With the U.S. experiencing a major economic downfall and the stability in Europe not looking any better, many investors are pulling their money out of stocks and bonds, and investing it into the Canadian real estate market. While the media; such as the Toronto Star, Toronto Sun and The National Post have been forecasting the Canadian real estate market crash since 2005, recent condo sales data indicate otherwise. The latest report, published by the Toronto Real Estate Board, indicated that the average selling price of a GTA (Greater Toronto Area – which includes cities such a Mississauga and North York) condominium apartment in the first quarter of 2012 was $334,495. This was a healthy 3.7% increase from the first quarter of 2011.
It should be acknowledged that certain areas of the GTA appreciated at a different rate than other areas during this time. The two areas I want to focus this blog post on are: The Toronto condo market versus the Mississauga condo market. I will compare the difference in appreciation rate, rental market income and the potential for growth.
A key factor in determining whether Mississauga condos are the better form of investment or Toronto condos is to examine their recent appreciation rate.
Toronto Condos: As indicated by figure 1, in the first quarter of 2012 the city of Toronto produced an astonishing 3,546 condo sales at an average price of $360,892. Comparing these numbers to the previous year indicates that Toronto condos have risen about 3.5% while the number of condos sales has pretty much remained constant since the first quarter of 2011.
Mississauga Condos: In the first quarter of 2011, the condos in the Region of Peel (which are mainly driven by Mississauga condominiums) have sold on average at $231,010 with 734 transactions on record. A year later the average price of a Peel Region condo has risen by about 6.8% and the number of transactions has increased by 4.6%.
To put these statistics into perspective, a condo bought at the average price in Toronto back in 2011 would have cost $348,779, and a year later it would have appreciated roughly by $12,207 or 3.5%. An average Mississauga condo would have sold for $231,010 in 2011, and a year later it would have been appreciated roughly by $15,708 or 6.8%.
Not only do Mississauga condos continue to outperform Toronto condos in terms of year over year appreciation value, but they also require lower down payments, as they are cheaper in the initial purchase price.
Most investors, who buy resale condos, purchase these units anticipating to lease them out. Establishing a positive cash flow is the primary goal of most investors. A condo becomes a positive cash flow property when the monthly rental money coming in, is more than the monthly expenses related to that property. Despite the fact, that finding a positive cash flow condo unit can be extremely difficult, investors always strive to come as close as possible to the breakeven point.
Toronto Condos: According to the CHMC 2011 Fall Rental Markey Survey, Toronto condominium apartments have a vacancy rate of 1.3%, which is actually really good. Based on my market observations, a typical newer 1 bedroom condo in downtown Toronto currently rents for about $1,400-$1,500 per month. With a 20% down payment on a rental property, a Toronto condo investor can expect to pay roughly $200-300 per month out of their own pocket in order to reach a break-even point.
Mississauga Condos: According to the CHMC 2011 Fall Rental Markey Survey, Peel condominium apartments have a vacancy rate of 0.3% (1% less than Toronto). After reviewing many condos for rent in Mississauga, I have found that a typical 1 bedroom Square One condo rents for $1,300-$1,400 per month. If an investor where to buy a resale Square One condo for rent with 20% down payment, they can expect to pay roughly $100-200 out of their own pocket in order to cover all expenses related to that condo.
Based on the above, it is a no-brainer that Mississauga condos are more attractive than Toronto condos from an investment point-of-view. Rental condos in Peel have a very low vacancy rate and require a smaller monetary contribution from the owner in order to break even on a monthly basis.
Potential For Growth
When looking at the potential for real estate growth, it’s most important to consider the availability of free land, the likelihood of future demand as well as the room for prices to grow.
Toronto Condos: With over 1900 existing condos, and one new pre-construction condo being launched pretty much every weekend, serious questions are being raised with regard to available parcels of land to build more condos on. Scarce land is not the only problem for Toronto. Critics point out that there could be an oversupply of condos in Toronto, and that $700 a square foot for a pre-construction condo would lead investors seeking alternative condo markets.
Mississauga condos: The infrastructure in downtown Mississauga is much different than the one found in downtown Toronto. Although there are many condos around Square One (roughly 50), there are still numerous parcels of land that are still undeveloped. With prices of resale and pre-construction condos hovering around $450-500 a square foot, many investors understand that the Mississauga condo market is still affordable and has plenty of room to grow.
By comparing the appreciation rates, current rental market rates and the potential for future growth, Mississauga condos do appear to be the “better investment” over the ever so popular Toronto condo market. Many international investors are still unaware of the possibilities offered by the Mississauga condo real estate market, therefore Square One condos can still be understood as an investor’s hidden gem.
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