Property Values and Rents in 35 Major Global Cities

CBRE published a fascinating report earlier this year examining the housing markets in 35 cities. Below I’ve summarized some of the key findings of the report and show how property values and rents in Toronto compare to other major global cities.


The first chart shows Average Property Prices (as of 2018, in USD $) for the 35 cities –

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The highest property prices, by some margin, are in Hong Kong, followed by Singapore, Shanghai and Vancouver. Hong Kong also leads the global residential property market on a $ per sq ft basis, while other cities in the top 10 include cities such as Paris, London and New York. On the other side of the chart are cities like Istanbul, Ho Chi Min City, Bangkok, Kuala Lumpur and Lisbon. Istanbul is understandable given the economic malaise Turkey has been facing for about a decade (despite Istanbul being a growing and very dynamic city). Lisbon however I did not expect to be valued so low, given the investment taking place in the city and the burgeoning tech scene. But that investment could be attracted to the city due to its low property prices. 

The next chart shows change in property values for the 35 cities between 2017 and 2018 –

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House prices continued to grow in all but 5 of the 35 cities analysed; while four cities (i.e., Barcelona, Dublin, Shanghai and Madrid) saw double digit growth. Of the 5 cities that faced a decline in property values, are interestingly enough in the Middle East (i.e., Abu Dhabi, Dubai, Jeddah and Riyadh). As well, 7 of the top 10 high growth cities are in Europe (including Moscow and Istanbul). 

The following chart shows the average monthly rent as of 2018 in USD $ –

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The most expensive city in which to rent a property today is New York, with Abu Dhabi, Hong Kong, Jeddah and London not far behind. Toronto and Vancouver are closer to the lower end of the chart, with low rents relative to other major global cities. Keep in mind that the figures shown in these charts are in USD.

The chart below shows % Change in Monthly Rent between 2017 and 2018.

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Demand for flexible rental properties keeps rising across the world, which impacts rental costs. Five European cities feature in the top 10 annual rental growth chart, including Lisbon, Madrid, Dublin, Barcelona and London, with the other five from Asia (Hong Kong), North America (Vancouver, Toronto and Montreal), and South Africa (Cape Town).

Finally I wanted to show a chart that exhibits the ratio between property values and monthly rents to gauge generally in which cities yield might be highest if you were investing in rental residential properties. Keep in mind this is a very crude and rudimentary analysis, and does not take into account other critical factors associated with investment properties.  

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Southern European cities predominate the low end of the chart with low property values and high rents. On the other side of the chart are Vancouver, Cape Town and Toronto. Despite growing interest in renting in Canadian cities, rental rates are too low in some cases relative to property values for an investor to meaningfully make a profit – but they are growing (as seen in the previous chart). My previous article on which investment instrument would yield a better return (i.e., S&P 500 or Toronto real estate?) touches upon the topic of rent coverage costs. 


Overall the CBRE report presents some fascinating information and insight into the housing markets of 35 global cities. I feel however that the analysis would have provided a more complete picture of the relative situation in the global housing market with the addition of other major global cities across the world. For instance, no cities from South America, Japan, South Korea, Germany, the Netherlands and the Scandinavian countries are featured in the analysis – and many cities across these countries are recognizable and prominent on a global stage. As well, San Francisco would have been another interesting addition. 

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The State of the Resale Housing Market in Toronto’s Neighbourhoods

Following up to my post from a few weeks back on the general trends of the resale housing market in the Greater Toronto Area (GTA), I wanted to take a bit of a deeper dive into the neighbourhoods of Toronto with the following article.


Below is a map of the neighbourhoods (called “municipalities” by TREB) in Toronto that I will be referring to throughout this article. You can view the interactive map here

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First up is a chart showing how all the neighbourhoods in terms of dwelling values have performed since 1996 (indexed to 1996, and from lowest to highest shown). The City Average shows dwelling value growth rate of approximately 400% (or 13% annually) since 1996 (not accounted for inflation).

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To give you a sense of the price divergence between the worst and best performing neighbourhoods, I’ve charted out North York Centre East (C14) and Leslieville-Riverdale (E01), shown immediately below, as well as provided two charts that show the 5 lowest and highest growers relative to the city average.

 

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An important caveat to note here – some neighbourhoods such as the North York Centre’s (C07 and C14), Yonge-Eglinton (C10), and the Downtowns (C01 and C08) may show relatively lower dwelling value growth to 2019, and it is largely because the majority of transactions in those neighbourhoods are condos, which are priced lower than ground-related homes and have appreciated in value less since 1996. A good way of highlighting such a trend is to compare Yonge-Eglinton (C10) to adjacent neighbourhoods such as Forest Hill-Oakwood (C03) and Yonge-Lawrence (C04), as shown below.

