Canada’s biggest cities are renowned for the quality of life they offer residents. The Economist Intelligence Unit ranks Vancouver and Toronto as the world’s third and fourth most liveable cities, citing availability of goods and services, low personal risk, and effective infrastructure as key attributes.

The quality of life available and the transparent and open business environment of an English speaking country has put Canadian cities high on the shopping list for many international investors.

Strong rental markets with vacancy rates of just 3% have been offset by rapidly appreciating capital values, and softening yields. For many investors capital gains have been spectacular. Prices in Toronto appreciated by 45% between June 2006 and November 2013, at a time when those in North American cities south of the border were falling.

Prices in New York, for example, fell by 20% over the same period. In spite of Canadian price growth, absolute prime price levels are still lower than those in many major US centres (though notably, the more international markets of Vancouver and Toronto are higher priced than Chicago). Most notably, Canadian city values are, substantially below those of the top tier of world cities (see Table 1).

Toronto

■ Population (metro): 5.1 million

■ Average price Nov 2013: $485,328

■ Capital value growth, year to Nov 13: 3.3%

Located on the north-western shore of Lake Ontario, Toronto is Canada’s most populous city. It is a financial capital, international centre of business and the most multicultural city in Canada. Some 48% of its residents are foreign born.

Toronto’s residential market has been characterised by a shortage of inventory among single family homes in the last year. This has put upward pressure on prices across the whole market.

Prices rose by 6.1% in the year to November 2012 although the rate of growth slowed somewhat in 2013 – to 3.3%, according to the MLS index. The city’s rental market remains buoyant, underpinned by young professional migrants and corporate tenants. Yields are above 5%, and can exceed 6% on condominiums.

Toronto has two distinct prime residential markets. Toronto North is suburban and attracts families, while urban Toronto offers downtown living for professionals – singles and couples – with easy access to entertainment and employment.

Montreal

■ Population (metro): 3.6 million

■ Average price Nov 2013: $326,850

■ Capital value growth, year to Nov 13: 2.3%

Montreal is located north-east of Toronto on the St Lawrence River, and is the second largest city in Canada. With a population of 1.9 million, it is one of the largest French speaking cities in the world. It is a centre of culture, arts, aerospace, technology and the media.

In Quebec society long term renting is a cultural norm, so there is a lower propensity for home ownership than in Anglophone parts of the country. The city enjoys rental vacancy rates of just 2.8%, and yields in excess of 7%. Capital values are among the lowest in urban Canada.

Housing starts fell by 27% in the 11 months to November 2013, although prices still grew by 2.3% over the same period, and are forecast to continue to see modest appreciation in 2014. The city’s residential market is currently a buyer’s one, the result of high supply in preceding years.

Vancouver

■ Population (metro): 2.1 million

■ Average price Nov 2013: $682,215

■ Capital value growth, year to Nov 13: -2.1%

Vancouver is situated on the west coast and is the most densely populated city in Canada. Surrounded by water on three sides, Vancouver enjoys a spectacular waterfront setting. Offering easy access to the neighbouring mountains and ski resorts, residents enjoy a range of leisure pursuits on their doorstep.

Growth, restricted by the city’s position between the Strait of Georgia to the west and mountains to the north and east, has pushed new development – and prices – skywards.

Capital values in the Vancouver housing market increased by 20% between September 2009 and July 2012, as investment poured into the city’s residential real estate. It is Canada’s most expensive real estate market. Yields are low at just over 4%.

Pacific-facing Vancouver has a long history of Asian immigration, with large Chinese diaspora. Chinese buyers have been behind much of the new investment in the city in recent years.

These buyers favour the city’s modern, high-rise condominium product, as well as single family homes, with the West Side the most desired area and commanding the highest prices.

The city has seen high supply in recent years (19,027 starts in 2012, 10% above the 10 year average), and reliance on investor markets has left it exposed to shifts in sentiment. Prices slipped by 2.1% in the year to November 2013, while housing starts fell by 5% over the same period.

Taken from
Spotlight: Canada Residential Market - Spring 2014