Toronto Home buyers are waiting for bargains

Sahil Jaggi has amassed a $9 million real estate portfolio in just six years and is now expanding into small housing developments. The Globe and Mail’s Fred Lum

Sahil Jaggi watches as the trickle of available properties in the Toronto area real estate market turns into a wave.

“This is an excellent time for investors like me to increase our holdings.”

Mr. Jaggi, a Re/Max Realtron Realty broker, owns 17 single-family homes in the Toronto area.

He believes that the time has not yet come for bargain hunting because offers are scarce and prices have remained relatively stable.

Mr. Jaggi points out that rising interest rates and inflation are making it difficult for consumers who are heavily in debt to pay their mortgages, but most homeowners typically cut back on their vacations and other voluntary expenses before embracing life and starting a family and selling their home.

This is one of the reasons why rising interest rates often take several months to take effect, he emphasizes.

He believes that financial difficulties will force more distressed homeowners to sell.

Mr. Jaggi’s strategy is to purchase the core of run-down single-family homes in Etobicoke, North York, and other communities. For example, he will purchase a dilapidated bungalow, renovate the ground floor, and build a legal basement apartment, converting one house into two units.

“I handpick these houses,” he says. “It’s extremely simple to rent them out.”

Jaggi has remained on the sidelines in the current market, believing that tight housing supplies and stable prices indicate that it is not yet time for buyers to go bargain hunting. The Globe and Mail’s Fred Lum

Despite his eagerness to invest, Mr. Jaggi’s most recent purchase was in January 2021, when he was growing increasingly concerned that the market was severely overheating.

He moved to the sidelines and has remained there since. Most investors have now joined him.

According to Victor Tran, a mortgage specialist at rates.ca, mortgage offerings for investment properties fell by 60% in October compared to September.

“Investor demand is clearly declining,” Mr. Tran says.

People are watching what the Bank of Canada does at its next rate-setting conference on December 7th, which is one reason for the caution.

Many investors are already experiencing negative cash flow, which means that the rent they are collecting is insufficient to cover their mortgage payments, taxes, and other expenses.

They are now concerned that property prices will continue to fall.

Mr. Tran warns that an investor who buys now with a 20% down payment risks the asset’s price falling further until they have no equity at all.

“There’s a good chance they’ll walk away with nothing.”

He adds that wealthy people are still waiting to deploy capital.

He recently heard from two investors who are watching prices fall in the Durham area east of Toronto. They’ve taken money out of the stock market and are planning to invest in real estate.

“They wait for the right moment to strike.”

Mr. Tran describes another client who owns a $2 million primary residence with no mortgage debt. She intends to use the equity in her home to purchase a condo.

While some investors are discouraged by the current 6.4 percent interest rate on a home equity line of credit, this buyer believes that the city’s real estate will appreciate in the long run.

Farah Omran, an economist at Bank of Nova Scotia, wonders if a slight increase in sales across Canada in October heralds the end of the country’s housing downturn.

According to the Canadian Real Estate Association, October sales were up 1.3 percent from September. Ms Omran points out that this is the first increase since February.

Quotes increased by 2.2 percent month on month, bringing the national market into a balanced range, according to the economist.

Sales fell by 36% last month compared to October 2021.

She notes that the 1.2 percent drop in the composite MLS Home Price Index in October from September represents a slowdown from the previous month’s 1.4 percent drop.

Ms Omran believes it is too early to say whether October’s performance signals the end of a welcome correction, but it is consistent with her expectations for a moderate correction and eventual demand recovery.

Ms Omran anticipates that prices will continue to fall in the short term, even as sales increase. According to her, a shift in market psychology means buyers now have a little more power and sellers have adjusted their expectations.

In the long run, however, she believes that an increase in immigration will support prices unless progress is made in increasing the country’s housing stock.

So far, November activity appears to be sluggish, despite a slight increase in October sales over September.

“November is still a waiting month,” Mr. Jaggi says.

Jaggi advises people looking to buy real estate for investment purposes to stick to homes in high-demand areas, such as Toronto’s 416 area code. Fred Lum/The Globe and Mail

Sellers are holding firm to their asking prices as they wait to see if the turmoil subsides and prices rise again in the new year, he says.

Meanwhile, buyers are concerned about their affordability and are waiting to see if prices fall further.

Mr. Jaggi, for one, is looking for signs that an increasing number of homeowners are being overwhelmed by high-interest rates.

If this occurs, he estimates that investors will be able to purchase properties at prices that are 30 to 40% lower than the peak.

In this case, if the entry point for the property is low, he wouldn’t mind paying a higher interest rate on a mortgage for the next three or four years.

Mr. Jaggi is keeping a close eye on the pre-construction condominium market. In recent years, the broker claims to have steered its own clients away from out-of-center lineups.

“There were a lot of people who bought stems at exorbitant prices.” “People simply threw money at these projects,” he claims. “I’d be surprised if we don’t see a large number of distressed sales.”

According to Mr. Jaggi, many buyers have purchased units from multiple builders without the oversight of regulators. Developers demanded high prices, and agents used aggressive sales techniques.

Now that projects are nearing completion, buyers will have difficulty qualifying for a mortgage.

“They were not savvy investors.”

Mr. Jaggi advises people looking to buy real estate for investment purposes to stick to homes in high-demand areas such as Toronto’s 416 area code.

“Single-family homes have more security,” he says. “You actually own the asset on the land.”

Still, investors must exercise caution in this sector, particularly at the higher end, he adds.

Mr. Jaggi points out that, in addition to today’s rising interest rates, builders have been impacted in recent years by high construction costs.

A home builder, for example, who paid $1.5 million for a lot and invested $1 million in construction is likely to try to sell the newly completed home for $3 million or more to make a profit. This segment’s sales are extremely slow.

“Many people who built luxurious, expensive homes suffer the most.” They will almost certainly have to sell at a loss.”