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Over the last 10 years, condo sales in Yonge-Eglinton accounted for about 60% to 70% of total dwelling sales, compared to about 20% to 30% for Yonge-Lawrence and Forest Hill-Oakwood. When you further unpack the data and measure annual appreciation by dwelling type, ground-related housing (singles, semis, towns, rows) in all three neighbourhoods has appreciated by virtually the same rate since 1996 (as shown in the chart below). 

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The three highest growth neighbourhoods since 1996 are all next to one another, and they are – Leslieville-Riverdale (E01), East York-O’Connor (E03) and the Beaches (E02).

The next chart shows changes in dwelling values by neighbourhood between 2009 and 2019 (indexed to 2009).

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Although at first glance there appears to be an interesting mix of neighbourhoods occupying the top spots since 2009, Rosedale-Moore Park (C09), Rockcliffe-Smythe-Rogers (W03), East York-O’Connor (E03) and Leslieville-Riverdale (E01) all experienced some of the highest apprecitation since 1996 as well. On the other side of the chart are neighbourhoods such as Wilson Heights (C06), Etobicoke Centre (W08) and Bayview Village-Parkway Forest-Don Valley (C15), which experienced below city average growth since both 1996 and 2009.

The next charts shows changes in dwelling values by neighbourhood since April 2017 (Indexed to April 2017).

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Interesting findings include:

  • As of May 2019, Toronto’s average dwelling price is almost back at its April 2017 peak
  • Price appreciation in the Downtowns (C01 and C08) can be attributed to the continued growth in condo values.
  • The three highest growth neighbourhoods since 1996 (Beaches (E02), Leslieville-Riverdale (E01) and East York-O’Connor (E03)) have all exhibited great stability since April 2017

Below I show how resale dwelling prices in two different neighbourhoods, Don Mills (C13) and Mimico-Long Branch (W06), have performed since April 2017, along with the 5 worst and best performers. Dwelling values in Mimico-Long Branch have grown by roughly 20% since 2017, while Don Mills is experiencing about a 33% deterioration in values.

 

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Finally I want to chart out the average length of days a home stays on the market and the months of inventory historically to get a sense of sales levels strength by neighbourhood

The first chart below shows months of inventory for 6 year periods starting from 1996.

Months of inventory is derived by dividing the active listings by the total number of sales in a given month to determine, hypothetically, how long it would take to sell all the homes currently on the market (if no other houses were to come on to the market).

What is most fascinating about the chart below is that the period with the second lowest level of months of inventory (on average) was between 1996 and 2001, while the most recent 5 year period unsurprisingly shows the lowest level of months of inventory. The neighbourhoods with the lowest levels of months of inventory on average include Beaches (E02), Leslieville-Riverdale (E01) and East York-O’Connor (E03) – which were also the best performing neighbourhoods in terms of rate of price appreciation since 1996. Months of inventory appears to be highest in some of the wealthiest neighbourhoods and most impoverished ones.

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The final chart below shows the average days a home stays on the market before it is sold (or removed off the market). Once again, the infamous trio – Beaches (E02), Leslieville-Riverdale (E01) and East York-O’Connor (E03) take top spot. Following this group is (like the previous chart) Yonge-Eglinton (C10), Bloor West Village (C15) and Sunnylea-Queensway (W07). On the other side of the chart are generally the same neighbourhoods that also exhibit higher levels of months of inventory. What is also clearly evident in the chart is the decline in the number of days a home stays on the market in Toronto over the years. The number of days a home stays on the market today compared to the period between 1996 and 2001 has been halved.

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Overall key takeaways:

  • As of May 2019, Toronto average dwelling prices have virtually reached their peak 2017 levels
  • Some of the neighbourhoods to have bought in that exhibit the highest growth rates and generally strong sales levels include the infamous trio of Beaches (E02), Leslieville-Riverdale (E01) and East York-O’Connor (E03)
  • Homes in Toronto on average are spending about half the time on the market over the last 6 years compared to the period between 1996 and 2001
  • Months of inventory shows greater stability throughout the years compared to days spent on the market, but the last 6 years show strengthened sales levels, with about 1.9 months of inventory – meaning that of 19 homes that are actively listed in any given month, 10 sold

What is a better investment – Toronto Real Estate or the S&P 500?

This is a question my friends and I have long discussed and debated over. In this article, I  will attempt to once and for all solve this age old mystery.


If you compare rate of growth in the S&P 500 to dwelling values in Toronto, it is clear who the winner is – the S&P 500, but not by that much.

