Many landlords face tough decisions about whether to hold or sell
Canadian investors, who once saw real estate as a secure investment, are now grappling with rising costs that outpace rental income, prompting an increasing number to list their properties for sale.
Bawelaya Isho, a 28-year-old car mechanic, bought a two-bedroom condo in Barrie, Ontario, two years ago for $600,000, hoping to build wealth through real estate.
However, higher mortgage payments, driven by rising interest rates, have pushed his monthly costs $1,600 above the rent he collects. After months of bleeding cash, Isho has decided to sell the property for about $80,000 less than what he paid.
“I was in the red pretty deep, but I was trying to focus on, ‘Let’s hold on to this place, and maybe in a couple of years I can make some money and flip it,’” Isho told Bloomberg. “I’m going to take my losses now and get out with whatever I can.”
Isho is just one of many Canadian housing investors feeling the financial pinch. New listings have increased across the country as property owners, especially smaller landlords, struggle to cover their costs. Though it is unclear exactly how many of these listings are coming from investors, many landlords are finding it difficult to generate enough rental income to keep up with elevated mortgage payments.
In recent years, rental rates in Canada had surged due to an influx of international students and immigrants, but this upward trend has now slowed. In some areas, such as Toronto, rents are even beginning to fall.
According to Rentals.ca, the average asking rent across all property types in Canada has been just below $2,200 per month this year, after significant growth in the three years prior.
Meanwhile, the potential for home price appreciation remains muted. Despite the slight decline in home values—the benchmark price of a home in September was $718,200, 3.6% lower than the year before—ownership is still unaffordable for many Canadians.
Home prices remain 36% higher than they were five years ago, and elevated borrowing costs have slowed the market. Houses are lingering on the market longer than they were just a few years ago, leaving investors uncertain about the future.
“The market outlook is not great [for housing investors],” said RBC economist Rachel Battaglia. “We’re expecting a very gradual increase in prices, which doesn’t do much to entice them. Rents have not been increasing at the pace they have been. And some investors likely got burned the last few years as well.”
Investors now account for almost one-third of all mortgaged purchases in Canada, but many of these smaller landlords are finding it harder to hold onto their properties as costs rise and rents stagnate.
“The tenants really have the power,” said Danielle Levy, a Toronto-area real estate broker. She is working with several renters who are looking to move to new properties in search of lower rent.
“Right now people are trying to move out from those places from last year to get cheaper rents,” Levy added.
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Investors trying to exit the market are finding it harder to secure buyers, as new listings have outpaced sales in many of Canada’s major markets. Condominiums, a favourite among investors, have seen the sharpest rise in listings. Data from the Toronto Regional Real Estate Board shows that condo listings have grown faster over the past year than any other type of property.
Adding to the challenge, nearly 27,000 new condo units are set to hit the market in Toronto this year, with even more expected next year. Most of these units were purchased by investors before construction began, when the market was more favourable.
“Investors are looking to sell,” said Shaun Hildebrand, president of real estate consultancy Urbanation. “You have all this supply coming in, most of it is investor-owned, and it’s hitting the market all at once.”
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