There has been lots of chatter of late about the current state of the Canadian real estate market, including the luxury market, and the impacts of rising interest rates. There’s another projected increase coming. But the market has already been stalled, according to data from organizations like TREBB.
Related: 5 questions for Mickey Alam Khan, president Luxury Portfolio International
Sales are down (41.4% in Toronto in June, compared to the previous June). Average sales prices are decreasing as well. Those in the business will tell you you also can’t use 2021 as an industry benchmark, either. That was an extraordinarily scorching hot market, with values and sales figures at unrealistic and unsustainable levels, in major Canadian markets. On the luxury end, rising inflation and favourable interest rates continue to strengthen demand for Canadian real estate as a hedge investment, Sotheby’s reported a few months back.
How many more interest rate hikes are needed to stall inflation, or are we there yet? It’s a big unknown, for all stakeholders. Knowing that, we caught up with Rizwan Malik, well known not only in Canadian real estate circles, as the youngest vice president of sales at Sotheby’s International Realty Canada’s history. But he is also known in Canadian real estate media circles, as a host of HGTV’s Hot Market.
As the series descriptor says: “The series follows top Canadian real estate agents Odeen Eccleston, Rizwan Malik, Rana Khaled, David Cinelli and Stephanie Adams as they navigate the high stakes world of one of Canada’s most competitive housing market. These agents are always hustling to land the biggest listings, find their buyers the most luxurious dream homes, and earn their client’s top dollar through transformative renovations and staging. In order for these agents to make it in this hot market, it’s all about the buy, the sell and the hustle.”
There’s no better place to go for on-the-ground intel than the people who are living it. We spoke with Rizwan:
How does the luxury market differ from the average market during times like these?
Whether it’s a half a percent, 2%, 4%, when it comes to these rising rates luxury buyers are not necessarily affected. So the average household has to sit back and say, we want to buy that $1 million home, and our payments will go up by X, Y and Z. But some of my buyers, buying in the luxury sector, they are OK. How it impacts them is more in terms of the overall property value.
When it comes to property value they don’t want to go out and spend quite as much as when the market was absolutely bonkers. They will say, you know what, rates are going up, we understand the value of this home was 5,000,000 bucks at the peak of everything. But we will give you 4.5 right now, because they are for the most part cash buyers.
When it comes to some of these luxury sellers they understand the market from a macro perspective. They are there rubbing elbows with the right types of people. They’ve got financial advisors everywhere making recommendations to them.
You know, I had a very prominent family, billionaires, and he was out buying his daughter her first condo. He bought her a gorgeous little condo. They wanted to spend $1.5 million and they did. So you know obviously when you get in situations like that I have to do my due diligence. So like I’m on the phone with them going, okay, I’m typing up the offer, do I put in a financing clause? It’s one of those questions where I have to obligatorily ask, but it’s like me taking my foot out of my mouth asking a billionaire this (laughing).
He said you know I am getting a mortgage for her on this because he said his money was doing way more for him elsewhere. That’s like me trying to suggest a mortgage broker to this guy. It’ll be like what the hell are you talking about? (laughing) I have a 30-year relationship with my financial advisors, they have the brokers. Do you think I need a mortgage broker from you? Traditional buyers are … not price sensitive to an extent but they are more payment sensitive.
Luxury real estate: Lifestyle focus
They want to be in a neighbourhood, like Forest Hill. They want to be on a specific street. They’ve had an eye on a specific home. At the end of the day keep in mind they don’t have money to throw away also. It’s specific to all of that but at the same time everybody wants to get the deal right.
Just this past weekend I was negotiating a contract for someone who was downsizing. She’s never purchased a home in her life because she grew up in her childhood home. She’s in her 60s now, so she grew up in her childhood home. Her dad passed, her brother passed and then her mom passed. So we finally found a place that she really loved. She was hounding me every single day – I want to get this place, what’s going on?
But it had an offer, so it was conditionally sold. The listing agent finally called me and said OK, the property just came back and it failed on financing, is your client still interested? I called her and said, okay, great news, the home’s available. And her first words were, what are we going to get it for? (Laughing). I am like, what do you mean? You have been even harassing me all week, now you wanna deal?
(In terms of rising rates) the conversations I am having with people is that the bank are in it just as much as every householder.
