Where are Toronto RENTS Headed?
REMI
Residential landlords in the largest cities of the United States are commanding rents well above the average rates in Canada’s major urban centres. Apartment Guide, a U.S. based rental property listing service, cites a national average price of USD $1,354 (CAD $1,800) for available two-bedroom units in 2018.
Canada Mortgage and Housing Corporation’s (CMHC) annual rental market report reflects average rents for all supply within surveyed markets and can’t be directly compared to Apartment Guide’s scoped snapshot of the rates asked for new leases. Nevertheless, significant price gaps in the two datasets suggest Canadians might suffer rent sticker shock searching for accommodations in American cities that tend to draw the most cross-border migrants. On the plus side, there should be more options available given that the national vacancy rate hovers around 7 per cent in the U.S., well above the 2.4 per cent national vacancy rate recorded in Canada last fall.
"US Rents in similar cities are FAR higher than GTA"
Variance in currency values complicates cross-border rent comparisons since using one country’s dollar as the yardstick appears to skew values up or down in the other country. However, any measure of housing cost impact should be tied to the incomes tenants actually earn in their own countries, not their neighbours’ theoretical purchasing power.
Regardless of the exchange rate, CMHC’s 2018 national average rent for two-bedroom purpose-built rental apartments — CAD $1,059 or USD $794 — trails the Apartment Guide average for the U.S. The Canada-wide average for rental stock within private condominium buildings — CAD $1,515 or USD $1,136 — is more open to interpretation. When viewed in U.S. funds, it’s lower than average rates for available two-bedroom units in the 15 most populous U.S. cities.
With the exception of New York, which boasts more than 8.6 million inhabitants, Canada’s five largest urban centres are roughly the same size as their American counterparts. The 2016 Census counted a collective population of about 15 million in Toronto, Montreal, Vancouver, Calgary and Ottawa/Gatineau, ranging from nearly 6 million residents in the Greater Toronto Area to 1.3 million in Ottawa/Gatineau. Yet, asking rents in the five largest American cities of New York, Los Angeles, Chicago, Houston and Phoenix appear moderately to dramatically steeper than Canadian tenants typically pay. So, too, are rents in San Francisco, Boston, Seattle and Washington, DC.
CMHC reports a 19 per cent turnover rate in purpose-built rental units Canada-wide last year, meaning that a relatively small portion of newly negotiated leases are reflected in the national 3.4 per cent increase in average rent. In contrast, Apartment Guide’s figures are only for new leases so rising rents are not surprising. Even so, rents for two-bedroom units actually dropped in 29 per cent of the surveyed U.S. cities, while increasing in every major market CMHC monitors.
CMHC also reports that more than 40,000 new purpose-built rental units were added to Canadian housing supply between July 2017 to June 2018. On a per capita basis, that outpaces the 287,000 units that came onto the U.S. market last year. Meanwhile, demand continues to surge in Canada’s largest cities — attributed to immigration, employment growth and seniors moving from home ownership to rental accommodations.
Based on CMHC’s two-bedroom benchmark, rented condo units in Toronto and Vancouver garner the highest rates in Canada — an average of USD $1,795 (CAD $2,393) in Toronto and USD $1,525 (CAD $2,034) in Vancouver. That would be a bargain in the top-three American cities, where the 2018 average listed price for two-bedroom units was: USD $6,078 (CAD $8,083) in New York; USD $4,054 (CAD $5,390) in L.A.; and USD $2,795 (CAD $3,717) in Chicago.
Phoenix, with a population of 1.6 million, is the low-rent standout in the U.S. top five. Apartment Guide pegs the average asking rent for two-bedroom units at USD 1,209 (CAD $1,608) last year. Meanwhile, the average asking rate for two-bedroom units in Houston, at USD $1,616 (CAD $2,149), stands out for trending downward — dropping 8.4 per cent from the previous year.
Canada’s most affordable big city is arguably much more of an anomaly. Montreal has about two million fewer residents than Toronto and nearly 1.5 million more than Vancouver, but tenants in purpose-built rental buildings pay an average of 45 per cent less for two-bedroom units than renters in Toronto and nearly 51 per cent less than renters in Vancouver.
CMHC pegs the average rent for a two-bedroom unit in a purpose-built rental building in Montreal at CAD $809 (USD $606.75) or nearly 24 per cent lower than the national average. Average rent for two-bedroom condo rental units is a still-competitive CAD $1,208 (USD $906) or 20 per cent lower than the national average for this pricier stock.
