Toronto real estate market is red hot, showing fire-breathing strength. Shortage of supply for detached homes sparked heated bidding wars and buying frenzies, pushing the prices through the roof. Adding fuel to the fire is the spillover effect of the B.C. tax policy on foreign buyers in Toronto, fueling the demand that has already far exceeding the supply.
This overheated market has sent the financial analysts on edge, prompting household debt warnings from the central bank and overvalued concerns from industry observers. But despite naysayers’ predictions and BOC’s repeated warnings, the market has continued to debunk their prediction, showing rapid rise in prices in recent years.
The housing boom seems to have provided a gold rush opportunity for many speculators in the Chinese community, who are eager to ride the housing boom wave to the pinnacle of wealth. The rapid price surge has prompted frantic buying activities in the community – from pulling out their retirement savings to borrowing against equity line of credit.
A real estate agent said that for newcomers who lack marketable employment skills, the easiest and fastest way to make a living in Toronto is to tap into the housing market.
“Think about it, you can make at least $100 grand a year by owning a home by just sitting and doing nothing. What types of jobs here can offer such a lucrative opportunity? But it all depends on whether you can pull out enough down payment or not,” the agent said.
One resident in my neighbourhood who has already bought three homes said that she should have bought more, had she known that the price would have gone up to this level.
The frantic home buying has left many who were sitting on the fence jealous and regretful.
“A friend of mine has already made $4.3 millions by making real estate investments. I am deeply regretful that I didn’t jump into the market in the same way as she did. When she told me that average price of detached homes in Toronto could reach as high as $2 million a few years ago, I didn’t believe it, but now that target has been revised to $3 million! ”
That target while stunning, seems pale in comparison with the $20 million home price target in Vancouver by 2040 that some analysts have predicted.
While data-driven analysis is lacking, there are plenty of more persuasive telltale signs indicating that the housing market is already in bubble. According to a Maclean’s’ article “the anatomy of housing bubble” published in May. When caution is thrown to the wind, when panic buying is prevalent, and when people’s hard-wired desire to “not want to miss out” comes into full play, we are on the verge of a big market crash and a massive wealth destruction.
The large influx of capital out of China – which is over $1 trillion – will simply not continue endlessly, says the article. The Chinese government will issue policies to stop the massive capital flight, leaving the homeowners of Vancouver and Toronto holding the bag.
But before the Chinese government takes action, the B.C. government has taken a move ahead to curb the speculative behaviours by taxing on foreign buyers from China, which has caused rapid decline in sales volume in Vancouver market in Aug.
By the same token, if the shortage of supply – due to government policy to curb urban sprawling -- continues to fuel the overheated Toronto housing market, accelerating the affordability crisis, the Ontario government may release the restrictions on land use, so more low-rise buildings can be erected to meet the market needs.
And it may issue similarpolicies as in B.C. to tax on foreign investments from China to cool the market down, so those who hold the insane projections of home prices may never be able to get the lucrative profits they expected.
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