Luxury buyers should be ‘alert for property opportunities now’

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Latest real estate market data and expert insight show less competition and more favourable conditions

Discussions about Greater Toronto Area (GTA) luxury market trends depend on whether one is talking about homes priced over $4-million or properties that are over $10-million.

The reason is that the ultra-rich are not sensitive to interest rates, says Nigel Denham, a sales representative and senior vice-president of sales at Denham Brown & Associates in Toronto.

“They aren’t trying to time the market,” he says. “From a macro perspective, the luxury market is slower right now, on par with the overall market. However, even in the eight figures, a truly rare and high-quality asset can be absorbed very quickly if priced right. If something is presented to the ultra-rich that is truly rare and special, and it’s marketed and presented properly, then you can expect that property to sell.”

On the other hand, buyers in the over $4-million category are more aware of what’s going on with interest rates, and how they are impacting the market overall.

A just-released 2023 market study by Sotheby’s International Realty Canada reports that luxury sales activity in the GTA remained “calm and confident” throughout 2023, even subdued, as luxury buyers strategically repositioned themselves to capitalize on emerging opportunities.

More specifically, in the GTA – which includes the regions of Durham, Halton, Peel, Toronto and York – residential real estate sales over $4-million (including condominiums, attached and single-family homes) saw a 20 per cent year-over-year decline overall, with ultra-luxury sales (those over $10-million) being more stable, seeing just a five per cent year-over-year decline.

Sales of single-family homes in the over $4-million category were down 22 per cent year-over-year in 2023, while attached home and condo sales over $4-million saw more modest gains of eight per cent and 10 per cent, respectively. And residential sales of over $1-million were down 19 per cent year-over year in 2023.

Even as sales activity and price appreciation remained steady in 2023 – as the market absorbed such factors as rising interest rates, persistent inflation, a bumpy economic performance, regulatory changes related to housing and the announcement of a big municipal land transfer tax increase in Toronto for properties north of $3-million (with the city tax for a house in that bracket to go up one per cent, and rise from there), luxury sales gained traction in the third quarter of 2023, and ended the year with an “upward inflection,” says Don Kottick, president and chief executive officer of Sotheby’s International Realty Canada.

Luxury home buyers remained financially empowered, so they were more strategic and uncompromising as the year went on and as more listings came onboard that expanded choices. Luxury buyers remained ready to buy, but they were more selective, waiting for properties that met specific standards to come to market, and then were more assertive in negotiations on price and conditions.

Residential sales over $4-million were up 19 per cent year-over-year in the last half of 2023 in the GTA, and homes over $10-million doubled to 13 properties sold.

According to a 2023 Year-End Luxury Real Estate Market Report from Engel & Völkers, Toronto’s ultra-luxury market saw an increase of more than 50 per cent in sales above $8-million, compared with 2019, despite a foreign buyer ban and unfavourable market forecasts. Overall, the report said the luxury market in Toronto displayed “stability and resilience” in 2023, and a firm signal on interest rates from the Bank of Canada will influence a shift in buyer sentiment, instilling more confidence in the market.

“These first months of 2024 offer a true window of opportunity for potential luxury homebuyers,” Kottick says.

And in sales figures for January released by the Toronto Regional Real Estate Board, overall transactions were up 37 per cent compared to last year, but the market was tighter, potentially pointing toward renewed price growth heading into spring. Out of the 4,223 properties sold in January, 194 of those were for over $2-million. “There is a more favourable level of inventory as new property listings come on the market. However, with the Bank of Canada holding its overnight rate target at 5 per cent, there are still potential buyers who remain on the sidelines in hopes that rates will come down.

“That means that, for the time being, there is less competition for the properties available and a better opportunity for negotiation than in years past. Buyers will see competition rise as interest rates come down, so it is worthwhile to be alert for property opportunities now.”

Luxury home buyers and sellers are “uniquely adaptable” to changing conditions, Kottick says, and underlying demand for high-end housing – with the demand for single-family homes dominating the market – continues to be strong across the region.

The elevated price of luxury condos and rising carrying costs, plus “the unpredictability of government regulations regarding rentals,” have pushed more buyers toward single-family home ownership.

“While condominiums in internationally renowned luxury branded developments, as well as those in prime waterfront locations, are seeing the greatest demand, there remains room for negotiation in the luxury condominium market right now,” Kottick says. “This opens up opportunities for savvy buyers and investors.”

Feedback from other luxury realtors at ground level is similar to what Kottick is saying. According to Cailey Heaps, a broker with Heaps Estrin/Royal LePage in Toronto, luxury buyers will adapt to the increase in land transfer tax, which will be offset to some degree by the anticipated reduction in interest rates.