Inflation Moving UP
STATSCAN
The Consumer Price Index (CPI) rose 1.5% on a year-over-year basis in February, up from a 1.4% increase in January. Excluding gasoline, the CPI rose 2.1%, matching the gain in January. Today, Statistics Canada is launching a new interactive Consumer Price Index Data Visualization Tool that allows users to quickly identify changes and contributions to changes of the Consumer Price Index on a monthly and annual basis.
All eight major components were up year over year in February, with the shelter index (+2.4%) contributing most to the increase.
Energy prices were 5.7% lower compared with February 2018, following a larger decline the previous month. Year-over-year price declines for gasoline (-11.9%) and fuel oil and other fuels (-1.5%) were smaller in February than in January. Tighter oil supplies and the temporary closure of several refineries for seasonal maintenance affected prices at the pump, leading to the first month-over-month increase in the gasoline index since July 2018.
On a year-over-year basis, consumers paid more for fresh vegetables (+14.3%) and fresh fruit (+3.8%) in February compared with January. The purchase of passenger vehicles index rose 1.4% year over year, due, in part, to lower rebates on 2019 model-year vehicles.
The services index rose 2.3% year over year in February, following a 2.7% increase in January. The cost of Internet access services fell 9.2% on a year-over-year basis amid a series of price promotions. Consumers paid less for traveller accommodation (-4.7%) and travel tours (-3.4%) compared with February 2018. These declines were partially offset by an increase in the mortgage interest cost index (+8.1%), which partly reflected higher interest rates offered by commercial banks during the last 12 months. Rent prices increased 0.4% month over month in February.
Consumer prices rose more in five provinces in February on a year-over-year basis compared with the previous month. This growth was most pronounced in the Prairie provinces, where prices for gasoline rose the most on a month-over-month basis in February. In Ontario, consumer prices for various services increased less on a year-over-year basis in February compared with January. Prices for food purchased from restaurants (+2.2%), personal care services (+1.6%), child care and housekeeping services (+1.3%) and alcoholic beverages served in licensed establishments (+2.3%) rose at a slower pace in February than in January. Price increases in these indexes in February 2018, which followed a legislated minimum wage increase the previous month, no longer affected the 12-month movement in February 2019.
Changes to Ontario's Estate Administration
Pelorus
From Jan. 1, 2015 various changes relating to the Estate Administration Tax Act have become effective. While these changes seem administrative in nature, a deeper look reveals they can make estate administration and the probate process more onerous, costly and time-consuming. This makes it critical for Ontario residents to carefully plan their financial affairs to minimize or avoid estate administration tax. This article discusses the changes and their impact for executors/trustees.
THE CHANGES
1. Duty to give information
This change requires anyone applying for (i) the grant of probate, administration or testamentary guardianship or (ii) a certificate of appointment of estate trustee, from the Ontario court, to provide such information about the deceased person as may be required by the Minister of Finance. The information must be provided within the time and in the manner as may be prescribed by the Minister. The estate representative is also required to provide all reasonable assistance, and answer all questions, during a subsequent audit. Third parties are also
required to provide the required information to the Minister.
2. Assessments and re-assessments
This change gives powers to the Minister of Revenue to assess or reassess the estate in respect of the tax payable. Generally, the Minster may assess or reassess the estate within four years after the day the tax became payable. There is no time limit if the person has failed to provide the information required or made a misrepresentation.
3. Audit and inspection
This change authorizes the Minister of Revenue to appoint inspectors to exercise the powers and perform the duties under the Estate Administration Tax Act.
4. Offences
This change makes failure to provide the information, or providing false or misleading information, an offence punishable by fine, imprisonment or both. The minimum fine is $1,000, and maximum is twice the tax payable. The term of imprisonment may be up to two years.
THE IMPACT
While these changes seem simple, the impact can be far reaching. The “duty to give information” in and of itself doesn’t appear burdensome. However, when it’s read with the increased power of assessment/reassessment and penalties, it’s clear that much more effort and due diligence is required by the person applying for probate or certificate of appointment of estate trustee. The inventory of the estate assets and their values are to be provided to the Minister. It’s now more important than ever the applicant ensures all the assets are reported and proper valuations are done. Depending on the valuation issues and financial affairs of the deceased, it may require significant time before the application is made to the Ontario court for probate or certificate of appointment of estate trustee.
