Penthouse International: how rich foreign buyers are fuelling the condo explosion
The rumours are true: wealthy buyers from Russia, China and the Middle East all want a piece of Toronto. A story about smuggled cash, speculating flippers and empty towers
The Ghulmiyyah family is the definition of jet set. Originally from Lebanon, Hala and Majed had their first son in the United States before settling in the United Arab Emirates, where they oversee the Ghulmiyyah construction business. There, they had two more sons. The family’s base is a four-bedroom house in their company compound in Abu Dhabi. They also own a ski chalet and a beach house in Lebanon.
A few years ago, Hala and Majed began thinking about finding somewhere more stable than the Middle East to eventually retire. Friends and extended family extolled Canada’s benefits: Majed’s sister and uncle had lived briefly in Toronto, while good friends settled permanently in Montreal. The Ghulmiyyahs researched the country’s big cities online and decided that Toronto had the best economic prospects. They applied for permanent residency in Canada and, to get to know the city better, rented a two-bedroom pied-à-terre at Bay and Charles.
In 2010, their youngest sons, Khalil and Omar, moved into that unit to attend Toronto universities: Khalil, now 26, just completed a master’s certificate in project management at York’s Schulich business school, while Omar, now 22, is taking continuing education classes at Ryerson. Meanwhile, the family was granted permanent Canadian residency, and they began looking for a bigger home that could fit them all. Brandon Ware, a 34-year-old agent with Signature Realtors, took them on a tour of downtown condos with a maximum price of $800,000. In the fall of 2011, they bought a three-bedroom unit in a complex on St. Patrick Street, near the AGO. “We preferred Yorkville,” says Khalil, “but the new area has a lot of fun stuff close by. We’ve got the Entertainment District and Yonge and Dundas right there.”
Demand for condos from foreign buyers like the Ghulmiyyahs is helping fuel the downtown boom. Many international investors are attracted to high-end brand names: as many as 40 per cent of the units at the new Four Seasons condo-hotel were bought by foreigners, including the $28-million penthouse, which set a record price for Canadian residential real estate. Units at the Shangri-La—the ninth condo-hotel built by the Hong Kong–based developer outside of China—started at $800,000 pre-construction, and the marketing campaign focused on finding Chinese buyers.
The wealthy international elite all want a piece of Toronto, even if just for a little while. They’re buying a pied-à-terre for business trips, or as a home base to help secure immigrant status. Or they’re sending their children here on student visas, usually to attend private school or the University of Toronto. The 42-storey RCMI condo on University Avenue near the American Embassy has been bought largely by South Koreans for their U of T–bound kids.
The reasons these investors pick Toronto are multiple: low interest rates make it easy to buy; Canadian foreign ownership regulations are simple to navigate; and Toronto is home to a robust industry of consultants and brokers who cater to foreigners, often in their own language. But the biggest reason they pick Toronto is our famously stable real estate market. When so much of the world is experiencing political and economic upheaval, a condo unit high in the Toronto sky is seen as the closest thing to a safe haven.
Agents, developers and market analystshave wildly differing opinions on how much Toronto property is snapped up by non-residents. Some believe as many as 30 per cent of new condo builds are bought by foreigners. Statistics Canada doesn’t track real estate purchases by non-citizens, nor does the Bank of Canada keep tabs on how many mortgages foreign nationals are granted.
Everyone agrees, however, that foreigners have served as key investors since condos first began to rise in Toronto. The story starts back in the 1970s, when attractive pricing along the waterfront drew European interest. Then foreign money really began to flow here from Hong Kong in the decade before the U.K. gave up control. New houses in North York, north Scarborough and Richmond Hill became homes for Hong Kongers fleeing the spectre of Communist China; even those who stayed on the island stashed their savings in Toronto condo towers. Since then, waves of investment have come from newly minted millionaires in Russia, India, mainland China and the Middle East. Their money goes further in Toronto than in London, New York or Tokyo, and they’re confident their investment won’t plummet in value like so many have in Greece, Spain and Dubai.
Yorkville has become the neighbourhood most coveted by residential buyers from abroad, mostly because of its prestige. Several of Brandon Ware’s international clients have bought their condo units with cash to avoid mortgage payments. “There’s a huge demand,” Ware says. “We need more units to
Some of the money flooding into the Toronto condo market is smuggled here from emerging markets where residents are eager to escape totalitarian or corrupt regimes. An estimated $2.74 trillion left China by illicit means over the last decade, and roughly $501 billion left Russia during the same period. Over the past couple of years, many Iranians scrambled to invest their capital into new 905 condo towers before the Iranian government banned the movement of domestic currency out of the country this past July. And in India, the government grew so alarmed by the outward flow of currency that, beginning in 2010, it started opening income tax offices in other countries—its officials coordinate with governments in 10 countries to ensure that Indian citizens pay tax either at home or abroad.
