By now, you've likely noticed that there has been a decrease in rental prices and more options to choose from across the Greater Toronto Area. This article aims to shed some light on why this is happening and what we predict will be the trend for the next coming months.
Many expected that the COVID-19 pandemic would have some impact on the Canadian economy and ultimately real estate but no one could have really predicted that rent prices in the Toronto area would drop so fast in such a short span of time. At Dwelly, over the past few months we've helped tenants secure properties below asking price with little to no negotiation - something that would have been nearly impossible to do just a few months ago. We have seen properties in the downtown core that use to rent last year at around the $3,500 drop its rental rate to below the $3,000 mark. We've even helped clients secure solid one bedrooms at around $1,800 (and $2,000 for fully furnished!), a price point that was nearly unheard of just a year ago.
What has caused rent to become more affordable?
The Toronto Regional Real Estate Board reported that the total condominium rental listings on the MLS increased a staggering 31.9% in Q1 of 2020 compared to Q1 of 2019. Why is that? Aside from the fact that there are new building completions across the region, it's mainly because of two reasons. Firstly, Toronto, has always been a hub for immigration – full of international students, foreigners on working visas, and even Canadians that come from other provinces. Canada welcomed over 341,000 immigrants in 2019, with Ontario being the destination for over 50% of them. While it was projected to increase to 350,000 in 2020, travel restrictions from COVID-19 will have cut that number in half. Since the majority of newcomers opt to rent a home upon arrival, rental demand has drastically decreased.
Secondly, since short-term rentals were temporarily banned during the pandemic in Toronto, an increasing number of properties that were once available for short term rent on platforms like Airbnb have now been listed on the Multiple Listing System (MLS) as long term rentals. This sudden influx of rental supply also paved the way for more competitive rental rates. Although the short-term rental ban has ended, the overall demand for short-term rentals has decreased drastically due to the cancellation of a number of major events that take place in the city such as Caribana, the CNE, and major sporting games to name a few.
Think of what this means for property investors
With almost 40% of condos in Toronto not owner-occupied, this sudden halt in migration will have a negative effect on cash flow for many investors - especially if they have to list their rental units during these times. Investment holders will have to endure some periods of vacancy, as there is an increasing amount of supply and strikingly low demand.
How to get ahead of the curve as an investor?
We work with several landlords to list their properties and help tenants find new homes to rent all the time. What we've noticed is that even the most beautiful properties in the best locations are sitting on the market for weeks, while we've also seen properties lease with bidding wars and not even make it past two days on the market. What's the reasoning? Pricing strategy. The opportunity cost of having your property sit vacant for a month or two might make it worthwhile to list your property below market value from the start. This would allow investors to rent their properties right away and avoid long periods on the market. This isn't general advice to every investor, but it is something to consider when looking to maximize your return on investment.
Here is a general example for a one-bedroom condo in Toronto:
As a renter, can I take advantage of this market?
Absolutely! In the past, you may have had to resort to a basement apartment or living with a roommate because of the competitive rental market. Many tenants can now afford bigger, better spaces, and some can even have places they call their own. Because of increasing supply and lack of demand, a lot of renters are now able to secure more desirable properties on their first offer. However, being respectful of the terms in your existing lease agreement is important since terminating before your contract ends could leave you with some penalties.
Will this be the new normal, or will it go back to the way it was before?
No one can really predict how quickly our economy will recover or when the rental demand will bounce back but in a growing city like Toronto, it is inevitable that rental prices will at one point start making their way back up again. Think of this as a good opportunity to secure a deal on a good rental property.
Have any unanswered questions or would like to learn more about purchasing or renting a home? Visit Dwelly.ca where you can ask questions anytime via our live chat.