In many cases, no distribution of the estate may be possible without probate or the certificate of appointment of the trustee, resulting in delay in administering the estate.
The enhanced audit and verification powers means the Minister may review the asset valuations. What if the valuation is higher – resulting in increased estate administration tax liability, but all the assets of the estate are already distributed? As mentioned, the Minister may assess or reassess within four years, so there is a possibility an auditor may come back on the estate trustee. Does this mean trustees should wait for at least four years before distributing all the assets of the estate? If so, this further adds to delay in estate administration. If not, the trustee may be assuming the uncertainty and risk.
THE SOLUTION
A very simple solution is provided in the Estate Administration Tax Act itself – i.e., no tax is payable if the value of the estate does not exceed $1,000. Obviously, this solution does not apply to most individuals, and highlights the need for estate planning.
Different planning opportunities such as an alter ego trust or joint tenancy for the ownership of property (particularly for spouses or common-law partners) etc. are available to transfer the assets outside of one’s estate, thereby minimizing the estate and resulting estate administration tax.
Each opportunity has its own complexities and may require annual maintenance costs, not to mention potential income tax consequences.
Glenn Fabello is a senior partner at Pelorus Transition Planning with over 25 years of experience working with family operated businesses in the area of tax and estate planning. For further information, you can reach him at gfabello@thinkpelorus.ca or (905) 850-3330 x25.
RECENT SALES
915 St. Clair Avenue West – Toronto – SOLD $3,850,000 / $213,900 per suite / 4.0% Cap Rate
This property is located in north Toronto near Christie and comprises a three storey walk up rental apartment building circa 1920's. The property contained 18 apartment suites and was listed on MLS and fully marketed. There were 8 bachelors and 10 one bedroom suites. The buyer was a private investor.
292 Oakdale Avenue – St. Catharines – SOLD $15,900,000 / $141,965 per suite / 5.0% Cap Rate
This property is located in the Niagara Region and the 2.51 acre site is improved with a ten storey rental apartment building with a total of 112 suites. This property was built in 1979 and was in the Sellers ownership for many years. The property was fully marketed and exposed on an exclusive basis and had some excess land for future development. The purchaser was Marlin Spring.
428 Bellevue Street – Peterborough – SOLD $3,200,000 / $160,000 per suite
This property is central Peterborough and comprises 20 townhouse rental units on 2.25 acres of land. The property has 12 one bedrooms, 8 two bedrooms and 15 surface parking spaces. A greatly under utilized site. The site was listed on MLS and exposed and purchased by a private investor who lived in Peterborough. This property previously sold in 2011 for $1,680,000.
1120-1170 Clarence Street – North Bay – SOLD $1,850,000 / $84,000 per suite
These are two 11 plexes which total 22 rental apartment suites 3.5 hours north of Toronto. The property is 1/2 and acre and are all one bedrooms. There are 24 parking spaces and the buildings are of frame construction. The purchaser was private and from the GTA. This property previously sold in 2017 for $1,450,000.
THE APARTMENT GROUP
Together the team has completed over 1,000 transaction and has sold over $5 billion in apartments and development land. Put us to work for you and see the results. NO ONE has sold more buildings then your group. Experience, knowledge and professionalism will insure you get the right deal or the highest price if you are selling.
The Apartment Group is a dedicated team of professionals specializing in the sale of multi-residential investment properties. With over 40 years of combined experience, the team brings together their strengths including strong negotiation and sales skills along with highly technical market analysis and appraisal methods.
We are a boutique Brokerage but have the capabilities of the larger houses without the overhead. We have: an internal database of over 10,500 active apartment and land Buyers; a list of all apartment building owners in the Greater Toronto Area; our web site gets over 50,000 hits a month; we highlight properties for sale through our newsletter which reaches 10,000 investors monthly.
MITCHELL CHANG
President & Owner,
Salesperson
Direct: 416-907-8280
mchang@cfrealty.ca
LORENZO DIGIANFELICE, AACI
Broker of Record, Owner
Direct 416-907-8281
ldigianfelice@cfrealty.ca
JAKE RINGWALD
Salesperson
Direct 416-996-7713
jringwald@cfrealty.ca