SOTHEBY’S PRESIDENT: CONDITIONS NORMALIZE IN CANADA’S LUXURY MARKET AFTER RECORD-BREAKING ECONOMIC ERA

by | Aug 14, 2022 | Real Estate

Real estate in Canada news: It’s a tale of two quarters for Canada’s luxury real estate market, says Sotheby’s International Realty Canada president & CEO Don Kottick.

Related: Regarding Luxury interview: Canadian real estate success story Rizwan Malik

According to Sotheby’s Top-Tier Real Estate: Mid-Year Report, looking at sales across major metropolitan areas in Canada through the first half of 2022, fuelled by continued shortages in inventory, low borrowing rates, and pandemic-driven lifestyle needs, sales activity and prices across the luxury market were still at historic highs. Inflation and geo-economic challenges across the globe were other factors.

Market highlights: Canada’s luxury market is normalizing despite a red-hot performance through 2021 and into 2022. Near-term hesitancy masks strong demand for housing. Consumers remain confident in the fundamentals of the Canadian real estate market. The luxury condo market remains resilient in a market that’s re-balancing.

Real estate in Canada news: 16 properties in the Toronto area sold for over $10 million

In the Greater Toronto Area, residential real estate sales over $4 million were up seven per cent year over year from the record-breaking first half of 2021. Sixteen properties sold for over $10 million – one more home than during the same period in 2021. Condo and attached home sales over $4 million posted annual gains of 13 per cent and 100 per cent in the first half of 2022.

That surpassed previous record activity in the first six months of 2021. Single family home sales over $4 million were up six per cent while overall residential sales over $1 million were down 10 per cent in the GTA.

In Vancouver, the story was a little different. The city’s fevered sellers’ market calmed, according to the report. Overall luxury residential sales over $4 million decreased 18 per cent from the same period of 2021. Sales of single family and attached homes over $4 million fell 22 per cent and 40 per cent year over year. However residential sales over $1 million were down 18 per cent year over year in the first half of 2022.

Calgary leads the charge

Calgary led the charge, as overall residential sales over $1 million saw a 40 per cent year over year increase during the first half of 2022, powered by re-energized consumer and business confidence. Relatively affordable top tier and luxury real estate prices drove investment from other Canadian markets. Sales of single family homes, attached homes and condominium over $1 million posted annual gains of 36%, 85% and 89% respectively.

In Montreal, the $4 million-plus residential real estate market saw a sales volume increase of 71 per cent year over year in the first half of 2022. Sales over $1 million were pretty much the same compared to the same period of 2021, with just a one per cent decrease. Condo sales of over $1 million saw the biggest increase of all housing types – 29 per cent. Sales of single family and attached homes over $1 million fell 9% and 10% year-over-year respectively.

Regarding Luxury spoke with Kottick about the current state of the market.

Sotheby’s listing: Naramata, B.C., 6,703 square feet, five bedrooms

With this re-balancing in the market, almost a psychological shift, do you expect an uptick in the luxury market again towards the end of this year and into 2023, since, as the report says, the fundamentals and appeal of the Canadian real estate market remain strong?

Right now, the market is normalizing after a very frenetic year. As we transition to fall, which is generally busier, there would typically be an uptick in overall transactions compared to the summer months. However, that uptick will be contingent on the size of the interest rate increase from the Bank of Canada. With buyers and sellers now coming to terms with the initial shock of rising mortgage rates, escalating inflation and global geo-economic headwinds, we will see more come back to the market with new expectations.

Above all else, the demand for housing remains strong, and we have every expectation that as the market comes into balance, potential buyers and investors who have been discouraged by recent years’ market conditions will re-engage to purchase a property that meets their needs.

Real estate Canada news: In terms of price point, what is the “ultra luxury” market compared to the “luxury” market, and do we need to separate between the two segments more? How much is market volatility and general unrest in the world impacting real estate decisions by people in the “ultra” segment of the market?

The definition of the “luxury” and “ultra-luxury market” is incredibly hard to define because it varies from market to market, from housing type to housing type, and the preferences of individual buyers. Because of these factors, we simplify this to some common price points for the purposes of reporting and for ease of comparison across geographies.

