination boasting a multicultural reputation. People from far and wide flock to Ontario’s capital — it’s a great and smart place to raise kids thanks to a network of leading educational institutions.
The cultural and creative character of the city is often on the world stage as well, along with its increasing notoriety as a fast-paced, urbanizing employment hub.
With all of these accolades and more, it’s no wonder why Toronto remains a widely inaccessible housing market for most newcomers. Toronto is an endpoint for many Canadians outside of the city’s core, just as it is overseas for those looking to start fresh somewhere new.
It’s thought of as an ideal place for relocation, for landing better employment, for starting a family, and yes, for securing that dreamy single-family home.
The sheer competition here for entrance into both the employment and housing sectors makes Toronto an interesting and challenging property market to access.
Affordable housing? Not here
Despite and likely because of the city’s popularity, Toronto is in the midst of a housing crisis. There’s a lack of affordable housing coupled with inadequate political treatment, making the cost to rent in this great city staggering.
Toronto typically ranks as an expensive place to rent, worldwide.
As of writing, Canada Mortgage and Housing Corporation gave the city a 1.1% vacancy rate, or, the lowest in the country.
Padmapper, a Canadian rental portal and database, collected average rents across the city. One-bedroom units now cost upwards of $2,260 per month to rent, and the numbers do not seem to be lowering any time soon.
Why is everyone renting?
The reason why vacancy rates are so low is simple: People can’t afford homes here.
Everyone migrating to this bustling epicentre has to prioritize housing, and if that housing is largely unaffordable where it’s needed most, the rental market is going to get crunched. And so, it has!
The mortgage is the tricky part
At first glance, you may see a $1 million or $2 million price tag and think that it’s comparable to other cities experiencing high housing demand. Look at New York City, where average prices in Manhattan for (condo or co-op) units hover around US$1 million, according to Bloomberg.
This price tag isn’t necessarily what’s holding buyers back in Toronto, though it does establish how long you might have to wait things out in the rental market before entering the buyer’s block.
Another major challenge facing homebuyers in the city today is an important change to the mortgage approval processes, implemented by the federal Canadian government at the beginning of 2018.
New mortgage rules, intended to slow down Canadian debt and stabilize the roaring housing markets in particular cities, limited how much prospective buyers could borrow towards the purchase of a home by tacking on a “stress test”.
Until further notice, Canadian buyers today have to prove that they can afford a mortgage if their interest rate were to be 2% higher, or, at the interest rate decided by the Bank of Canada’s benchmark rate (whichever one is more).
Unfortunately, many would-be-homebuyers cannot saddle up to this financial challenge, meaning the government, in some way, is calling many bluffs. The Toronto market in particular, however, has been forced to cool thanks to diminishing sales as buyers attempt to save greater funds or borrow from private lenders, in order to pass the test.
Unless you can handle that higher interest rate on the loan, you’re effectively disqualified from the market and your dreams are put on hold. By the numbers, 2% extra on a million-dollar home translates to an additional $20k.
Beyond simply qualifying for a mortgage (and “simply” can be read with ire), there are additional expenses to tack on to that purchase price. If you’ve never purchased a property before, you might be in for some expensive surprises.
There will be GST or HST taxes applied to the large transaction, usually included in the purchase price. You’ll have to compensate your real estate lawyer for their services and for closing the sale of your new abode.
If you purchased a fixer-upper, you’ll have to invest in bringing the property up to your standards or up to the standards for the resale market.
And you’ll have your miscellaneous fees, like internet/cable/telephone hookups, home inspections, insurance premiums, security installations and anything else you can think of purchasing to get comfortable in your new space and make it safe.
What is the true value?
Even though your property should, given the right market conditions, appreciate in value steadily as you retain ownership, there are additional, annual and ongoing costs associated with homeownership.
Waiting for your property to appreciate by a couple thousand dollars will still put you at a loss come resale. It’s important to make the right renovations that help you both compete and stand out from the other properties on your block. You also combine those smart renovation choices with the patience needed to see a real jump in property (or neighbourhood) value.
Come resale time, you’ll want to cover closing costs, insurance costs and renovations in your profit margin. In essence, your profits won’t really start until those costs are cleared.
Ideally, how much should you want to profit? Or would you rather break even and move onto another property purchase?
Calculating how much you’ve spent on renovations, insurance, landscaping, additions, removals, upgrades and anything else you can think up will give you a clear understanding of your losses and gains at resale.
Holding out to sell once your expenses have cleared along with some appreciation is one way to look at selling your home, while another would be to wait for your neighbourhood to get popular.
Once those new restaurants, cafes and bike shops start zeroing in on the commercial property in your area, you should start putting your glasses on and paying attention to what changes are taking place.
Being ahead of the curb in this regard will set you up for your ideal property purchase in the right neighbourhood. Is there somewhere untapped and affordable that still has access to transit and nearby amenities?
Save even more on your expenses
To get into your profit margins faster, you’re going to want to save on expenses.
Going the cheap route on a contractor is not advised. Poor work and poor craftsmanship will cost you double to replace if it isn’t done right.
You can, however, save on labour by getting friends involved with the easy stuff, like tiling and simple demolition.
Other important areas to save can be found by shopping around for the best mortgage rates and by comparing home insurance rates, reducing energy consumption and qualifying for tax credits and rebates.
Tax credits in Ontario
The following tax credits and rebates can save you thousands if you qualify during the tax year of your property purchase. Go over your options with your real estate or tax professional throughout the purchasing process.
- GST/HST New Housing Rebate
- Land transfer tax refund
- City and provincial land transfer tax rebate
- First Time Home Buyer Tax Credit
Many of these tax credits vary by region. If you live outside of Toronto or Ontario, check with your municipality to see which comparable tax incentives are available to residents near you.