Vancouver & Toronto Property Undervalued

An expert in the property market has suggested that although many believe Canada’s real estate bubble could be about to burst, residences in Vancouver and Toronto remain undervalued when compared with the rest of the world. Ben Myers, the senior vice-president of Fortress Real Developments, explained that comparing these global cities with neighbours such as Saskatoon or Halifax is a disservice.

For over 10 years, many experts focussing on the real estate sectors of Vancouver and Toronto have been highlighting foreign buyers, high-value mortgage debt, speculative investors and forecasted market collapse when interest rates rise. Many suggest that the entire Canadian economy will be hurt when the inevitable occurs and the market bottoms out. However, Mr Myers suggests that the way in which the two Canadian cities are compared with other national cities is causing a skewed perspective. When Toronto and Vancouver were second-tier global cities, comparing prices on a local level worked well; however, both are now considered world-class locations and comparisons need to change.

One way to establish where a city ranks on a global scale is to compare price-to-income and price-to-rent ratios. The higher these ratios the more likely it is that areas are attracting foreign investment. Rental rates are largely constrained by the levels of local income; however, property prices are not. Foreign investors can inflate values by buying homes for holiday retreats or to rent to friends and family at lower rates; in addition, Toronto and Vancouver have noted large-scale luxury property development, resulting in the gentrification of neighbourhoods and existing properties being heavily renovated and resold for much higher prices.

Using data from Numbeo, Mr Myers analysed cost-of-living data for cities across the world and discovered that the 10 major markets were London, New York, Hong Kong, Paris, Moscow, Sydney, San Francisco, Vancouver, Tokyo and Toronto. When ranked by price-to-rent for one or three bedroom apartments in the city centre, Toronto and Vancouver ranked eight and ninth. It makes more sense to compare these world-class cities with other global markets than with other local cites or even Canada’s average price.

Going even deeper into the figures, Toronto was found to have a per-square-foot (PSF) value of $692, whilst Vancouver achieved $770. In comparison with Hong Kong’s $3,297 PSF, London’s $3,167 PSF and New York’s $2,419, Canadian property appears to be a bargain. This means, especially for foreign buyers, buying in Canada actually makes sense.

By comparing figures with other global cities, the high price-to-income and price-to-rent ratios might not indicate impending collapse or overvaluation after all; in fact, they might suggest that both Vancouver and Toronto have left their place as second-tier cities and ascended to the rank of excellence. While this won’t help those stuck not being able to afford property, it means that international investors will be looking to the Canadian cities as top global destinations and, therefore, there is long-term value and investment opportunities to be had. With PSF far lower than other global cities, Canadian property could actually be seen as a bargain.