It’s spring — how’s the luxury real estate market in Canada’s largest cities?
While sales in the Greater Toronto Area (GTA) and Greater Vancouver are significantly down in the first four months of the year, luxury home prices have remained relatively resilient, according to Royal LePage.
New figures were released on May 10.
Overall, sales activity declined in the GTA and Greater Vancouver luxury real estate market as both sellers and buyers adjusted to federal and provincial measures affecting both domestic and foreign buyers.
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The introduction of the new mortgage stress test implemented by the Office of the Superintendent of Financial Institutions (OSFI) at the beginning of 2018 “created market turmoil as buyers moved to the sidelines in order to gauge the impact on luxury home prices, similar to what was witnessed in the overall residential resale market,” the release finds.
B.C.’s 2018 provincial budget included policies targeting foreign and domestic buyers who don’t pay tax in the province, plus as a tax increase for all homes over $3 million through increases to the property transfer and school tax.
Similarly, the non-resident property tax included in Ontario’s 16-Point Fair Housing Plan dampened price expectations for the GTA region.
“Home prices in Canada’s luxury real estate market have remained remarkably resilient when you consider the economic headwinds that serial government interventions have created,” said Royal LePage president and CEO Phil Soper. “The resilience of home values reflects the strong aspirations of luxury buyers to reside and work in cities that are consistently ranked among the most desirable on the planet.”
During the first four months of 2018, price appreciation of a luxury condominium in Greater Vancouver and the GTA outpaced that of a luxury detached home, with median condominium prices rising by 7 per cent and 10.4 per cent year-over-year, respectively.
For the same period, the median price of a luxury condominium in the Greater Montreal Area and Ottawa rose by 3.9 per cent and 4 per cent, respectively, while Calgary posted the only decline, decreasing 6.1 per cent.
The Greater Montreal Area posted the largest year-over-year price gain in the detached luxury home segment, increasing 9.1 per cent to $1,569,515 in the first four months of the year. During the same period, detached luxury homes in Ottawa (6.3 per cent) and Greater Vancouver (5.2 per cent) also saw prices rise, while home values in Calgary (0.6 per cent and the Greater Toronto Area (-0.2 per cent) remained flat.
“Somewhat unusual in historical terms, and reflecting an important demographic shift happening across North America, appreciation in the luxury condominium market is outpacing the traditional target for large value residential property investment, the detached house,” said Soper.
“Baby Boomers are finally exiting their large family homes, and luxury condos, with their low maintenance lifestyles,” are the favoured destination.
“Contrary to popular belief, wealthy homebuyers are price sensitive too. They didn’t reach the point in their lives where they have the capacity to acquire high-value real estate without being financially astute,” said Soper.
“Luxury condominiums represent value in today’s market.”
Here’s the spring 2019 forecast:
The momentum behind luxury condominium price growth is forecast to continue through the year and into the 2019 spring market in all cities surveyed, with the exception of Calgary. When broken out by region, the median price of a luxury condominium in the GTA is forecast to post the largest price gain, rising 8.0 per cent to $1,847,194 in the first four months of 2019 when compared to the same period in 2018.
Over the same timeframe, luxury condominiums in both Ottawa and the Greater Montreal Area are forecast to increase 3.0 per cent.
Calgary is the only city surveyed that’s expected to see the median price of a luxury condominium dip in spring 2019 when compared to 2018, decreasing 4.0 per cent year-over-year.
Detached luxury home prices in Greater Vancouver are forecast to decline in the first four months of 2019, decreasing 3.0 per cent year-over-year to $5,619,153, while properties in this segment in the GTA are estimated to remain flat (0.0%) over the same period.
The Greater Montreal Area and Ottawa are both forecast to increase 5.0 per cent year-over-year, and detached luxury homes in Calgary are expected to rise 2.0 per cent during the same period.
Greater Toronto Area (GTA)
GTA luxury home price appreciation falls flat after the introduction of Ontario’s 16-Point Fair Housing Plan and OSFI’s most recent mortgage stress test, while luxury condos make largest price gain of any region studied
The median price of a luxury detached home in the Greater Toronto Area remained relatively unchanged (-0.2%) at $3,522,117 in the first four months of 2018, while the median price of a luxury condominium increased 10.4 per cent year-over-year to $1,710,365 during the same period.
On April 20, 2017, the Ontario government introduced a 15 per cent non-resident tax on home prices in the Golden Horseshoe as part of the province’s 16-Point Fair Housing Plan. Leading up to the announcement, the median price of a luxury detached home in the first four months of 2017 was $3,527,882, a 23 per cent increase over the same period in 2016, while luxury condos appreciated 8 per cent to $1,549,864.
“When examining the second half of 2017, it is clear that the province’s measures have impacted price appreciation in the Greater Toronto Area’s luxury home market,” said Soper. “The new OSFI mortgage stress test introduced in January, in addition to dampening sales, has also put further downward pressure on detached luxury home prices.”