Toronto’s developers know foreign buyers are smuggling in money but prefer not to ask too many questions—cash is cash.
The market for international buyers has grown so big that dozens of Toronto agents make it their specialty. Joanna Kao came to Canada from Taiwan in the late 1970s to study business at McGill, then followed her sister to Toronto, where they both found jobs in real estate. At first Kao mostly sold condos, but gradually she began to focus on international clients who wanted to buy commercial space. (Her handful of remaining residential clients tend to be the children of friends who are coming to Toronto
One of Kao’s biggest clients this year is a buyer from India who made his fortune running casinos in a former Soviet republic. When the global financial crisis hit, eight out of nine of his establishments went bankrupt. Seeking a safe place to invest the rest of his money, he asked the advice of a friend, an India-based furniture wholesaler with warehouses in Toronto. The furniture dealer introduced him via email to Kao, who then spent a few months sending him floor plans, links to websites and photos of both residential and commercial properties. Last spring, he was ready to buy, and he flew to Canada. On the plane coming over, he had an Iranian seatmate, with whom he shared his plan to pay $500 a square foot for a retail store space in the new Diamond plaza at York Mills and Don Mills. The Iranian, who owns some Toronto real estate himself, advised that this was an excellent use of a half-million dollars. By the time he landed, the Indian with the casino fortune was so excited about his investment that he spent only 10 minutes talking to the developer before jumping at the opportunity.
He has since decided to move to Canada and is waiting for his application for immigrant status to be approved. He has already bought a home in Stouffville to share with his doctor wife and their children. “If they are going to invest their money in Canada, it’s because they want to be here later on,” Kao says of her clients. She and the casino magnate have their eyes on another commercial property in the west end, to buy this fall. It’s listed at $3 million, but they’re hoping it will stay vacant until early winter, at which point they’ll make a lowball offer of $2 million.
Helena Wong, a sharply dressed agent with a shrewd smile, spent the late ’80s and early ’90s travelling to Hong Kong for the developer Tridel, soliciting buyers for new GTA condo projects. In the late ’90s, she went solo, travelling to China and teaming up with Canadian consultancies—they’d push the advantages of moving to Canada, and she’d represent Toronto condos. Around that time she met and married a fellow Torontonian named Wayne Murdock, then an agent for the now defunct Family Trust. Now divorced, they continue to work together—their connections are so solid that there’s rarely any need for international travel. People come to them. Murdock and Wong say Chinese buyers like Toronto because they don’t have to rely on an agent’s knowledge to figure out property value—MLS histories and the municipal assessment rolls provide reliable evidence of real estate appreciation.
The couple deals almost exclusively in pre-construction condo sales, and some of their initial buyers then turn around and sell their units for a profit while construction is still underway. Major developers like Plazacorp, which is building condos in Liberty Village, give Wong and Murdock a week or two to sell units with an incentive (a free parking spot or storage locker, or a break on the unit price) before the project is sold to the general public. Wong and Murdock pitch clients they know will be interested. They had success in late 2010 selling Plazacorp’s Edge and Edge 2 buildings near the Drake Hotel to Chinese buyers. At first, they had to work to persuade them that the gentrifying, off-subway location was a good investment. “They saw pictures of the area and said, ‘Ugh,’ ” says Wong. “We had to tell them about the zoning changes, the future, the upsell potential.”
Canada has lured international investors by making itself friendlier to real estate deals than many other countries. The rules and regulations here are much less onerous than they are in Mexico, for example, which won’t let outsiders buy oceanfront property. Australia, in response to growing complaints that purchases by non-citizens were driving up housing prices, introduced stringent new real estate rules for non-citizens in 2010. Now, foreigners are only allowed to buy new property (a move aimed at protecting the value of resale homes and increasing rental stock), the federal Foreign Investment Review Board must approve all purchases by foreign buyers, and temporary residents must sell as soon as their visas are up. Canada has no such limitations. In fact, we welcome foreign buyers because it promotes development—attracting foreign capital is a terrific way to kick off giant condo projects. However, it encourages developers to cater to investors rather than end-users, hence the proliferation of tiny units designed to entice landlords, not tenants.