Real estate consumers that are in the ‘ultra luxurious’ segment are far less impacted by the ebbs and flows of the market, because they have greater financial means to adapt to rising interest rates. These prospective high-end buyers and investors are instead actively assessing emerging opportunities as the market adjusts and are more prepared to engage even as the market normalizes.

Sotheby’s listing: Calgary, Alberta, 2,696 square feet, three bedrooms

Real estate consumers that are in the ‘ultra luxurious’ segment are far less impacted by the ebbs and flows of the market, because they have greater financial means to adapt to rising interest rates.

Don Kottick

President & CEO, Sotheby's International Realty Canada

In terms of the ultra luxury market, what are some of the “strategic opportunities” they are assessing, by stepping back, especially in Vancouver?

As the market and listing prices start to normalize, strategic opportunities could be anything from purchasing a primary home in a neighbourhood where bidding wars have now dissipated, to a vacation home in a recreational area where prices are starting to moderate, or expanding a real estate investment portfolio for strategic investment.

Since these buyers have the financial capabilities, and often, the cash on hand to surpass any roadblocks for conventional and even luxury buyers, they are waiting to assess how the market will fare before making their purchases or sales.

Sotheby’s listing: Vancouver, B.C., 4,978 square feet, four bedrooms

Real estate Canada news: What does Sotheby’s anticipate for the Calgary and Montreal luxury and ultra luxury markets the rest of the year, and into 2023?

As Calgary continues to flourish economically and expand its employment sector, it is expected that market confidence will continue, though fall sales activity may be influenced by the next interest rate increase from the Bank of Canada. Calgary saw a notable uptick in interprovincial migration and investment, particularly from Ontario, which helps explain why the conventional and luxury real estate market was so active during the first half of 2022. Calgary is poised to continue its economic growth trajectory, ultimately bolstering the luxury real estate market.

Montreal, which saw significant employment growth in the first half of 2022, experienced a more predictable luxury real estate market during the first half of 2022. Confidence in Montreal’s luxury real estate market remains strong, even as the market balances. Montreal proper is expected to continue to see a steady market to the end of the year, though this fall’s Bank of Canada interest rate announcement may moderate activity.

Can you expand a bit on what you see for Toronto, in terms of “market resiliency”? What are some of the factors there?

Toronto is consistently ranked as a desirable place to live and work, is Canada’s economic engine, and has a strong global presence. While other investments were unpredictable throughout the pandemic, real estate remained a stable and lucrative choice for those with disposable income. This is part of what makes Toronto’s luxury real estate market resilient – its strong performance and global reputation.

We’ve also seen a consistent return to downtown living with Toronto condominium sales flourishing so far this year. This tells us that people are eager to return to the City of Toronto, whether for its lifestyle, incredible sense of community, or to be closer to work.

Sotheby’s listing: Hamilton, Ont., 2,349 square feet, three bedrooms

Would like to hear more thoughts/specifics on this drive towards ultra luxury pre-construction properties in Toronto, with higher amenity options, larger floorplates. What are some of the factors driving the popularity of that market segment?

The demand for urban living has rebounded post-pandemic. With that in mind, luxury buyers coming back to the city don’t necessarily want to spend their time refurbishing a resale condo. The alternative is to invest in pre-construction properties that are highly customizable and give luxury buyers exactly what they want in terms of size, location and amenities.

Sotheby’s listing: Ancaster, Ont., 4,868 square feet, four bedrooms

In terms of the luxury market, how much did simple buyer and seller fatigue from the red-hot conditions of the past 2 years impact the results in your report?

Across the luxury market, the competitive conditions of the past two years have impacted some buyers, sellers and investors, as they wait to reevaluate their strategic approach during a time of uncertainty. In periods of uncertainty, however, and as we wait for more balanced conditions, this is entirely normal.

Despite this, we saw markets like Calgary take off during this period, and Toronto showed strong resiliency. As hesitancy is not the same as lack of consumer demand or confidence in the housing market, there is still an abundance of pent-up demand and a real need for conventional and luxury housing across every major Canadian market, which is still reflected in the report.

Top image: Sotheby’s listing, Austin, Que., 8,000 square feet, six bedrooms; Images source: Instagram canada_sir

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