[CN Tower]

To Drew's point, it remains very unclear to me what the real market is in any of those buildings as the developer could easily subsidize the purchase price with big upgrade packages, parking, pre-paid maintenance fees, etc. and the public wouldn't know. Even more likely is that the developer is playing games and selling units to its principals. The point is we the public are completely in the dark.

Let these castles in the sky register and trade hands at arm's length and then we can decide what they're really worth, especially with the healthy amount of frenzied speculation attached to these uber-luxury brands.

Just a brief follow up:

I googled Shangri La Vancouver and came to this link with units for sale:

http://www.shangri-la-condos.ca/shangri-la_condos_for_sale.html

I know next to nothing about this project but I noted that there are numerous units for sale <$1000 per sq. ft. I do know that Vancouver condo prices are higher than Toronto condo prices in general so it surprises me to learn that units here would be trading below $1000 per sq. ft.

If anyone has superior knowledge to me (wouldn't take much!) about this project please feel free to comment.

 

[interested]

To Drew's point, it remains very unclear to me what the real market is in any of those buildings as the developer could easily subsidize the purchase price with big upgrade packages, parking, pre-paid maintenance fees, etc. and the public wouldn't know. Even more likely is that the developer is playing games and selling units to its principals. The point is we the public are completely in the dark.

Let these castles in the sky register and trade hands at arm's length and then we can decide what they're really worth, especially with the healthy amount of frenzied speculation attached to these uber-luxury brands.

Just a brief follow up:

I googled Shangri La Vancouver and came to this link with units for sale:

http://www.shangri-la-condos.ca/shangri-la_condos_for_sale.html

I know next to nothing about this project but I noted that there are numerous units for sale <$1000 per sq. ft. I do know that Vancouver condo prices are higher than Toronto condo prices in general so it surprises me to learn that units here would be trading below $1000 per sq. ft.

If anyone has superior knowledge to me (wouldn't take much!) about this project please feel free to comment.

I googled SL in Vancouver for a while. I noticed this as well. That said, there are a lot asking more. I think in Vancouver more than in Downtown TO view would be a much bigger feature. I like you though was surprised that given what we hear of Vancouver selling prices that the SL and also the Fairmont which is even more expensive is cheaper on resale. Of course we must remember that developers sell a lot of product cheaper than the final prices they get to at the end of the project, at least that has been the case in the past though they could get away with it as the markets have been rising.
Other than that, maybe if there is someone from Vancouver who follows this thread could help shed some light on this.

 

[drewp]

I understand that Drew.
That said, the developer will move product any way he can.
I just point out that selling condos at a rate of 1/week is still pretty good given that they are at minimum $1 mill and most product is $2 mill and up.

The developers goal when selling pre-construction is to sell 70% so that they can get the financing to build the project. Again this will differ from each project to the next but this is the general guideline. After that, the builder does not do any advertising to sell the remaining stock, when they start to care is when the project is close to completion. This is where some incentives can be offered. I have noticed that builders will do absolutely nothing/no advertising after they have recevied the financing to build.

 

[interested]

^^^I don't know if I agree with that conclusion.
They haven't been doing much as the market has been hot. Also, when you break ground and have 70% presales, and say 3 years to completion, you are not going to actively advertise in the first year or 2 so long as you continue to make sales. At least, that is what I would do. I think you will see advertising as you suggest when it is near completion if there is product left.

Also, I think you have to distinguish here between small investor units and larger more expensive units. The larger more expensive units are going more to end users and those end users I believe will want to see the product and are willing to pay a bit more than buy on paper earlier.

Again, just my views.

 

[drewp]

I agree with you Interested. I think in the beginning they push the product to the Agents to promote the launch to their clients, after that it changes. I see it first hand for so many condo launches. There is always more advertising before the launch then anything else.

I agree the end users would rather see the finished product or a product that is close to completion.

 

[redfirm]

Now, that I have had a good night's sleep, I can reply to your post.

