Speculators could be responsible for up to one-third of GTA real estate sales

By: Dominic Licorish on March 23, 2017

A new report estimates that real estate investors make up 25-30% of GTA real estate market activity, putting blame on them for high housing prices.

The report, Freeholds on Fire: How Investors are Driving Up House Prices in the Greater Toronto Area, was produced by Realosophy Realty, a Toronto-based brokerage. According to The Globe and Mail, the study was born when John Pasalis, president of Realosophy, noticed real estate investors were more concerned about making big profits off the sale of a property instead of making steady income from rent.

He believes this trend is at the core of why the overheated Toronto market pushes regular buyers out in favour of wealthy speculators who flip homes once prices increase in a year or two. The last several years have seen average home prices in the GTA rise rapidly, often more than 20% in one year.

This behaviour, he says, is typical of an expanding bubble.

Pasalis decided to try and measure how big the impact of speculation on the market is, because there is currently a lack of research from the government on the matter. He measured investor activity by looking at all sales posted on the Multiple Listing Service (MLS) and then rechecking the listings to see if the property was put back on the market shortly after being bought.

The study also determined that about 95% of investment properties in 2016 lost money every month, suggesting the owners are more interested in profiting from selling than from renting.

Pasalis also concluded that while foreign buyers are likely to purchase using cash, domestic investors are much more likely to buy investment properties using debt, borrowing against equity on a principal residence to get the downpayment on an investment property. This behaviour, he says, is typical of an expanding bubble.

Considering that not every buyer will list on MLS, Pasalis thinks his numbers are actually lower than the reality.

He suggests the government needs to implement policies to regulate the market and mitigate the risk presented by unchecked speculation.