Canada’s new immigration targets will drive the real estate market activity

Canada’s new immigration targets focus on offsetting this year’s newcomer decline. It may lead to a stronger activity at local real estate markets, particularly in major urban centres.

During the period from 2021 to 2023, Canada’s government plans to welcome 1.2 million immigrants. In case it happens, it will compensate for 2020’s sharply reduced results, caused by the COVID-19 pandemic.

The new immigration targets, representing about 1% of Canada’s population, exceed the previous targets by 50,000 immigrants per year.

According to Toronto Regional Real Estate Board’s (TRREB) Chief Market Analyst Jason Mercer, it doesn’t matter if we talk about renting or purchasing – the Greater Toronto Area’s real estate market will definitely benefit from new immigrants, as it attracts people from all over the world due to its cultural and labour diversity.

“Growth in the real estate market is based on population growth, and in case of Canada (especially the GTA), immigration is a main driver of population growth,” – Mercer noted. “In my opinion, the GTA is Canada’s main beneficiary of that immigration.”

Although only 60% of 2020’s 341,000 newcomer target is expected to be reached, CIBC Capital Markets’ Deputy Chief Economist Benjamin Tal says there are certain offsetting factors: a large number of new immigrants are already in Canada, the number of returning citizens to Canada is growing, and the phenomenon of “brain drain” has been restrained.

“There are many factors offsetting the decline in immigration, but obviously this factor affects mostly the rental market now, as most of the newcomers tend to rent,” – said Tal.

We’ve seen sharp prices declines and a supply increase at Canada’s rental markets, especially in large cities. Partially, it’s because of fewer international students and immigrants arriving in 2020. Nevertheless, Mercer believes the immigration growth over the next three years may absorb rental inventory very fast, bringing us back to tight market conditions and higher prices.

The report by Royal LePage from 2019 says only 18% buy a condo. Meanwhile, Mercer says the condo markets could also face a higher rate of inventory absorption.

“It’s obvious that when you switch from renting to your own property, many newcomers will focus on condos first”, – he noted.

As a rule, a newcomer buys home three years after moving to Canada. According to Tal, today’s buying newcomers are not necessarily affected by the virus. All the delays to immigrants buying properties will be seen three years from now, and not in 2021.

“The same scenario applies to two years ago, or even a year ago. The influence will be seen three years from now when people start purchasing,” – said Tal. “However, by that moment, we’ll face certain compensation from the immigration growth in the coming few years.”

Tal says the suburbs outside of large cities are the hottest areas for newcomer homebuying. Now, more immigrants choose suburban communities with a better affordability. Nevertheless, in his opinion, it’s not a long-term tendency.

“I believe in the short-term it will lead to more sales in suburban markets, but in 2-3 years, when the crisis is over, we’ll get back to the previous trend”.