Luxury, my friend, is a 'relative' term.

For someone living on the street, a night at Salavarion Army's shelter is a luxury.

For someone like me, who has been referred as a 'lowly bean counter' all my life and treated accordingly, luxury is living on the 59th ( and soon to be 62nd) 'Executive' floor of AURA, standing in the window, looking across the horizon to SL and 'pity' those living on the 26th floor and, despite having spent a bundle on their units, still missing the real view of GTA that one can have only from the 62nd floor. I fully intend to sit in the window of my unit, and, for a change, look down upon others -- the way others have looked down upon me almost all my life.

One of the standard feature of the units on 'Executive' floors of AURA is a wine fridge, in addition to the regular fridge. For someone who gave up on the slogan 'Drink Canada Dry' long long time ago, this is 'super luxury'.

Oh, don't get me wrong. I'm not some snob who's looking down on Aura, or even ROCP. Both of these, and most other buildings in TO would more than satisfy my requirements. I actually prefer smaller, simple, less luxury homes and condos (for my personal residence). However, from the investment / $ point of view, I was just sayin' that SL is clearly in a different class.
That said, I'm sure you'll enjoy your view. I hope you treat us one day with a couple of photos!

 

[cdr108]

I googled Shangri La Vancouver and came to this link with units for sale:

http://www.shangri-la-condos.ca/shangri-la_condos_for_sale.html

I know next to nothing about this project but I noted that there are numerous units for sale <$1000 per sq. ft. I do know that Vancouver condo prices are higher than Toronto condo prices in general so it surprises me to learn that units here would be trading below $1000 per sq. ft.

i have to say, for $1.5 MM plus products, the owners / stagers sure have bad tastes for interior furniture.
looks more like FOB style, which could explain why the units are selling for <$1000 psf ... need to repatriate the $$$.
r/e in metro cities of China like Beijing, Shanghai, Shenzhen, etc have gone down.
some developers have reduced their prices by 25+% to sell the units

 

[cdr108]

Canadian banks call truce in easy-money mortgage battle

uh oh ... i wonder how this will affect what would have been a boost to February sales

http://www.theglobeandmail.com/glob...in-easy-money-mortgage-battle/article2331673/

grant robertson — BANKING REPORTER
From Thursday's Globe and Mail
Published Wednesday, Feb. 08, 2012 7:43PM EST
Last updated Wednesday, Feb. 08, 2012 7:55PM EST


Canada’s mortgage party has come to an abrupt halt.

The bonanza of dirt-cheap mortgages offered by some of the country’s biggest lenders in recent weeks has been shut down sooner than expected, as banks pull their offers in the face of higher funding costs and concerns over dwindling profit margins.

On Wednesday, Toronto-Dominion Bank pulled discount mortgage rates that were supposed to be available until the end of the month. Royal Bank of Canada did the same on Tuesday.

RBC and TD were both offering four-year fixed-rate mortgages with a 30-year-amortization at 2.99 per cent, and had announced plans to keep those rates in place until the end of the month.

The offers were in response to Bank of Montreal offering five-year fixed-rate mortgages over 25 years at 2.99 per cent, which observers said is the lowest in recent memory. Though BMO’s move was a two-week offer that was eventually halted, it led RBC and TD to match the rival bank with extended offers to avoid losing market share.

Hints that an economic recovery is taking hold in the United States are putting upward pressure on rates. A slight increase in bond yields this month has forced RBC and TD to pull their mortgage offers weeks ahead of schedule, an indication of just how slim lending margins are for banks in the current environment. Benchmark five-year Government of Canada bond yields have gone up 17 basis points since the start of February.

“The rates coming down were in response to a very aggressive move by a competitor and a need for us to defend our client base, and to defend our business. We didn’t lead it there, but we felt compelled to follow,†David McKay, group head of Canadian banking at RBC, said in an interview Wednesday.