During the first quarter of 2018, luxury detached home sales decreased 67.9 per cent1 year-over-year.
However the decline was significantly more modest when compared to the same period in 2016 (-18.1 per cent).
In the first quarter of 2018, luxury condominium sales decreased 28.2 per cent year-over-year compared to the same period in 2017, while almost twice as high (90.6 per cent) compared to the same period in 2016.
The region’s high quality of life for families, a result of good schools and excellent healthcare, is expected to continue to drive foreign buyer interest in the detached luxury home segment once the real estate market adjusts to government measures, and consumer confidence improves.
“Foreign buyers looking at luxury properties in the Greater Toronto Area can often prioritize lifestyle over finances but they also have the privilege of flexibility, allowing them time to watch the market,” said sales representative Elli Davis.
“The draw for many foreign buyers is our excellent quality of life. While some may choose to sit on the sidelines to gauge the market, the desire to relocate here is still strong.”
While luxury home price appreciation stalled, demand for luxury condominiums remained strong largely driven by established homeowners.
“The selection of luxury condominiums has greatly increased over the years and we are seeing more retirees selling their luxury homes to buy condos with great amenities and little upkeep. Condominiums are also easy properties to manage when you want to spend more time travelling,” added Davis.
When looking ahead to the 2019 spring market, the median price of a luxury condominium in the Greater Toronto Areais forecast to increase 8.0 per cent year-over-year to $1,874,194, while the median price of a luxury detached home is forecast to remain flat (0.0 per cent) at $3,523,378 when examining the first four months of the year.
“Our longer term forecast for the Greater Toronto Area real estate market, including the luxury market, is for healthy price appreciation,” said Davis.
“The region has experienced significant inventory shortages for many years, has a robust economy and an international reputation as a great place to live and work.”
Greater Montreal Area
Good value drives demand for luxury detached homes in the Greater Montreal Area while high inventory in luxury condos limits price appreciation to 3.9 per cent
The median price of a luxury detached home in the Greater Montreal Area saw a significant increase of 9.1 per cent year-over-year to $1,569,515 in the first four months of 2018 when compared to the same period in 2017, while the median price of a luxury condominium increased 3.9 per cent year-over-year to $1,247,833.
“Compared to other world-class cities, Montreal offers the best real estate value on the planet,” said Soper. “A buyer’s purchasing power is significantly higher in the Greater Montreal Area when compared to other Canadian and international cities.”
When comparing luxury sales2 from January to April of 2018 against the same period in 2017, luxury detached homes saw a moderate increase, growing 3.2 per cent in the Greater Montreal Area. Similarly, luxury condominium sales increased 2.2 per cent during the same period.
“Demand for real estate in Montreal and surrounding suburban areas is at a record high but we have seen sales activity in the luxury home market start to slow over the first four months of 2018,” said Westmount broker Marie-Yvonne Paint. “Many empty-nesters looking to downsize have adopted a wait-and-see approach before putting their luxury property on the market.”
Despite an ongoing, yet marginal, increase in foreign buyer activity in Montreal, Paint said that the luxury real estate market is still largely driven by local buyers.
She noted that with limited downtown luxury detached home inventory, Montreal’s West Island is seeing increased interest from Asian buyers looking at waterfront luxury properties.
The area provides them with additional value for their dollar, whether it be greater living space and land, a view of the water, neighbourhood quietness or relative proximity to the city’s core.
Looking ahead to the first four months of 2019, the median price of a luxury detached home and condominium in the Greater Montreal Area are forecast to increase 5.0 per cent and 3.0 per cent year-over-year to $1,647,991 and $1,285,268, respectively.
British Columbia’s 2018 budget dampens demand for luxury real estate in Greater Vancouver, ushering in a buyer’s market
Despite a sharp decline in sales activity, some price gains made during last year’s luxury spring market carried through to the start of 2018.
For the first four months of the year, the median price of a luxury detached home in Greater Vancouver rose 5.2 per cent year-over-year to $5,792,941, while the median price of a luxury condominium rose 7.0 per cent year-over-year to $2,503,873 during the same period.
“The price appreciation that we are witnessing in Greater Vancouver’s luxury market this spring is largely a result of momentum being carried over from 2017,” said Soper.
“In light of recently announced provincial tax policies to both foreign and domestic buyers purchasing homes in the Vancouver region, price appreciation in the luxury market is expected to decline in 2018 while sales volumes are expected to continue to be lower than recent norms.”
Looking ahead to the 2019 spring market, the median price of a luxury detached home in Greater Vancouver is forecast to decrease 3 per cent to $5,619,153, when compared to the first four months of 2018.
In contrast, luxury condominiums are forecast to increase 2.0 per cent to $2,553,950 during the same period.
“Right now we are witnessing several factors insulate condominiums from the price declines we are seeing in the detached home market,” said sales representative Brock Smeaton. “Younger luxury buyers prefer condos for their affordability and little upkeep, while baby boomers increasingly prefer them as a downsizing option. Of course, this demand also catches the eye of investors who see rental opportunities.”
