Real estate in Canada has been booming over the past decade. In Vancouver, the price of single-family homes skyrocketed from C$400,000 to C$1.75 million in just 15 years. Toronto saw a jump in average home prices from C$376,236 in 2007 to C$822,681 in 2017.
But now there are signs of a slowdown. In February, home prices in Toronto declined 35% from the year before. Real estate analysts anticipate that rising taxation and interest rates, along with a decline in foreign investment following new taxes on non-Canadian home buyers, are causing a softening of the market.
But buyers who look beyond Vancouver and Toronto to Canada’s secondary markets could be rewarded with stable long-term investments—and locations that make for relaxed and picturesque vacation destinations.
"The secondary markets are interesting because they do get looked over, but there’s a lot happening there," said Kimberly Poffenroth, vice president of business development and market analysts with Urban Analytics in Calgary, which provides real estate industry data to developers, planners, and financial institutions. "One reason to look in places like Calgary and Edmonton is that they haven’t seen the price inflation of Toronto and Vancouver. Prices haven’t gone crazy over the top, so they’re more stable, longer term investments."
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Other Canadian markets, meanwhile, may offer more substantial returns on investment. Victoria, the capital of British Columbia, a 35-minute helijet ride from Vancouver, was named the world’s hottest luxury market by Christie’s last year. And this year, Montreal has taken the lead as Canada’s strongest luxury real estate market, according to Sotheby’s International Realty Canada.
Still, investors in markets like Victoria shouldn’t expect a huge uptick in appreciation, said Jack Petrie, a Victoria-based broker with Christie’s, but rather a comfortable lifestyle in a place whose appeal won’t run out anytime soon.
"It’s like a holiday year round. It’s about the pleasure of living here," he said. "Victoria is a place for investors who want to buy where people are always going to want to move."
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Prospects for Long-Term Investment
In cities like Calgary and Edmonton, Alberta, investors can expect something of a slow burn. In PricewaterhouseCoopers’s 2018 forecast for Canadian real estate, survey respondents ranked Calgary ninth and Edmonton seventh of markets to watch for investment.
In both cities, the GDP is expected to grow 2.2%this year, and the provincial government is pushing initiatives like Invest Alberta to encourage new business growth.
Another indicator of a strengthening market in Calgary and Edmonton are the cities’ low rental vacancy rates of about 3%, Ms. Poffenroth noted.
"You’re not going to see a crazy increase in prices where you’re able to get a quick return, but it’s a stable, long-term hold," she said. "The vacancy rate of new product is quite low in these markets. We are still expecting to see population growth in both cities, so that would put further pressure on rent and provide even greater returns."
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House prices are on an upswing in Montreal, meanwhile, with the average cost of a single- family home up 4% from last year, but they’re still far from hitting their peak.
"Vancouver and Toronto have reached their maximum and it’s going to slow down, but Montreal still has a gap," said Patrice Groleau of McGill Real Estate and Engel & Völkers Montreal. "Montreal is an island, so it’s limited in terms of land available."
Because of limited space and trends toward urbanization increasing demand for housing in the Quebec city, Montreal will reach the price point of Vancouver and Toronto eventually, Mr. Groleau said.
"We’re getting to acceleration mode. There’s a crazy premium being paid for empty land," he added.
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Also fueling Montreal’s strengthening real estate market is the fact that unlike Toronto and Vancouver, the city does not impose additional taxes on foreign buyers. French speakers are often drawn to Montreal for its lack of language barriers, and buyers from not only France but also other Francophone nations, like Belgium, Switzerland, Tunisia, and Morocco are investing in the area. Americans, too, are attracted by favorable exchange rates. (C$1 is currently $US.77.)
Furthermore, the Quebec sovereignty movement, which once pushed for the province’s secession from Canada, has long ceased to pose any real risks, said Daniel Dagenais, a Montreal-based broker with Sotheby’s.