“When that market attacker corrected and raised their rates, it enabled us to say funding costs are going up, we’re not making enough spread at this rate ... and we need to raise pricing because the cost of funds is going up.â€

In an improving economy, expectations of inflation taking hold gradually push up bond yields and lending rates. Government of Canada five-year bond yields reached a two-month high of 1.416 per cent on Wednesday.

“Rates can go up and down, depending on conditions. The new rates reflect rising bond yields and the subsequent increase in the cost of funds,†TD spokesman Mohammed Nakhooda said.

In response, TD and RBC both increased their four-year, fixed-rate mortgages to 3.39 per cent, an increase of 40 basis points. BMO has also raised its rates to similar levels.

“We have seen some modest backup in Canadian bond yields in recent weeks, amid growing optimism on the global economic outlook – and in particular an improving U.S. outlook,†said Doug Porter, deputy chief economist at BMO. “In turn, this has put some upward pressure on borrowing costs.â€

The banks, which will begin reporting quarterly earnings at the end of the month, aren’t saying whether the deep discounts on mortgages led to a boom in new business. However, anecdotal evidence gathered from inside the mortgage community Wednesday suggested a flurry of activity has taken place since mid-January.

The lower rates came at a time when Ottawa is trying to warn consumers against taking on too much debt, worried that household debt levels across the country are rising too quickly. Sources indicated last week that officials in Ottawa were not happy with the price war the banks were waging on mortgages, since it potentially encouraged people to borrow more.

Frank Techar, head of personal and commercial banking in Canada for BMO. said BMO began offering the 2.99-per-cent rate as a way to promote its 25-year mortgages, rather than 30-year amortizations. “We went to 2.99 per cent to draw attention to the benefits of having a mortgage with a maxmum amortization of 25 years,†he said.

 

[KA1]

However, from the investment / $ point of view, I was just sayin' that SL is clearly in a different class.

Click on the link in CN Tower's latest post. Prices in Vancouver SL are <1,000psf. Wait for SL in Toronto to be registered. In the free market, bloated prices are sure to drop 'like a stone'. SL Toronto is an artificially created 'class' -- on the lines of Ritz.

 

[interested]

^^^
The rule of real estate I always learned was never buy the best house on the street. Applying this if one can extrapolate to condos would be not to buy 4S, SL, Trump and Ritz or other luxury buildings. The idea is that it is best to have the cheapest house on a better street than the most expensive house.

Applying this logic I figured that by buying a lower level floor (mid 20's of 19-50th floor) and a relatively smaller unit (2nd in size of 9/floor) I would be sheltered by the mere fact that the average purchase around me while maybe cheaper on a sq.ft. basis had paid 25 to 40% more because they bought a more expensive unit. Also, you have the price increases based on higher floors.

My logic is as follows: If the average for the whole building is say $1.5 mill; and I am under $1 mill; I should have some protection by being in a very desirable building.

Applying this logic in reverse; the Estates (at $2.2 mill approximately initially and at an average of $3 mill) will help to hold the value of my unit; even if they drop to say $2 mill average. I would have a unit under a $1 mill in a building where the average is still 2 mill...in other words hopefully still desirable. The Estate on the hand is effectively pulling me up, even it drops in value. For the Estate owner, we do not help his value, but rather pull him down.

I would be interested to hear others point of view with regard to this. Looking at SL in Vancouver there are 3-4 at under $1000/sq.ft., no view in a place where I believe view is everything. I tend to accept that in Toronto while a view is nice, it does not hold a candle to what one gets in Vancouver. Also being a big financial city with a downtown core, a view is great but I think more people are buying location than view whereas I think in Vancouver that may not be so much the case.

 

[Johnzz]

My point is that despite Ritz's experience, SL appears to be able to sell units at well over $1100/sq.ft.

Here’s just one example, but looks like FS continues to sell well.

-Unit #4001
-Sold Feb. 6th 2012 on MLS
-2,874sqft
-NW view
-Listed for $5,300,000
-Sold for $5,300,000

But as you all say, it will be interesting to see average prices once built and registered.

