Luxury homes are having difficulties getting sold, and rents are decreasing, while vacancy rates are rising in the two biggest housing markets in Canada.
Impact On Vancouver and Toronto Real Estate Market
According to several experts, a decrease in travel and immigration will have a massive impact on the Vancouver and Toronto Real Estate markets.
One good example is an unnamed Toronto-based Realtor, that has not facilitated a sale or purchase of any houses since the COVID-19 pandemic began. Most of her clients are Chinese nationals who have children that are international students in high schools and universities in Ontario. Some of her clients have kids that will start school this fall.
If this were a normal spring market, she might have already sold eight houses last month alone. Most of her sales are made to Chinese parents who purchase condo units for their kids. However, nowadays, the Realtor is spending her time on the phone and talking to landlords. She's negotiating on behalf of her clients, especially students who went back to China and didn't know when they'd be able to come back. These clients left their leased units empty.
She says, “One of my clients went back to China for Chinese New Year and didn’t come back because there were no flights. He’s been paying rent for so many months, so the mother asked me if I could help negotiate with the landlord...This landlord was nice, he gave a 30 per cent discount. That’s the best I could do.”
Massive Effect To The Market
In Canada, there are roughly 640,000 international students. More than 50% of them are Indian and Chinese nationals who make up most of Canada's largest cities' rental markets.
During summer, thousands of non-permanent residents, landed immigrants, and new international students are typically looking for a house to either buy or rent.
However, with international travel frozen, plenty of housing experts and Realtors say that the decrease in the number of travellers and immigration is starting to have an impact on both Vancouver and Toronto Real Estate markets. In particular, the increase of vacancy rates in downtown rental markets, which, in turn, pushes the prices down. On the other hand, luxury homes that attract affluent foreign investors are having difficulties selling. Some of their prices have dropped, while others were sold under court-orders.
According to a senior economist at BMO Capital Markets, Robert Kavcic, “Net migration numbers have fallen off pretty sharply, and the vast majority of non-permanent resident newcomers fall into the rental market. We’re likely to see vacancy rates go back up, but more likely rents are going to flatten out even more.”
In April 2020, there was an 80% decline in the number of permanent residents that were admitted to the country. According to Immigration, Refugees and Citizenship Canada, in April 2019, there were 26,900 residents admitted while only 4,140 were processed in April 2020.
According to PadMapper, an apartment hunting site, in Toronto, there's been a 2.2% decline in the condo rentals from April to May 2020. The Rentals.ca May 2020 data shows there's been a 5.6% decline in one-bedroom rentals and a 15.8% decline in two-bedroom apartment rentals.
The housing markets not only in Canada but also all over the world have been facing problems since mid-March. However, not all Real Estate markets are dancing to the same tune during the coronavirus pandemic.
Too Early To Predict
Kavcic thinks that the decline might have been partly due to immigration. However, it's still too early to assess.
A realtor from Toronto says that she's facing issues trying to sell downtown condo units. The Realtor, who primarily caters to wealthy permanent residents or foreigners, added that her clients usually buy these properties in bulk.
She says, “I sell 8 to 10 units, either pre-construction or newly built, to one buyer. Some are from India, and some are from the United Kingdom, some are from Trinidad. I advise my clients not to put all their eggs in one basket.”
She said that she's trying to cater to sales on the phone, but she's having difficulties during the pandemic. She added, “They need to get on a plane and come and see a unit or see the area. So I’m just doing a lot of rentals right now, I usually manage these investors’ properties, and find them renters.”
According to a Vancouver realtor, "In West Vancouver, we’re seeing the biggest price drop in years."
Since early 2017, the prices of houses in Vancouver and Toronto skyrocketed. During this time, people believed that foreigners drove the prices up. This has caused the governments to place a 15% foreign buyers' tax on purchases.
However, Statistics Canada reports that economic or socio-demographic factors are not connected to changes in property prices.
One good example is how immigrants owned less single-detached homes than homeowners born in Canada. However, in Vancouver's more upscale communities, immigrants have more substantial houses. In Toronto, only 4.71% of detached homes were owned by immigrants, while the numbers are 4.95% in Vancouver. Meanwhile, more condo units are owned by immigrants than Canadian born-homeowners in both areas.
According to a real estate agent in Toronto who mostly caters to wealthy Iranians, “This idea that foreigners are the reason for our housing prices going up, is going to be tested out right now. There are no flights, and so the rich investors that went away for the winter, they’ve not come back. Yet, I see the market for single-detached houses is roaring right now.”
One Realtor is noticing a different trend in West Vancouver. He thinks that the cause of the price reductions is that affluent foreign investors are unable to go house shopping right now.
“Local buying and selling has picked back up and is strong. But in West Vancouver, we’re seeing the biggest price drop in years. It’s not unusual to see court sales for some of the bigger homes — it used to be maybe one in 200 homes in West Vancouver were sold through the court system, but now that’s about one in 80.”
In West Vancouver, between April to May 2020, the average home price decreased from $2.8 million to $1.7 million. However, it has recently gone back up. According to MLS data, six-bedroom homes are now listed at $2.2 million, but they were in the $4 million range 6 months ago.
The Response Of The Canadian Government
There's minimal Canadian data regarding foreign clients purchasing habits nowadays. However, according to Juwai.com, there's a 26.5% decrease in inquiries made by Chinese nationals on Canadian properties. In Toronto, Chinese clients made 34% fewer inquiries than the first quarter of 2019.
Some believe that whether or not the immigration's impact on the Canadian real estate will last is still dependent on what actions the Canadian government will take to combat the pandemic.
Realtor Christine Zhu works on a WeChat account that has appx 500 Chinese nationals who have children studying in Canada. The main worry of these parents is how the Canadian government is responding to the COVID-19 pandemic.
Zhu explained, “The mothers are scared. For many of them, this is their only child studying abroad… In China, they feel COVID-19 is being handled well, and Canada is next to the United States, which, for some of them, causes worry.”
Canada has almost twice the number of people who have died of COVID-19 than China. Even though in and out of Beijing, there have been new cases, the Chinese government seems to have everything under control with the mass-scale rapid tests and contact tracing.
Some Chinese clients have put their purchases of condos in Vancouver on hold. They're concerned with living in a building that has a ventilation system that has a COVID-19 risk.
“They are just going to wait it out for now, at least until flights from China resume.”
Kavcic from BMO believes that the two most expensive cities in Canada, Toronto and Vancouver, will be less affected by international students and foreign buyers, especially if these clients make their purchases at a time when there's tension between demand and supply.
He explained, “This is a very unique shock. It has pulled people out of the market. Listings have come down as quickly as sales have. So the question is, how much pent-up demand versus pent-up listings will there be when things go back to normal?”
The Amount Of Impact
Whether or not the impact immigration has on Canada's Real Estate market is big enough to sway the market remains to be seen. Things may eventually change when the problems with COVID-19 go away.
When immigrants and students can come in and out of the country, rents and sales may or may not go back up. However, what real estate agents and realtors can do right now is to make sure that they're ready for whatever happens either way.