Manuel De Sousa is a 47-year-old airline pilot who grew up in Oakville with his Portuguese parents. He has lived in Dubai for the past 12 years with his wife, Sharon, a Chinese-Jamaican from Scarborough, and their three kids. De Sousa decided his assets were far safer in Toronto after he lost money in various far-flung locales. One of his foreign purchases was a beachfront vacation home in the United Arab Emirates, which is now worth half of what he paid for it—in 2010, real estate in the country lost at least 50 per cent of its value. In 2005, he lost most of his investment in a vacation resort in Margaret River wine country, near Perth, Australia. “I’m going to have to work for five extra years to pay for that,” says De Sousa. The project got bogged down in municipal council objections. “In the end, there was nothing left, the banks owned everything,” he says. “If I had put that money into condos in Toronto, I could easily afford four of them.”
That would be in addition to the three he owns now: one near College Park that he’s renting out, and two in the process of being built, at Yonge and Eglinton and at Bloor and Lansdowne. De Sousa buys pre-construction to maximize his eventual profit, and looks for units that have two bedrooms and a den, which he believes are more appealing to the professionals he prefers to rent to. He manages his apartments through Linda Chu, an agent at Sotheby’s International, who finds him tenants like a Chinese-national executive spending two years in the city, and a doctor from the U.A.E. completing an internship at a University Avenue hospital. “That’s just a snapshot of the international interest in Toronto,” says
Although he holds Canadian citizenship, the Canadian Mortgage and Housing Corporation classifies De Sousa as a foreign buyer: the corporation cares only about residency, not citizenship. Anyone who spends less than 183 days a year in the country is categorized as “non-resident” and is ineligible for mortgage insurance. On the flip side, people who live in the country for at least half the year are deemed residents, even if they’re here as students or on other temporary visas—for real estate purposes, anyone with a driver’s licence and a credit card is Canadian.
De Sousa’s bank required a 35 per cent down payment to grant him a mortgage (some banks ask non-residents for as much as 40 per cent) and a deposit-secured credit card. Non-resident landlords are required to remit a quarter of their gross rental profits to the Canada Revenue Agency, and many also pay local property managers or superintendents to look after their tenants’ needs. None of this seems to act as a disincentive. De Sousa says that his aim isn’t rental income, but banking his principal and growing equity. “If there was a 15 per cent correction over a five-year term, I’d just keep renting them out,” he says. “I can sit back and wait.”
Asset protection, rather than growth, is also a central goal of the investors who work with the Toronto immigration advisors Helen and Vladimir Riabinin. “They’re actually even ready for some loss,” Vladimir says of his clients and their global real estate portfolios. Thirty thousand Russians have immigrated to Canada since Vladimir Putin came to power. The Riabinins’ clients find them through word of mouth, through their website, RussianToronto.com, and through their Russian-language YouTube videos highlighting various GTA neighbourhoods. Rental income is not a big draw—often, the Riabinins’ clients prefer to keep their condo units empty until they or their children get permission to live here, rather than deal with the hassles of having tenants. All they want is for the bulk of their principal to remain safe.
Five years ago, Helen earned her real estate licence so she could help her newcomer clients find homes. “I try to tell them to come for 10 days, or 14 days,” she says of their shopping trips. “But some just don’t have the time.” This past August, she spent four whirlwind days familiarizing a female client from Uzbekistan with the city: they toured close to 20 houses, lost a bidding war, opened a Canadian bank account, registered the client’s two sons (who have student visas) at a private school and bought a house in Richmond Hill. Before she left, the client signed over power of attorney so that Helen could handle any legal paperwork that comes up before she returns.
The ultimate goal of the Riabinins’ clients is, most often, to someday immigrate to Toronto. Until recently, the swiftest method was to apply for residency as an immigrant investor. To qualify, the candidate must have a net worth of at least $1.6 million and be willing to let Citizenship and Immigration Canada hold $800,000 of their money for five years and two months (after which it’s returned—without interest but with thanks for “creating jobs and helping the economy grow”). However, this past July, CIC froze the program in order to deal with a 25,000-application backlog. Immigration Minister Jason Kenney has mused about raising the immigrant investor buy-in from $800,000 to $1.6 million, saying that Canada isn’t charging enough for the privilege of becoming a permanent resident. The CIC says the freeze is only temporary, though it will inevitably discourage the Riabinins’ clients from investing here. The end of the deluge of foreign investors could mean the end of Toronto’s condo boom.