“The luxury market, especially for properties valued above $10-million, has historically shown a pattern of longer sales periods, often accompanied by price reductions,” she says. “This trend is likely to persist for several reasons, but one of them being the lack of strong comparables for properties in this range, as well as a smaller pool of buyers. Having said that, the demand for high-end properties in Toronto has been quite resilient. There is immense wealth in our city with an increase in the number of millionaires in Toronto.”

Buyers in the luxury market are typically looking for properties that offer more than just opulence. They want bespoke features and unique amenities, homes that reflect their lifestyle and personal taste, and offer frictionless living with such features as state-of-the-art technology, custom furniture and home spas.

Paul Johnston, who heads sales for North Drive Investment’s One Roxborough West luxury condo project in the Summerhill neighbourhood of Toronto, says “things are getting very busy,” and the market is picking up, with location being paramount.

“Great locations will always be in demand and always be resilient to market fluctuations and, of course, outperform even the strongest market,” he says. “So, I’m definitely seeing a refocusing of interest in homes in established and celebrated residential neighbourhoods, and a little less of a ‘pioneering spirit’ when it comes to less established areas. What sophisticated buyers looking for refined luxury want is a building of the right scale in a vibrant neighbourhood. It’s really that simple.”

Buyers are looking for projects that are quieter and more intimate, which are close to stores, parks and restaurants, he says.

“There’s renewed enthusiasm for the possibility of great development that responds to real buyers looking to live in unique buildings that truly respond to urban living,” Johnston says. “Buildings that place the homeowner first, and carefully consider what makes great urban living work. People are looking for the rare buildings that don’t compromise space, that provide truly spacious kitchens, great natural light, large living rooms and are truly focused on the ‘end user’ calling the building home.”

Another development in a similarly coveted neighbourhood is 2Fifteen, a new, luxury, purpose-built rental property in Toronto’s Forest Hill. On the rental side, 2Fifteen is 75 per cent sold out, says Bryan Levy, chief executive officer of DBS Developments, the company behind the project. With the market warming up this spring, Levy says they expect the entire building to be sold out within months, especially as people start to return to the city from winter getaways. DBS builds condos as well as rental projects.

“It’s definitely a buyers’ market [on the condo sales end],” he says. “There have been very few launches obviously, and you need the launches to start happening to get the supply. You’ve seen a lot of people on the sidelines waiting for the investor sentiment to improve before they go forward with their launches. At DBS we’re waiting to mid to late 2024 to do our next couple of launches and some of our friends at other companies are doing the same.”

Janice Fox, broker of record at Hazelton Real Estate Inc., says the high-end market is feeling “cautiously optimistic.”

“The third quarter and fourth quarter of 2023 felt very hesitant, while the first quarter of 2024 is leaning towards buoyancy,” Fox says. “Our clients are telling us they feel positive about the economy and its future in general, and the discussion around interest rates has particularly waned. Buyers are feeling that a closing that may take place in the next few years (as a pre-construction purchase) is likely a good hedge against future increases in prices.”

Michael Kalles, president of Harvey Kalles Real Estate Ltd., describes this as being an “interesting time” for the real estate market. The demand is there but there isn’t quite the activity that has been seen in years past.

What’s been most interesting for Kalles has been the “stickiness of prices.” As inventory rose throughout the fall of 2023, average prices held firm. During the peak market, in February 2022, 12 per cent of transactions on the Toronto Regional Real Estate Board were for over $2-million, Kalles says. Last November and December, that figure was closer to six per cent. Roughly 70 per cent of sales occurred in the range of $600,000 and $1.5-million, which is “the sweet spot of the market heading into the year.”

But it’s simply a matter of when the market will turn, Kalles adds, pointing to 2023 after banks implemented a 25-basis point increase after multiple periods of 50- and 75-basis point increases – people flooded to the market, unit sales went up, prices rose and listings were down.

“It should be clear to all of us what will happen when these buyers regain their confidence,” he says. “We’re going to be looking back between January and June of 2024 as the time of opportunity for buyers. Come June, when the rates come down … this market is going to return to where it was.

“There is massive demand. That has not disappeared. The nearly 500,000 new immigrants to Canada, the bulk of which come to Ontario, the 800,000 temporary workers and students – they need housing. Add in the pent-up demand from local households that have been delaying their home buying. And, of course, we have not magically solved our supply issue.”

That window in which buyers have an advantage might be closing faster than we think, realtors say. Kottick says Sotheby’s has seen an “active start” to 2024 in the GTA luxury market and, as spring approaches and a fresh supply of property listings come to market, he expects luxury buyers to become more active, with sales transactions rising.

Levy adds that, with all these factors at play, and with talk of interest rate reductions this summer, the market should “catch fire” in 2025 especially, with investors jumping back in and developers launching new products.

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