 

[Johnzz]

http://www.movesmartly.com/2012/02/forecasting-torontos-real-estate-market.html#more

February 09, 2012
John Pasalis
Analysing Toronto’s Real Estate Market: How Can So Many Be So Wrong?

Rarely does a week go by when there isn’t a new economic forecast about the real estate market. For nearly a decade, the negative forecasts have been predicting a 25% decline in house prices while the positive ones have been predicting a “soft landing†for Toronto’s real estate market. Both predictions have yet to come true.

Readers often ask me how this is possible. How can so many economists be so wrong about the market for so many consecutive years?

While there are a number of reasons why economists are poor forecasters (Nobel-prize winning psychologist Daniel Kahneman's new book Thinking, Fast and Slow suggests that most experts, like most humans, are not as clear-thinking as they'd like to be due to the way the human mind operates), I’ll focus on some of the key problems that have been top of mind with me lately.

Firstly, the real estate market has historically been the realm of the macroeconomist. Macroeconomists will study aggregated indicators like GDP, unemployment, interest rates and household income to understand their impact on the real estate market. While these kind of macroeconomic indicators are of course important and do impact the real estate market, they are far too broad to really give us a strong understanding of what’s going on in the actual market.

Even when economists look beyond national and provincial data to focus on indicators for a particular city, this too can present considerable challenges. In many instances the data economists use, through no fault of their own, is either inaccurate or misleading.

The real estate market requires a stronger emphasis on microeconomic principals if one truly wants to understand where the market is heading. Microeconomists study the individual decisions and behaviours of households and their impact on supply and demand. More importantly, they track the spread of such decisions and behaviours, identifying the trends that really shape the real estate market.

To illustrate my argument, I’ll look at two common macroeconomic variables that economists often use when studying the real estate market - average house prices and changes in rent - and why they are problematic.

The Renting Fallacy

Economists love to look at the relationship between rents and house prices. The theory is that house prices should be appreciating at a similar rate to rents. If house prices start to appreciate at a much faster rate than rents it suggests that house prices are overvalued and that there’s a significant premium attached to owning a home which makes renting far more attractive economically. Eventually, more people start renting until rents rise and/or house prices fall to a level where there is no material financial benefit to renting over buying.

Makes sense. But how are economists measuring the relationship between rents and house prices? What data are they actually using?

The data commonly used to track rents is the rental accommodations portion of the Consumer Price Index (CPI). The rental accommodations portion of the CPI tracks changes in rent paid by approximately 14,000 people nationally. One of the problems with this metric is that it is quality adjusted.

Imagine that someone paying $1,800 per month in an old 2-bedroom apartment moves to a new 2-bedroom condominium rental for $2,500. Statisticians will quality adjust the rent down to take into account the fact that the condo is superior in quality and has amenities that were not available at the previous rental. They quality adjust rents because they want to isolate what portion of the rent increase was due to rising rents versus a preference for a higher end rental.

The problem with this approach is that it does not take into account the fact that the rental stock in Toronto has changed fundamentally over the past ten years.

Very few purpose-built rental apartment buildings have been developed in Toronto over the past twenty years. Virtually all the new rental stock coming onto the market has been from new condominiums purchased by investors who are using them as rental properties.

These new condominiums are completely different in size, style and condition from old purpose built apartments. They are usually in more premium locations and have modern finishes and amenities that you do not find in an older apartment building. As a result, condos will usually rent for roughly 40-50% more than older apartments.

Condominium rentals are not a luxury upgrade that only a select few choose. This is the new standard in Toronto's rental market. With vacancy rents hovering around the 1% level in Toronto, most renters have no option but to pay this premium.

Because the rental accommodation index quality adjusts for these differences it significantly understates the actual appreciation in rents in Toronto. This makes the imbalance between house prices and rents appear to be much worse than it really is.