S&P500 vs TOre - 1

But this tells us only part of the story. A number of factors have to be taken into account before we know the final answer. For instance, the S&P 500 is based in USD, so we have to account for the conversion rate.

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So with the money accounting for the conversion rate, the S&P 500 still comes out as the better investment.

Timing also plays a big role. Both the S&P 500 and Toronto house prices went through an astonishing growth period since 1996.

The next few charts compare indexed rate of growth between the S&P 500 (in both US and CAD) and Toronto average resale dwelling prices at 5 different starting time periods – 1996, 2000, 2003, 2007, and 2009. I decided to pick S&P 500 ups and downs as they provide a general sentiment of the economy as opposed to Toronto house prices, which have experienced an astounding level of consistency since 1996.

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A few key takeaways from the charts above:

  • unbelievable how close both the S&P 500 and Toronto house prices finished off once you start at 1996
  • Toronto housing performs substantially better if you bought during the 2000s dot-com bubble
  • Fascinatingly, the S&P 500 in CAD performs better than Toronto house prices if you bought at the peak of the market in 2007
  • The S&P 500 performs substantially better if you bought at the bottom of the market in 2009

As is often said – timing is everything. 

The table immediately below shows how $50,000 invested in 1996 in real estate and the S&P 500 performs by May 2019 (assuming sale of shares and property in May 2019).

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So in this case, $50,000 performs much better in the S&P 500 (in terms of rate of return). But you come out with much more cash in your pocket investing in housing.

This analysis however isn’t particularly fair because it should treat the Toronto dwellings as a rental/income property (since it’s an investment). The next table accounts for that.

S&P500 vs TOre - 4

If you were to invest $50,000 in a rental/income property in Toronto in 1996, you would have crushed it in terms of rate of return – almost four times higher than the return of the S&P 500! This assumes you have 95% occupancy of your unit, with sale of the property in May 2019. Interestingly, after about 23 years of holding the property, rental income would have resulted in a loss of about $26,000. Below I show my assumptions for every year by month (assuming mortgage refinancing every 5 years at the BoC benchmark 5-year mortgage rate; rate of inflation applies to utilities, maintenance and insurance; rents based off CMHC and bumped up to account for higher values in Toronto; property taxes at 0.075% of house price).

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Finally, I decided to look at what the returns would be if you were to reinvest continually into the S&P 500 or housing in Toronto.

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In the table above, real estate once again performs significantly better than investing in the S&P 500. My assumptions include using remaining savings (after paying for housing and personal expenses) for monthly purchases of the S&P 500 all the way to April, 2019 or buying 2 more additional rental properties in Toronto in 2003 and 2014 (once you have saved up enough from your remaining savings to invest as a downpayment).

Detailed assumptions shown below (same assumptions apply as the analysis without recurring investment shown above ):

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On the bottom right you will see the calculations/assumptions for a downpayment, with $72,151 used as a downpayment for the unit purchased in 2003, and $124,879 used as a downpayment for the unit purchased in 2014. The downpayment is essentially your remaining savings after paying for your own housing, living and personal expenses. Net annual salary was assumed at $50,000 in 1996, reaching approximately $76,000 by 2019 (growing at the rate of inflation). Personal costs were assumed at about $1,250 in 1996 and growing at the rate of inflation to $1,918 by 2019 (personal costs includes things like food, personal care items, entertainment, etc.). I am assuming that the Toronto dwelling investor is an owner and pays a mortgage (as shown under dwelling costs).

And here are my assumptions for continual reinvestment into the S&P 500:

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I am assuming same salary and that the S&P 500 investor is a renter, not an owner (but paying the same rents that the Toronto dwelling investor charges). The remaining monthly savings get converted into USD, and then purchase shares of the S&P 500 every month.


Since 1996, it is very clear what the better investment was – real estate.

But there are a number of very important caveats to consider:

  • Timing is everything. I replicated the analysis if it began in 2009, and although real estate performs better once again, its rate of return is reduced significantly (maybe the next blog post will explore different starting periods)
  • What Toronto house prices went through since 1996 was a golden dynasty
  • What the S&P 500 went through since 2009 was astounding
  • The vast majority of profit made in real estate is from capital appreciation, not from rents. In fact, you generally lose money on rents (reminds me of that Ben Tal and Shaun Hilderbrand analysis)
  • Real estate is always the better investment if you can get someone else to pay your entire mortgage off – because your only investment is the downpayment
  • Although real estate shows much higher returns, the responsibility involved with it is much higher than just owning shares of the S&P 500
  • Real estate is not as liquid as stocks/equities