REAL ESTATE DEVELOPMENT.
WHAT IS THE TREND OF REAL ESTATE DEVELOPMENT IN TORONTO AND ONTARIO?
The Greater Toronto Area witnessed a huge uptrend in the real estate market during the past 5 years: a total of 36% price increase in the past 5 years (at the top of all major cities in Canada) and more than 15,000 new units built annually. The following outlines the main reasons why to the Toronto real estate market performs as it does:
• Demographically, Ontario has had tremendous population growth, and more of the same is expected in the future. Ontario’s population is projected to grow by 28% over the next 25 years, from an estimated 13.5 million in July 2012 to almost 17.4 million by 2036. The GTA’s share of the provincial population is projected to rise from 48% in 2012 to 51% in 2036.
• More than 70,000 permanent residents live in Toronto which stands for more than 25% of all permanent residents in Canada. An inelastic demand for living properties is created by current resident as well as immigrant populations.
• Ontario's population has an average age of 40. This explains a high working-age population and business activity in the Greater Toronto Area. 186 out of top 500 companies in Canada have their headquarters located in Toronto. A giant and growing central business district in Toronto bolsters demand for business properties.
HOW IS THE RISK OF REAL ESTATE DEVELOPMENT?
Real estate development has higher risk than syndicate mortgages and private properties investment for the following reasons:
• Investors may expect a lock-in of capital. If a project takes 3 years to complete, it is likely the investors will collect principal and profit at the end of the project. Compared to syndicated mortgages and owning a property, cash flow is not generated in this investment category.
• In a real estate development project, while enjoying a higher return, investors have lower rank in asset than syndicate mortgage investors.
• A high level management team is required to secure a successful project and deal with multiple counter parties. This involves a perfect combination of legal, analysis, accounting, project planning and marketing.
These factors reduce the risk of developing projects:
• Most properties are sold on a determined price with a considerable level of deposits long before the builder actually starts. This means before the project is half done, investors know exactly how much they will receive in the future.
• As inflation continues, land appreciation most likely beats financing and other costs.
The Greater Toronto Area remains a high return area for real estate development projects. The performance is expected to continue in the coming years.
HOW IS THE RETURN OF REAL ESTATE DEVELOPMENT?
Real estate development project returns are difficult to estimate and are highly dependent on specific projects and their management. However, on average, development projects in Toronto yield a 15%-30% annual return.
SPECIALTY OF OCHRE CAPITAL MANAGEMENT
Ochre Capital manages real estate development projects and partners with top builders. Ochre Capital also partners with other developers in fund raising and project management. We strive to secure the highest quality of project management and the lowest cost to create the best return.
Ochre runs real estate development projects that create permanent jobs and add long term value to local communities.
As an investment manager, we are able to customize projects for investors’ specific requests and investment preference. If you are interested in investing in real estate development projects, please contact us for more details.