The Average House Price Fallacy

Looking further, economists also spend a lot of time analyzing changes to the average price for homes. Anyone who has a keen interest in the real estate market knows that the average house price is a misleading metric and yet it continues to be the cornerstone of most economic models.

What’s the problem with average house prices?

For starters, average house prices can be heavily skewed when a large number of higher end houses sell during a particular period. In July of this year CIBC reported that the average house price in Canada appreciated by 8.6%. But if they removed Vancouver from their calculations the number drops to 5.6%. If they removed Vancouver and Toronto when calculating the average price nationally the number drops even further to 3.7%.

Furthermore, a simple average of house prices can mask many micro trends and changes that are happening in the market. It's rare that all of Toronto's real estate market goes crazy at once - usually one segment (be it preconstruction condos or emerging neighbourhoods) are the ground zero of crazy, leaving other parts of the market relatively balanced.

For example, one current trend we are seeing in the pre-construction condo market has developers keeping the price of condos low by simply reducing the size of their units. So three years ago your $300K might have bought you a 600 square foot condo downtown while today you might only be able to get a 500 square foot unit for the same price.

If we just focused on the average sale price statistics for condos we would be missing a more important trend, that the price per square foot for condos downtown is increasing at a far more aggressive rate.

Furthermore, when we look at the average price growth for houses or condos in the GTA, we assume that prices are appreciating uniformly across the city, but that’s not the case. In a recent press release about Toronto’s pre-construction condo market, Urbanation reported that the average index price in the Toronto CMA (Census Metropolitan Area) was up 7.4%.

To his credit, Urbanation EVP Ben Myers was transparent about the fact that certain factors could be masking the fact that prices are rising more quickly.

Myers notes, however, that some factors could mask the fact that prices are rising too quickly, including the influx of lower-priced condominium projects in the ‘905’ and outer ‘416’ areas, which can pull down the overall average index price in the Toronto CMA.

Without this insight, the average price figure of 7.4% on its own is meaningless because it masks what is truly happening in the market. Specifically, that pre-construction condos downtown are appreciating at a much more aggressive rate than the 7.4% average reported.

A focus on the macro story of rising house prices in the city obscures perhaps one of the biggest micro trends in Toronto's real estate history (perhaps even beating out the new condo story that tends to dominate the headlines), one that is still unfolding: the 10-15 year long run in which the urban family neighbourhood has made a mass market comeback.

As long as the demand for urban homes in good neighbourhoods and school districts continues to outpace the supply of homes coming onto the market for sale, prices may have no place to go but up.

 

[interested]

Here’s just one example, but looks like FS continues to sell well.

-Unit #4001
-Sold Feb. 6th 2012 on MLS
-2,874sqft
-NW view
-Listed for $5,300,000
-Sold for $5,300,000

But as you all say, it will be interesting to see average prices once built and registered.

Johnzz,
I am somewhat confused. FS is not yet registered is it? So if that is the case, was it the contract to buy that was sold on MLS?
Or was this an MLS listing by the builder?
Anyhow; this works out to $1844/sq.ft.
Some people it appears are willing to spend big bucks for 4S as well. Ritz less so. We will have to wait and see with Trump (but I think there are problems there as they acknowledge over 60% sales of condo units (though 85% hotel units) and SL is doing better I think at over 80% sold. (No hotel units which I think ultimately may prove to be a bad investment and more possibly by extension could drag down the Trump condo units. As I said before, if these do drop in price, it can't do anything but ultimately hurt SL I think and possibly 4S later. The other scenario if this is the case would be that if people conclude SL is better than Trump/Ritz the limited demand may shift to this tower instead and support prices as people would want SL. I don't wish bad things for Trump or Ritz owners but do hope that SL lives up to the high expectations I have for it. So far must say I am overall loving the architecture.

 

[daveto]

Johnzz, thx for posting the article.

When I read articles like this by Realtors, I wonder if they truly believe it or are cynically marketing their product. I think it is both, and that people sometimes see the world as they need it to be.

