If you have been watching coverage of this spring's boom in housing, especially high-rise condominiums, your natural assumption might be that it is being driven by singles and couples young and old rushing for their chance at home ownership while mortgage rates are still low and prices not yet at their peak. You would be only half right.
Yes March was the third best month for high-rise condo sales since we began keeping records. Yes it was also the best month for detached home sales since July, 2007. Yes, older couples have returned to the market ending a winter dominated by young first-time buyers.
And yes, prices continue to rise. In March the average price of a high-rise suite was $420,087, up 2.4% from February and 7.9% from a year earlier. Detached homes stood at $490,395, up just 0.4% from the month before but a whopping 10.7% from 2009.
"I think a good chunk of the increase was builders adjusting to the new harmonized sales tax that comes into force in July," says George Carras, president of RealNet. "But really high demand is also a major factor."
Which brings us back to being half right.
What the experts tell us is that investors are snapping up 50% of those units. The boom is not about ordinary Jacks and Jills securing their future. If we relied on them alone the GTA new homes market would be in the doldrums.
The boom is mainly about men and women with a few extra bucks in their bank account buying small suites they can either flip when move-in day comes or rent at monthly rates high enough to cover mortgage and maintenance costs.
"No question investors are responsible for at least half this spring's overall high-rise sales," says Dan Flomen of TFN Realty Inc. His company is agent for about 2,000 new suites across the GTA. "But they are selective in their choice.
"Some projects have virtually no sales to investors and in others they represent by far the bulk of suites sold."
So which suites appeal to which type of buyer - important to know if you are planning a purchase. Do you really want to be in a tower where 60% of the residents have no ongoing stake in the building? A maxim of the rental business is tenants only value their suite as long as they live in it.
Mr. Flomen says investors look for small suites - anything from 325-square-foot studios to 700-square-foot one-plus-dens. They are the types of rental units in most demand and the cheapest ones to buy. Cheap counts if you need rents to carry your monthly costs.
They are also looking for projects where most renters want to live, which is downtown, on subway lines, near universities or in areas of the city where there is already a stock of aging rental units.
"The idea is that if there are a big number of older existing rental buildings, tenants will naturally want to move into the new ones so they can stay in the area," he says.
That is what makes projects near Highway 427 and the West Mall so popular right now, he adds. The project SellOffCondo.com provides an example, says Mr. Carras. Suites there sell for about $348 a square foot - about $100 a foot less than the the GTA average, he says.
In addition, there is a large stock of aging existing rental buildings in the area, with tenants ready for a move up, says Mr. Flomen, who represents the project. He says investors represent the majority of buyers.
What of the other side of the coin? Projects geared to end users?
Cresford Developments is about to launch one of those with its new MYC, a 25-storey project at Yonge and Merton streets, just south of Davisville.
"We knew from the very start that our market would be end users, not investors," says Maria Athanasoulis, Cresford's vice-president of sales and marketing. "That was what the local demographics told us was needed."
While Yonge and Davisville might seem a natural area for small investor-owned suites because of the high number of existing rental towers, Cresford saw that many of the people who live in those rental suites now wanted to move up to home ownership. The company also saw a mature resident population living in detached and semi-detached homes who wanted to make a change in lifestyle - escape the snow shovelling, lawn mowing and regular maintenance those homes involved - and yet remain in the area.
Athanasoulis says Cresford was not at all surprised by the pre-launch sales. The first of the 205 suites to go were the one-bedrooms, followed by the one and dens, and they did not go cheaply. Prices at MYC start in the $300,000 range for a 519-square-foot one-bedroom and run up to more than $1-million.
"Part of the success of MYC is that there just was not a range of options in the area," says Ms. Athanasoulis. "If you loved living at Yonge and Davisville and wanted to buy a condo then MYC was the natural choice."