Buyers of luxury real estate have a deeper understanding of the long-term value in the market, or they simply don’t have to look at the price as carefully, say realtors specializing in high-end properties.
“These are intelligent people and they have to believe there has to be an economic shift before there’s going to be a (housing) correction,” said Barry Cohen of Re/Max Realtron, who specializes in selling high-end homes.
It’s a tiny slice of Toronto’s overall market, but super-luxury real estate has stayed hot even as a chill has settled over less lucrative categories.
In only a few weeks, the region’s blazing property market went from white hot to what, for many sellers and their agents, appears to be a cool blue. The shift is being attributed in large part to the April 20 provincial announcement of market-calming measures, including a Vancouver-type foreign buyers tax.
But even before Premier Kathleen Wynne introduced her 16-point Fair Housing Plan, agents say the market was simmering down. The 33-per-cent year-over-year price growth in March was symptomatic of double-digit increases that were never sustainable, said Cohen, the top Re/Max agent for Toronto properties over $3 million since 2012.
He thinks that, as in Vancouver, the Toronto chill is temporary.
“If you look back to Toronto running between 5 and 7 per cent year after year since 1996, 10 per cent is an outstanding market, and maybe that’s what we’re going to come back to, not 20 per cent and 30 per cent,” he said. “Which still means real estate is going up.”
Even with a 43-per-cent increase in the number of homes on the overall market last month, transactions in May fell compared to the same month last year. Year-over-year prices were still 15 per cent higher, but there was a 7-per-cent drop from April to May.
Transactions on “uber-luxury” properties — which Cohen defines as $5 million and up — actually rose 26 per cent, to 34 in May from 27 the previous month. There were six in January, 22 in February and 25 in March.
“This segment of the market is rising and the foreign investors played a serious role at this price point and beyond,” he said. “The (15 per cent) foreign buyers tax has not slowed them down at all.”
It is now simply the cost of doing business with those consumers, according to Cohen, who says foreign buyers are behind about 15 per cent of his luxury-oriented practice.
Sotheby’s International Realty Canada reported similarly healthy luxury sales — a 62.5-per-cent increase in Toronto-area properties selling for more than $4 million between Jan. 1 and May 31 this year, said CEO Brad Henderson.
While substantial, it is nevertheless a slower pace of increase than last year, he said.
Henderson also sees high-end consumers as less concerned about month-to-month market fluctuations.
Buyers in the $4-million-plus range are splitting their activity fairly evenly, with a 66-per-cent increase in sales in the 905-area municipalities around the city and a 59-per-cent rise inside Toronto so far this year, he said.
“Once you hit the $4-million mark, you’re dealing with high-net-worth individuals. Those people are not going to be as sensitive to the concerns as people for whom housing is a more significant portion of their annual income or overall wealth,” he said.
They might also have a better grasp on the significance — or lack thereof — of the government’s market-cooling tactics.
“They’re probably more sophisticated in terms of their understanding of real estate and economic cycles and would therefore feel more comfortable in making a commitment to sell or buy a home going forward, recognizing this (government) policy is, for the most part, benign and it will not address the underlying challenges that are continuing to see upward pressure on prices in the marketplace,” said Henderson.
“Real estate is still a very solid and a very good investment, and it’s one where people can enjoy it because, for the most part, they’re buying it for their own use,” he said.
That includes foreign buyers.
“Any data that’s even halfway reputable would have foreign buyers, even in the top-tier markets, being less than 5 per cent of the overall market,” he said, adding that only one quarter of those would be the speculators and investors the government policy is aimed at discouraging.
“That is a tiny, tiny portion of the marketplace,” said Henderson.