Canadian real estate: Value is in the eye of the beholder
Let’s say, even four months ago, five months ago, six months ago, a Leslieville property (Toronto) would be listed for $1.399 million. You would have 10, 15 offers on this home that would just drive the value up to $1.6 million, $1.7 million. Today with that same property for $1.399 million, on offer night, it may not be getting offers. So it’s not that the value has gone down. The interest has come to a standing halt.
If people see a lineup about something, everyone is like what the hell is going on, it must be really special and I want in. When you go in and there are crickets and there’s nothing but one business card sitting on the kitchen counter, it’s something different.
I did something similar where I just sold a great big house on Walmer Rd., just up the block up from Casa Loma (Toronto), for $5.5 million. It wasn’t set up for multiple offers or anything like that. On Day 1 I had four showing requests. So instead of spacing them out throughout the entire day I was like, okay great, I’ll see the first one at 1:30 p.m., then 2:00, 2:30 and 3 p.m.
So as they arrived they saw people leaving. I kid you not that night I had three of the four people making an offer, and within 24 hours it was sold for over asking. So that speaks to the psychological factor, drumming up that level of interest. And you can do that with luxury as well.
Canadian real estate: Can you talk about seasonality when it comes to luxury real estate, how the time of year when you sell or buy shouldn’t be as much of a factor?
It’s a little different when talking about luxury sellers, since they have the luxury to wait. They don’t necessarily need to sell right away. I mean there are some circumstances in which they can’t wait. They need the money out, like the bottoms falling out of the market, or there’s a divorce, but those [situations] are few and far between. I’ve had clients who were getting a divorce, they were in a big valuable home.
This is like September so they started talking to me, we need to sell this right away, everything finalized by October, November. So we need to be out. But they need to maximize that return because they’re splitting this now. So a half a million, two, three, four million makes a big difference. So maybe they wait until spring. It’s a completely different set of rules for luxury buyers.
When it comes to luxury market, again it’s one of those things where you know what you want and you’ll pay for it for the most part, unless it’s totally unreasonable.
Canadian real estate: Prices in the luxury market in places like Toronto and Vancouver, especially in the condo segment, continues to rise. What are your thoughts on that?
People are holding firm with their valuations that the market helped them build, especially if they’re in a position where they haven’t gone out and purchased where they want to go. We’ve established a certain amount of value with certain property types in certain neighbourhoods.
There was a great home in Cabbagetown, completely renovated, four bathrooms. I mean you don’t get four bathrooms in Cabbagetown. They finished the basement, two parking spots in the back. You can barely find street parking there. So they had all these luxuries, and listed for $1.9 million. And this home traditionally would have sold for $2.2 million, $2.3 million easily. On offer night, not a single offer.
But the sellers were really great. They said we will give you two more weeks with the listing, and we are going to increase the price to $2,299,000. That’s where they should have landed. Sure enough within two weeks they had an offer for $2.25 million and at $2.275 million they sold it. That’s because they knew what their property was worth.
Any other trends in the luxury market that you see?
We’re seeing a lot more exclusive listings, rather than being out on the MLS. So it’s like, we will sell the home to the right buyer for the right price. They don’t want to be out on the market because they think, what if we’re out publicly and we don’t sell for six months for eight months or a year? We don’t want someone coming in next year saying well you have been on the market for 365 days, I’m not going to give you $12 million, here’s $9.5 million.
Some people think, since the market doesn’t know whether it’s coming or going, we’ll give you [the agent] an exclusive, go find someone [for the asking price] to take the deal, and if not we will come up publicly when the market calms down a bit.
I listed something on MLS not too long ago and the client’s first request was they didn’t want a sign on their front yard. That’s very common. Some think it’s unsightly. It’s almost like they’re asking you for a bespoke sales experience. I say you know the home is so custom-tailored it needs its own custom-tailor marketing plan. They want to see what you can do without the for sale sign, without throwing a blanket canvas on a neighbourhood with 1000 mailers. They don’t want their neighbours getting a card saying look what’s on the market, because they talk to them.
So they’re like, how are you going to drive the traffic to my home, outside of just putting it on MLS, crossing your fingers, and hoping for the best? You’ll be walking away with a quarter of a million in commission so how much of that are you spending to bring that traffic to my home? These are very intelligent people. They want to see what you can do above and beyond.