During the first quarter of 2018, sales of detached luxury homes decreased 38.2 per cent compared to the same period in 2017, while luxury condominiums decreased 26.5 per cent3.
“While Greater Vancouver’s luxury detached home market is showing year-over-year price appreciation, it is on a downward trend as the region continues to recover from policy announcements both within and outside Canada,” said Smeaton.
“The region has seen less interest from foreign buyers since China tightened its policies on wealth leaving the country. More recently, the OSFI mortgage stress test and the 2018 B.C. budget, which contains a speculation tax as well as an increase to the property transfer tax and school tax for all homes over $3 million, will significantly affect foreign and domestic buyer activity in 2018.”
Smeaton added that the long-term outlook for luxury detached homes is positive for the region.
“Vancouver is one of the greatest cities in the world and while developers can create space to build a luxury condo, the opportunity to build detached luxury homes is limited because of the mountains,” said Smeaton. “For many local buyers who were only on the cusp of accessing the luxury market a few years ago, this unexpected relief in the market is a welcomed opportunity.”
Calgary’s luxury detached home market stabilizes as economy diversifies
Luxury houses in Calgary showed the beginning signs of recovery as the median price of a luxury detached home increased 0.6 per cent year-over-year, rising to $1,990,184 by the end of the first four months of 2018. Meanwhile, the median price of a luxury condominium decreased 6.1 per cent to $926,620 during the same period.
“While some of the demand stems from buyers employed in the energy industry, it is becoming more common to see executive-level employees within top performing industries such as transportation, warehousing, distribution and agriculture purchasing in the region,” said associate broker John Hripko. “Not only is the detached luxury home market benefiting from an uptick in demand from these buyers, the variety of industries with high paying employment is creating a healthier market through diversification.”
Hripko added that there is an increase in demand from executives relocating from Greater Vancouver. Spacious luxury properties and the ability to see their money go further has made Calgary attractive especially as its economy improves.
Although sales in Calgary’s luxury real estate market are down considerably from 2014, luxury detached home sales saw a 6.3 per cent increase in the first quarter of 2018 compared to the same period in 2017, while luxury condominiums decreased 1.6 per cent. However, when examining sales in the first quarter of 2018 compared to 2016, detached luxury home and condominium sales increased 47.8 per cent and 33.7 per cent, respectively.
“While demand is down for luxury condominiums, we are seeing an increase in interest from local retirees,” added Hripko. “In addition to finding the perfect home for a low maintenance lifestyle and travel, there is ample selection and little competition.”
When looking to the 2019 spring market, the median price of a luxury home in Calgary is forecast to increase 2.0 per cent year-over-year to $2,029,988, while the median price of a luxury condominium is forecast to decrease 4.0 per cent to $889,568 in the first four months against the same period in 2018.
“Calgary’s luxury home market has long adjusted to the downturn in oil prices, and resultant executive level job loss,” said Hripko. “Now that the city’s real estate has found its price floor, we expect to see modest gains as our diversified economy continues to improve.”
Hripko added that weather was also a significant factor delaying this year’s spring market in Calgary.
“We are seeing several positive signs of healthy interest in the lower end of the luxury market, which we expect will result in improved year-over-year sales in the next few months,” said Hripko.
Consumer confidence releases pent up demand in Ottawa’s luxury home market as prices make healthy gains
Ottawa’s luxury home market posted healthy gains as the median price of a luxury detached home increased 6.3 per cent year-over-year, rising to $1,537,107 for the first four months of 2018, while the median price of a luxury condominium increased 4.0 per cent to $1,007,598, during the same period.
“While overall price appreciation in the luxury home market is in the single digits, price appreciation of luxury detached homes in select pockets, such as Westboro and the Glebe, soared over the past few years,” said sales representative Charles Sezlik.
Sezlik added that ongoing price appreciation is the result of pent up demand created prior to the change in government, when interest was strong but consumer confidence was low due to cutbacks.
“Ottawa’s luxury home market has benefitted from a surge in consumer confidence,” said Sezlik. “While many luxury homebuyers are employed outside of government, government positions make up half of the local workforce and drive the economy alongside our thriving technology sector.”
Even though luxury detached home sales in the first four months of 2018 rose 9.1 per cent compared to the same period in 20174, there were considerably fewer luxury condominium sales.
“While the surplus of luxury condominium inventory does make it more difficult for product to appreciate in the near term, it presents a great opportunity for homebuyers,” added Sezlik. “In addition to ample inventory offering excellent selection, reduced competition makes it easier for buyers to look around and find the perfect home.”
When looking to the 2019 spring market, the median price of a luxury home in Ottawa is forecast to increase 5.0 per cent year-over-year to $1,613,962, while the median price of a luxury condominium is forecast to increase 3.0 per cent to $1,037,826.