This is an article from Canadian Real Estate Magazine by Suzanne Sharma.

As real estate prices across the country continue to climb, owning a big-ticket home is no longer just for the rich and famous. In fact, in some markets a million-dollar price tag is merely a starting point. Suzanne Sharma looks at whether it’s really worth breaking the bank for these high-end properties
One of the driving forces behind the increase in Canada’s overall real estate market is the nation’s luxury market, defined as properties and homes that are worth more than $1 million, have desirable amenities and scenic views, and are in a good location with a low crime rate. According to the 2007 Carriage Trade Luxury Properties Poll, 12% of Canadians reside in homes that fit this description.
“The great strength of our economy is allowing senior executives and those that are affluent to get into the luxury home market,” says Darryl Mitchell, manager at Royal LePage Real Estate Services Ltd. “If they’re already in that market, then they’ve been able to increase their equity and invest.”
According to a report by Merrill Lynch and Capgemini, the number of Canada’s high net worth individuals – defined in this case as people with assets (excluding primary residence) exceeding US$1 million – is growing at an annual rate of about 6.9%. As incomes rise, these individuals are finding it easier to purchase high-end properties.
A safe bet?
Mitchell notes that the tax structure in Canada encourages buyers to purchase more expensive homes. “One of the only ways that a person can gain wealth and not get taxed is by the purchase and sale of a home,” he says. “A single-family residence is exempt from being taxed.”
However, these high-end homes are not for the average Joe, since it could be extremely difficult to meet mortgage payments. “Some people might be tempted to buy a very expensive home with mortgage payments at the verge of their capabilities because our rates are still very low and might go even lower next year,” says Walter Koziej of Mercury Mortgages Inc. “But what happens three to five years down the road when the rates do go up? It’s a disaster waiting to happen.”
Luckily, Canada’s mortgage system typically doesn’t allow people to borrow over their limit. The sub-prime lending crisis in the United States, where lenders offered borrowers a low rate for a short period of time and then dramatically increased the rate for the rest of the term, is not an option here.
If you have the funds to purchase a luxury property, then Vancouver, Calgary and Toronto lead the luxury market race with average high-end prices greater than $1million. According to Royal LePage, Edmonton is also gaining momentum, with the average luxury home just shy of the mark at $950,000. This makes the city a good buy now, since many realtors in the area are expecting Edmonton’s high-end market to soar in the next few years.
Vancouver prices breaking records
British Columbia still boasts the most expensive real estate in Canada, with cities such as Vancouver, Victoria, South Surrey and Kelowna all breaking the $1 million average point, according to RE/MAX.
Vancouver is also the province’s top producing city in terms of investment dollars. According to RE/MAX, the average luxury property in Vancouver costs more than $2 million and the average price per square foot is $2,000. In fact, it is almost impossible to buy a property for less than that in the downtown and inner-city areas.
“Prices have increased so much that the average person with the average income cannot afford to buy a condo in the downtown core, so they have to buy outside the city,” says Christa Frosch, real estate agent at Sotheby’s International Realty Canada. “Therefore, there is more high-end product sitting on the market due to price appreciation.”
The high prices have not deterred international investors from purchasing within the city. These types of buyers, classified as ‘ultra-upper-end buyers’, typically purchase properties listed above the $2 million price point.
“Before, Vancouver was kind of a sleepy town and not really on the radar,” says Ben Kielb, real estate agent at Sotheby’s International Realty Canada. “I don’t think the market warranted having luxury properties because it was too risky. But now you’re attracting investors from Eastern Europe, China and Dubai, and you’re opening it up to the world.”
Additionally, the ageing Baby Boomer population has taken an interest in Vancouver real estate. “Baby Boomers are a very large market segment and have taken advantage of significant amounts of equity buildup over the last few decades,” says Cameron Muir, chief economist at the British Columbia Real Estate Association. “Many of them are translating that equity into luxury properties. The wealth of the Boomers is adding to demand.”
Waterfront properties and homes with mountain views tend to be the investment of choice for buyers. According to RE/MAX, areas west of Vancouver, such as Kitsilano and Coal Harbour, have had the highest appreciation, as well as unit sales, with many properties selling in 30 days if well priced.
