This report is part of PERSPECTIVES, a comprehensive look into the world of prime residential in Toronto real estate. Discover the latest trends and dynamics shaping the market.
Toronto Remains a Hub for Business and Prime Property
In cosmopolitan Toronto, inventory is tight, immigration is high and skyscrapers are everywhere–all factors that contributed to a stable high-end housing market in 2023.
The fall 2023 luxury property report from Cohen Homes & Estates revealed that sales of more than CAD 3 million (US $2.3 million) grew 7% from April to July, while sales of more than CAD 7.5 million (US $5.6 million) grew more than 4% from the same period the previous year. Luxury homes listed above the CAD 10-million (US $7.39 million) mark increased 10% year over year, fueled by a flurry of sales at the last hour.
The recent closings during the traditionally quiet holiday period, however, are no accident.
The Toronto City Council approved an increase in the land transfer tax in September for luxury homes. Dubbed the “luxury home tax,” it starts at 3.5% for properties valued at CAD 3 million (US $2.3 million) and increases to 7.5% for Toronto homes for sale ranging upward of CAD 20 million (US $14.8 million).
With the tax hike looming on the horizon, many buyers were quick to make last-minute deals before the increase became official on the first of this year.
Although the tax hike spurred sales last year, it could lead to a pause among buyers early in 2024. “The first half of the year will probably be slower for those luxury transactions out of buyer frustration to have to pay this tax, but eventually they will have to get used to it,” says Justin Cohen of Barry Cohen Homes. “It’s not going anywhere. They’re going to have to pay it at some point if they want to move.”
And, according to Cohen, there is no shortage of people who are looking to move. Many interested buyers have been sitting on the sidelines, waiting for their golden moment, as interest rates skyrocketed last year.
In early December, there was some cautious optimism when the Bank of Canada announced it would hold interest rates steady as inflation had dipped to 3.1% in October. Since March 2022, interest rates have risen 4.75 percentage points, but many economists expect rates to come down before the summer.
“Once they start to cut rates, activity should increase causing prices to jump,” Cohen says. For high-end buyers, it’s likely that the excitement over interest rate cuts will trump concerns about the costlier property transfer tax, he adds.
Toronto’s downtown core could see a surge in sales as buyers’ preferences return to pre-pandemic days.
“During Covid-19, people wanted more space and to be more remote,” Cohen says. “Now, they’re coming back to more urban areas. They are looking to get closer to the core and major transportation areas that are more congested.”
An increase in immigration is likely to drum up more demand for quality properties.
In an effort to increase the Canadian workforce, the government has been increasing immigration targets over the last few years. It most recently announced plans to welcome 500,000 new permanent residents annually through 2026.
Many of those immigrants are expected to settle in Toronto, Canada’s largest city. That’s due to a variety of factors, Cohen says.
Some avoid Montreal, the second most-populous city, because they perceive that they must speak French in Quebec. Vancouver, with its seaside views and bountiful recreational activities, has a reputation as a popular tourist destination more suited to a vacation than a permanent residence.
That leaves Toronto, a multicultural behemoth with plenty of business opportunities.
With pent-up demand, tight inventory and restrictive zoning laws, the influx of immigration is likely to put additional pressure on prices this year.