Average Rents
The author contends the following:
1. Economists believe prices should increase in line with rents.
2. Condo rents are a small higher priced subset of rent statistics, and not properly reflected therein in the rent statistics.
3. Ergo economists (bubblicists?) reach flawed conclusions that prices are too high.

The problem in the analysis above is it is logically flawed. It uses two facts (#1 and #2) and takes a leap to reach a convenient conclusion.

Ask any condo investor the current rent they receive for their unit, and the current market price for that same unit, and the resulting cap rate is clearly unsustainable without ongoing prices increases. Or just go to MLS.ca and find a unit available for both sale and rent (look in new buildings), and you will see that the net cap rate is typically below 3%.

The fact is that RE prices have indeed increased significantly faster than rents and there is extensive evidence to support that fact. To suggest otherwise, as does the author, is frankly bizarre.

Average Price Fallacy
The author talks about the misuse of "average" prices statistics. But he never defines which "average" he is talking about. There are many, many different "averages" in statistics. The three most common are mean, median (ie midpoint), and mode (ie most common).

The author bases is argument upon the relevance of the mean in RE analsyis, however most housing economists/etc base their analysis upon the median averages.

I provide a quick quote from wikipedia
"The median home price is one of the most common measurements used to compare real estate prices in different markets, areas, and periods. It is said to be less biased than the mean (average) price since it is not as heavily influenced by small number of very highly priced homes. "
http://en.wikipedia.org/wiki/Real_estate_pricing

Real Estate is Local, but mortgage financing is not
Most analysis by realtors (like the author) focuses only upon their local market. But these analysis always seem to ignore the national effect of mortgage financing (rates and the CMHC).

Every local realtor in Canada proudly points to the qualities of their locality in support of their RE price increase, and ignore the nationwide correlation in the price movements of all localities.

I suggest that any analysis that ignores the nationwide correlation of RE is fundamentally flawed.

Zoning and Commutes
One point that I agree with is the author's point on the revitalization of the central Toronto neighbourhoods. Perhaps because of zoning restrictions (the green belt?), or the increasing commute time? In any event, I think this is indeed a relevant point.

But once again, the author conveniently focuses upon his local (central Toronto) marketplace, and ignores the similar price increases in the GTA. If central Toronto price increases are legitimate because of a migration therein, then why have 905 prices increased the same?

My Conclusion?
Price derives from the interaction between supply and demand. Any review of Toronto RE stats makes it very clear that current demand is not out of line with recent years, but that supply is significantly below average.

RE is a marginal market with only 4-5% of the market stock being traded each year. (as compared to the TSX that see trades of 100% of the market value being traded each year)

A small imbalance in supply can place significant upwards pressure on prices. If someone (the author?) can explain why TO supply is so low, then I think we will be making progress to understanding the direction of future price changes).

Frankly, I can't see any reason why supply would be so low, except for maybe that people can't afford to upsize, and don't want to downsize/cashout while prices continue to increase. But I'm just guessing.

Anyways, that's my soapbox for the day. Back to work.

 

[interested]

In response to the article by John Pasalis; again we must remember the source. I believe Mr. Pasalis is the owner of a real estate brokerage. By the way, johnzz, are you John Pasalis?

I see the rationale in the arguments put forth but that said, the first about rent really boils down to "it's different this time".

The second about house prices if in fact correct when talking about the downtown real estate condo boom just makes it more likely to eventually adjust for unreasonable evaluations in my view, not concluding that the only way prices have to go is "up".

Again, I while an investor do not rely on my livelihood to make these observations. Mr. Pasalis is rebutting with a cohesive argument why he feels economists are not evaluating properly the housing market. However, I simply cannot believe that prices keep going up indefinitely, good neighbourhood and schools not withstanding. At some point, prices will simply overextend themselves to the point where a correction is necessitated as people can no longer afford it. Alternatively, some other economic shock could well knock down the lofty evaluations. That said, I don't think it ultimately will be different this time, but then, that is just my view.