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TORONTO – THE SWITZERLAND OF REAL ESTATE

TORONTO – THE SWITZERLAND OF REAL ESTATE

HERE IS AN ARTICLE I WROTE FOR MY PRIVATE LENDERS BACK IN 2012 REGARDING TORONTO EMERGING AS THE GOLD STANDARD IN REAL ESATE FOR THE WORLD

 

IS TORONTO’S REAL ESTATE MARKET THE WORLD’S NEW GOLD STANDARD?

 

Whether you categorized Southern Ontario’s real estate market as an investment opportunity, a speculation vehicle, or a balanced market, one thing is for certain: like a seasoned cowboy that won’t be shaken by the most spirited bull, real estate in the Greater Toronto Area has taken all this “Arm-Jerker” World Economy can dish out and came out in the winning circle.   Now that you have a few years to reflect back, would you say Toronto is a world Real Estate Hedge Fund?

 

The last 4 years in real Estate around the world have proven to be a “Honker”. In rodeo terms, it is “a really rank and hard animal to ride”. Yet Toronto, despite a stutter step out of the gate in 2008 and early 2009, has been a “smooth ride”, a steady seller’s market, and the most safe real estate bet in any country.

 

Could you have made a greater return on your Real Estate dollars someplace else in the world? Yes. Could that investment be categorized as a riskier bet than Toronto. Absolutely. And that is the difference that thousands of investors from around the world have come to respect. A properly diversified portfolio would contain some riskier plays with potential greater rewards, some cash portion held back for a rainy day, and a large chunk placed in a steady, relatively safer market, where the investment has the greatest chance to withstand a financial risk “tsunami” – such as what we saw in 2008.

 

Does that automatically make Toronto the new World Gold Standard for real estate based on the way it withstood the latest market collapse? Not without our government and our community realizing this opportunity in turning us into one. Savvy investors are already using GTA as a Heavy Hedge against any current and future storms.

 

Rather than putting all their money into precious metals and bonds, to avoid the effects of one-sided government policies and international merry-go-rounds of near-governmental bankruptcies, people from all over the planet are beginning to park their money in real estate in Canada (More Specifically Greater Toronto Area) as a safe haven.

 

This comes despite potentially greater real estate returns elsewhere, like south Florida, South Western U.S., Asia, and Australia.

 

The trend of investing in Canadian Real Estate has become so widespread and accepted as the new standard for safe betting, that while some locals have been fearing a “bubble”, they may be missing the overall trend that global investors have already seen and continue to propagate.   And it has nothing to do with profit. It is about safety.

 

Switzerland, that notorious world “loot bag”, has weathered World Wars and Collapsed Economies. Each international conflict, economic imbalance, and political catastrophe lead to a stronger argument for investors to park their treasure in that “hope chest” not to see greater returns, but to make sure that when the dust settled, the investor saw most, if not all the principal parked safely in one of Switzerland’s banks.

 

Can Canadians learn from our profiteering cousins? We already act as neutral peace keepers throughout the world. Can we abuse that brand in other fields? Sure we can.

We already have a great banking system that the world admires. We already offer a stable investment option for the world in the form of our real estate and Financial Institutions. Why not go all out and make real estate as the sustainable industry in Canada, then do more to invite the world to appreciate it? But is that a sustainable approach? Several simultaneous efforts must be made for the sustainability of this real estate market economy.

 

First, a strong real estate economy offers stability in a market that needs to give young aspiring new industries the greatest opportunity to emerge as self sustaining, growth industries. Industries like new technologies and Environment related industries lead to the type of employment opportunities that are quickly disappearing in the Manufacturing and oversized government sectors. These latter jobs, once gone, will not be coming back. Other emerging markets have the edge on us for some time.

 

While we offer the world a home, and let our Canadians build them one, all the spinoff industries will have a chance to absorb the currently and future unemployed. Once emerging industries come around, their well paid employees will then be able to absorb any surplus real estate. Sustainability.

 

Should Canada put its subsidy monies that are going into unsustainable economies toward promoting immigration of skilled labour to Canada and foreign investment? Should the Federal government market our country’s real estate to other foreign nationals? We a lot of land in this country, our greatest and most precious resource. That’s a lot of room for foreign cowboys.

 

THE COUNTERARGUMENT:

 

Invest in markets that have been oversold, depressed and have the greatest upside once the markets recover. Florida, Arizona, Vegas, Texas, California.

 

Yes, there is plenty of risk money in this world that is willing to pick up real Estate at rock bottom prices. These investors are willing to wait until the rollercoaster begins its ascent again. That is a long-term and an unpredictable. That potential return comes with its own opportunity costs and risks. Alternatively, same investors, if they believe there will be a big rebound in those markets, first could wait until they see the trend reverse itself from downward or bottoming out of the market, to a sustained tick upward, before buying into those markets. Sure it is harder to “day trade” real estate than the stocks. You don’t jump in and out of home ownership as easily as buying securities. However, should the investor not consider the inherent risks associated with looking after the property which is immobile, inflexible in use, depreciable (building), and not always self-sustaining, once purchase.

 

In the stock market, one of the truths is that in a down market you watch the stocks that had very little drop in value. Then, when markets show signs of recovery, the stock that dropped little will be some of the first ones to recover into new highs. Sure in real Estate there will be plenty of speculators to jump quickly onto the oversold assets, hoping for a huge bounce back on those properties. However, there is ample money that is proving that it is happier to be safe in Toronto, than sorry elsewhere. Once these investors spend time in Canada, they will be less likely to move all their investments out when markets elsewhere do recover. Canada grows on people.

 

New, younger industries in Ontario need time to mature, as a direct replacement of the declining manufacturing sector. For decades our government has been supporting low skilled, over paid manufacturing jobs, which had no sustainability in this market without the illusion the Government created with its enormous financial support. Those jobs have a sustainable life in other world markets. No amount of propping up those industries will change the evident current economic advantages in emerging economies.

 

Until new self-sustainable sectors of the Ontario economy blossom, our government must nurture this gift and invite the world to prop up our real estate industry, rather than allow our taxes to continue to fight a losing battle.

 

A sustainable real estate market has several key benefits:

  1. Spinoff job creations – skilled construction work force, as well as manufacturing companies related to materials, and supplies.
  2. Spin off economic benefits due to new communities, profits and taxes.
  3. Greater opportunity for foreign money and workers to flow into our country due to a robust sector.
  4. Stable economic conditions will lead to greater opportunity for our government to prop up virgin industries that are worth investing into. High tech, and innovation industries have the potential for the greatest financial returns and self-sustainability, rather than most manufacturing companies that have sucked billions out of our Tax coffers with no chance of surviving on their own without continued government support programs. We have options now.
  5. New industries are good employers of a highly skilled labour force. Stronger labour market can afford new homes. Better chance of market stability due to a robust domestic labour force.

 

 

Canada, take this opportunity to be a little more than a welfare state. The Cowboy mantra worked really well for our American cousins. They lead the world through its most aggressive growth spurts. As Canada enters the new world realignment of labour and resources, can we take advantage of this opportunity of circumstance, and exit through the front door, rather than be unceremoniously bucked off this economic horse through the back end, by not holding onto the main of this great opportunity?

Today we may be the Gold Standard for Real Estate, but this is a vehicle for leveraging one industry into supporting sustainable new economies, the likes of which Canada has not yet seen.

 

Office: P. 416.441.2888; F. 416.441.9926; 2145 Avenue Road, Toronto, Ontario M5M 4B2
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