Property

Urban complements — Chicago and Toronto

Chicago vs. Toronto

Natives of both Chicago and Toronto will admit that each city reminds them of the other. Both are blessed with four vibrant seasons, perched on one of the Great Lakes. Both have had long-suffering Original Six hockey teams — though Toronto currently dominates that fight. 

But both also have robust real estate markets that are smart investments for the long run. Is one better than the other? Call it a draw.

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The Windy City

Chicago is the home of the skyscraper. Without the engineering pioneered there, IFC and the Petronas Towers may not exist. Chicago is beyond a doubt one of the United States’ most vibrant, 24-hour cities, and the major MNCs (Boeing, McDonald’s) moving in seems to support that. Home prices have been growing steadily in Chicago for the past five years but have yet to reach the city’s pre-2008 levels. S&P CoreLogic Case-Shiller stated February prices in Chicago were up almost 5% over 2016. Median house price was roughly US$275,000 (HK$2.1 million) but with prime locations such as Lincoln Park running at US$1.5 million and US$450,000 for condos. On the rental front, new downtown apartment towers are likely to stiffen the competition for landlords: rents are steady at US$2.90 per square foot but occupancy is falling after a record 3,830 new apartments became available in 2016, with 8,700 more by 2018.

At the end of 2016, the National Association of Realtors made the dire prediction that 2017 would be a rough one for Chicago, forecasting prices to rise just 1.95%. At the heart of the problem is low population and job growth, the cornerstone of any healthy property market. That said prices are still approximately 20% below 2007 peaks, making now a good time for home-seekers and investors alike. But Christian Beaudoin, research director for Midwest markets at JLL in Chicago disagrees. “Chicago is generally a market of stability and affordability, when compared to coastal peer cities like New York and San Francisco. Although residential properties may not appreciate at the same pace as in other markets, the market is generally more stable than competing cities and we see lower price fluctuations.”


Chicago vs. Toronto

There are, however, a few potential flies in the ointment for Chicago’s status as a strong investment, chief among them alienating policy changes from Washington, and the troubling fact that Chicago and Illinois saw population losses in 2015 and ’16 — core Chicago excepted. Greater challenges also exist in tax issues and the city and state’s fiscal health. “Jobs are the fuel in the housing engine, and Chicago continues to create jobs and see employment levels rise,” says Beaudoin. “However, businesses respond to incentives and taxation, and it is up to our city and state governments to achieve a more sustainable, balanced budget so that local businesses have certainty in their expenses going forward.”

Chicago is a city of neighbourhoods and depending on whether investors are seeking growth or stability, there’s something for everyone. Lincoln Park and Lakeview (north of the Loop, between the Chicago River and the lake) are reliable options, but dramatic population growth and development have put spots like downtown Fulton Market — where the population has recently grown 300% — on investor radar, with outlying areas like Oak Park and Evanston offering strong appreciation.

The Big Smoke

Fair or not, Toronto has a reputation for cultural diversity, safety and social progressiveness that Chicago can’t quite match, and it’s one Torontonians wear proudly. And unlike Chicago, demographics favour investors, with the population growing at 100,000 new residents per year — 50% of whom are traditionally tenants in their first five years. On the property front, super-mansions, trendy loft apartments, slick condominiums and bland rental blocks often sit within the same postal code. Currently, average home prices in Toronto are sitting at just over CA$900,000 (HK$5.1 million) — up 33.2% from 2016 — and affordability is at its worst level since the mid-1980s, according to RBC Economics. Currently, it is the least affordable city in Canada.

Still, for many foreign currencies, Canada is a good buy, with the Loonie sitting at roughly US$0.73, in addition to historically low mortgage rates. Average rents for Toronto condominium apartments climbed 11% in the fourth quarter of 2016 and the city’s vacancy rate is at a 12-year low of 1.3%; rents are running approximately CA$3.50 per square foot in the downtown core. Unlike many North American cities (admittedly changing), Toronto has always been a living city, with homes and apartments downtown the preferred choices: in business-friendly Bay Street, artsy King Street (Liberty Village), the lakefront (HarbourFront and the trendy Distillery District), and revitalised Regent Park, all of which are in close proximity to employment corridors and two of the city’s most prominent universities.


Toronto

An overheated market mirroring Vancouver’s led to speculation that Ontario would levy its own foreign buyer’s tax, and in April, that very tax happened. The new “Fair Housing Plan” is 16 measures designed to increase affordability and stabilise the real estate market. For investors, it means a 15% Non-Resident Speculation Tax (NRST) for non-citizens, non-permanent residents and foreign corporations (for multi-unit buildings) buying residential properties. The plan also expands private rent controls, already strong in the province and the power for municipalities to levy a tax on vacant homes.

Even with the tax, Forest Hill Real Estate’s Jennifer Chan argues that for foreign buyers, “Yes, [Toronto] is a good investment, as their priority is moving their capital to a safe haven. Canada is still seen as being politically, economically and financially stable. The 15% tax is just the cost of business. Although Toronto prices won't continue to see 30% growth year-on-year, the influx into the city each year will keep up the demand for housing.” Chan doesn’t think the tax will have much of an impact (luxury properties excepted), prices remain relatively reasonable for an international city and, significantly, Ottawa isn’t nearly as threatening as Washington. 

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