Calgary surges ahead
2006 proved to be a booming year for Alberta’s real estate. It was a period when in-migration increased, creating a buyer frenzy, which subsequently caused property prices to rise. Calgary became a city with a prominent luxury market and an average price of $1 million, according to RE/MAX.
The capital that is being made in the oil and gas industries in Calgary is attracting many executives who are moving into the area and purchasing high-end real estate. Additionally, the city boasts one of the highest average family incomes in Canada.
“People pay a lot more here in the luxury market than even in the United States, but people will buy here because the job market is so good,” says Thomas Keeper, real estate agent at Century 21 Terrace Real Estate.
There has been a 57% increase in high-end units sold in Calgary, according to RE/MAX. Keeper notes that two years ago, only half of the homes priced at more than $1 million would sell in the first year, whereas now these properties generally sell within three months.
Lakeside properties south of Calgary in Lake Bonavista, Arbour Lake and Auburn Bay are the most popular with buyers. Additionally, country estates that are situated on two- or three-acre lots are an investment of choice.
“If you can afford the high-end payments, it’s a win-win situation,” says Keeper. “If the market goes down, you get to live in a beautiful home, and when the market goes up, the gains are exponential.”
Toronto tops the luxury meter
Real estate in Ontario has continued to swell in both price and units sold. Areas such as Kitchener, Mississauga, and Hamilton have become excellent investment opportunities; however, it is Toronto’s luxury market that has taken the province by storm.
In the first three quarters of 2007, 2,201 high-end properties were sold, a 33% increase over the same period last year, according to the Toronto Real Estate Board. In many parts of the city, entry into the luxury market will cost closer to $2 million, which is quite an increase from 25 years ago when the highest properties were in the $300,000 price range.
The most sought-after homes in the city are just north of downtown Toronto in the Forest Hill area, which is up 78% in sales year-over-year, and Rosedale, which is up 13% in sales year-over-year according to RE/MAX. In the north end, Yorkville is the number-one choice for high-end condominium investors, with the Four Seasons Private Residences, Trump International Hotel & Tower and Shangri-La all selling at a rapid pace.
“The biggest reason for the increase is immigration,” says Mark McLean, partner at Sotheby’s International Canada. “We’re seeing a lot of people coming from other parts of the world who are looking for stability, cleanliness and education, and the reality is that in other parts of the world such as Paris, London, New York, real estate is so expensive.”
The average high-end property in New York is about $5,000 per square foot according to McLean. In certain parts of Paris and London, luxury properties are averaging about $8,000 per square foot.
Risks and rewards
Buying high-end definitely means that you get the very best in location, amenities and features, as long as it is within a price range that you can afford. However, if it’s an investment you’re looking for, the luxury market carries a higher level of risk.
“If the market cools or goes sideways, luxury homes are tougher to get rid of,” says Kielb. “It’s a lot easier to sell a $300,000 condo than a $5 million home. People are a little more hesitant and cautious.”
It is also more difficult to invest in a luxury rental property. McLean notes that there isn’t a great deal of product on the rental market that is high-end. Additionally, once a property becomes available, it stays on the market much longer since rent prices are typically between $5,000 and $10,000 per month. Therefore, it would be more beneficial to purchase two $500,000 properties instead of one $1 million property.
On the flip side, when a market appreciates in value, investors who buy high-end will achieve greater returns on their purchase. “It works with percentages,” says Keeper. “Where a home priced at $500,000 will increase yearly at a rate of about 10%, it will be the same as a home that is worth $5 million.”
The most important factor when purchasing high-end is the higher utility costs, fees and renovation expenses. If these items are affordable, then buying within the luxury market can be a sound purchase.
“A home is a sanctuary and I think this is particularly true for high-income earners,” says Maureen O’Neill, president of the Toronto Real Estate Board. “Astute businesspeople also recognize that real estate is an excellent long-term investment, so really, there’s no better way to pamper yourself than to invest in a spectacular home.”

Knowledge is power;
Solid foundation of knowledge is the roots of a tree.