Asian investors keep GTA flush with rental units

Posted on 09-10-2010 11:30
Summary: 80 per cent of new condo buyers are Asian; of these, 80 per cent are Chinese, says developer

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Just who is buying all those new condos now on sale in the GTA is hard to track down. Until the move-in day or deadline to decide specific finishes comes, builders have little idea whether a purchaser is an investor or will occupy the suite. As a result, knowing what is going on comes down to anecdotes and educated guesses.

Right now those anecdotes and that guesswork say Chinese – indeed mainland Chinese – buyers are having a major impact on condo sales.

“First understand that the GTA still attracts about 100,000 new Canadians a year,” says Scott McLellan, senior vice-president sales and marketing at Plazacorp. Right now about 80 per cent of them are from Asia and about 80 per cent of that 80 per cent are from mainland China.

“In past we have gone through periods when the majority were from South Asian – from India and Pakistan. Now it has shifted to China with the result being Chinese are having a very large impact on new condo sales both as end users and as buyers.”

Jim Ritchie, senior vice-president sales and marketing at the Tridel Group agrees. “Chinese play an important role in projects in certain areas of city where there is a significant Chinese community but it is not something we can easily measure.

“What I can say is that if we have a project in an area where there is a Chinese community, we

advertise in both Cantonese and Mandarin and they do indeed become buyers both as investors and for their own use.”

What both men agree on is that new Canadians make up the lion’s share of investors.

“First they are used to and understand condo living,” says Mr. Ritchie. “And they seem to have greater confidence in the future than native-born Canadians have.”

Mr. McLellan says Mainland Chinese often purchase a condo with an eye toward five or seven years into the future. Often they buy a suite for a child going to school here to live in but plan to emigrate to Canada themselves at some point. “What they buy depends on how they see using it in future,” he says.

“If it is just for a child attending school then it will be a one-bedroom and den, but if their plan is to come here in five to seven years, they will buy a two-bedroom or two-bedroom and den.”

Others buy now, knowing it may take three years to reach the live-in stage, at which point they will rent the suite until they are ready to come here themselves, Mr. McLellan says.

“Then Chinese are very savvy investors,” he says. “It is all about need and price. Optimally they want a suite where rents will carry their costs until they need the suite themselves. What they look at is long-term equity appreciation and they can see that even at today’s prices.”

Currently there is a special interest among Chinese for projects in new areas such as the Queen West neighbourhood. Plazacorp has a project ready to go at Queen West and Lisgar near the Drake Hotel and already Mainland Chinese buyers are queuing up, Mr. McLellan says.

“What they see is low prices because it is a pioneering project. But at the same time they know that by the time move-in day arrives or by the time they will be ready to use it themselves the surrounding neighbourhood will be fully developed and be a great place to live.”

To protect buyers who plan to be end users and do not want a lot of renters in their building, major companies like Tridel refuses to sell more than three units to any buyer, says Mr. Ritchie.

“Having lots of investors buying is not a problem in many projects,” he says. “If you have a mid-market project in an area where you know the suites will be taken up by

locals looking for downsize, like our Republic condo at Yonge and Eglinton, then there will be very few, if any, investors.

“If, however. You are creating lots of one- and two-bedroom suites right downtown or in a high density area near a subway stop, then investors can take up a third or more of the total suites.”

It is worth noting that without investors, the GTA’s rental stock would be very slim indeed. Since the mid-1980s, when rent controls persuaded builders not to create any more rental projects, investor-held new condos have made up about 98 per cent of all new apartments, suggests Canada Mortgage and Housing Corp.

Without a healthy investor demand, apartment vacancy rates would be paper thin.

Terrence Belford

 

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