"Today you have young professionals from France moving here, where they feel the future will bring more opportunities, compared to European countries that have been struggling economically in the last 10 years. Plus, the political risk [of secession] is gone," Mr. Dagenais said. "All this together makes Montreal a good place to invest."
In the South Georgian Bay region, Collingwood and Muskoka, Ontario, have long been popular holiday destinations. In the summer, Muskoka, long a luxury market, draws vacationing celebrities like Kurt Russell and Cindy Crawford. Collingwood, previously more affordable, is now seeing increased demand and low inventory. Both destinations are beginning to attract an increasing number of retirees, as well as foreign investors.
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"The Baby Boomer wave is about to turn into a tidal wave, as those people get older. They buy places for vacation with plans to move permanently when they retire," said Max Hahne, license partner and private office advisor with Engel & Völkers Collingwood Muskoka. "We're also getting a lot of foreign buyer interest lately, from people who have established roots in Toronto and then want to have that house in the country, for skiing, golf, and boating."
Victoria, British Columbia, too, shows promise for investors. In addition to being named Canada’s hottest luxury market in 2017, the city was also dubbed the country’s hipster capital in April. Buyers from both the United States and China have been turning their attention to the city, and a luxury estate in the suburb of North Saanich recently sold for $9 million, the biggest sale in the Greater Victoria region in 12 years. However, investors should be cautious, as the real estate market there shows some signs of cooling.
Mr. Petrie attributed this to the slowdown in Vancouver and Toronto, both "feeder markets" to Victoria, but said that the provincial capital’s charisma is still drawing young newcomers.
"Buyers from those cities aren’t selling their multi-million dollar homes as quickly," he noted. "But the condo market here is strong. Condos are being sold before they’re even built."
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What You’ll Find in Canada’s Secondary Markets
Along with the potential for stable long-term investments, Canada’s secondary markets offer buyers proximity to natural beauty, plentiful opportunities for recreation, high-quality and affordable schools and universities, and other appealing lifestyle factors.
"You’re so close to the mountains in Calgary—it’s right in the Rockies," Ms. Poffenroth said. "There are international airports in Calgary and Edmonton for easy access to overseas, great universities, and lots of job opportunities. It’s still a stable choice when looking at investment."
She pointed to SKY Residences in Edmonton and Park Point in Calgary as examples of high-end new developments that are indicative of growth in both cities’ luxury markets.
"There are plans for new, higher-end luxury products coming up in the next few years that will draw in the type of buyers you see in Vancouver," she said.
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In Montreal, "all the big brains of the planet are coming here," Mr. Groleau said. The city’s start-up economy is strong, with tech companies moving in to take advantage of its highly educated workforce, and in fact, Montreal had the highest job growth last year of cities in both Canada and the United States.
"We have crazy good universities," Mr. Groleau said. "We’re getting into that perception that we’re the Boston of Canada. Tuition fees are really low, so parents are sending their kids to Montreal."
Culturally, Montreal has much to offer, too, he added, with its distinctly European flavor, and vibrant bar and restaurant scene.
"It’s attractive to workers, tourists, and students, and you have all that mixed together on an island, so it’s booming," Mr. Groleau said.
In Victoria, it’s about the intangibles, Mr. Petrie said, like its atmosphere of friendliness, as well as more measurable quality-of-life factors like climate; Victoria’s winters are mild compared to those of many other Canadian cities.
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"You can be outside year-round and play golf in February. We get double the number of hours of sunshine as Seattle and Vancouver," he said. "People come as tourists, and Victoria morphs from a place to visit to a place to live."
Like Montreal, the dining scene in Victoria is lively--the city has the most restaurants per capita of any in Canada--and educational standards are high, drawing buyers from around the world who want their children to attend the local schools, he added. Plus, Victoria’s location means easy access to other cities like Vancouver and San Francisco.
"Victoria is what you wish the world would stay like," he said.
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