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Bmyers,
Thank you for your response.
I pointed out that to my understanding you make much of your revenue mainly from the develop industry. I think it would be difficult for you to write bad things about the market just as it is difficult for realtors to say the market is dropping since their livelihood depends on it. I would point out in the USA, the National Association of Realtors kept saying the problem was temporary and minor long after it was clear to everyone that this was not the case.
In your rebuttal, you point out that you have often been accused of being too negative. I was simply responding to the 1 article posted that I read. I have no reason not to believe you when you say on other occasions you have been on the other side of the argument.
It is just my personal view that the article presented appeared to have a conclusion(s) which you have indirectly acknowledged in your rebuttal. It appeared to me on reading the article that the conclusion had been predetermined/ This was a justification as you acknowledge to explain why rents and pricing were less important and to play them down. I happen to personally disagree. Hence, my conclusions.
In summary, I just found that the article did not present a cohesive rebuttal but rather chose to deal with the issue by arguing other variables and I really did not find it persuasive. I am not suggesting Urbanation set out to discuss the issues by just dismissing the price/rent ratios but this is how it came across to me. Perhaps you could explain to those of us the forum how price/rent is not relevant and address that directly.
That said, let me complement Urbanation on the job it does getting a lot of raw data. While I disagreed with this article, it should in no way be taken to suggest that I feel Urbanation does not provide a valuable service and give us information otherwise not available elsewhere.
One final point. With due respect to developers and the banks; the "experts" got it very wrong in 1989 with a massive overbuild, the largest developer in the world (Reichmann's) went bankrupt. The banks that funded them made massive loans that where not repaid. The banks in Europe have loaned massively against real estate and sovereign debt and are in financially precarious positions because of it at present. So, experts get it wrong too. By the way, I am the first to admit that I get a lot of things wrong as well. Developers build. Banks lend. That is what they both do. They will continue to do so and to expect them not to build or not to lend is unrealistic. There will continue to be correct decisions made and bad ones going forward. To suggest that just because banks loan $50 million means that they must be right is foolhardy in my personal view. Of course they don't rely on McLeans, and they don't have to worry about rent ratios to price. You know as well as I that 70% presales means their loan to the developers are safe. And the recent increase of the banks downloading mortgages on CMHC just shows they take their profit and download the risk. So this is another conclusion that I cannot agree with.
Interested, what you are infering about Urbanation and myself is a serious accusation, which I take very seriously akin to accusing me of cheating on my wife. Let me be as clear as I can on this point. I have never censored what I say or let "profit" influence my interpretation and conclusions as it relates to Urbanation research. I have lost consulting clients because I refused to "forecast" stronger sales for them in reports that they are providing lenders. I have refused to "take out" that paragraph in reports because it made the case for the developer look better.
Perhaps if the market crashed I wouldn't have to come to work at 7 am every day. I don't have a hard time speaking badly about the market if it is warranted. You can go back and look at what I was saying in Q1-2009, when I explained it was the worst quarter in ten years and there was no sign of recovery (I was wrong, it recovered quite quickly).
To infer that lenders are not intelligent or are doomed to make the same mistakes over again based on what happened 25 years ago, I very much disagree, there are significant changes in how the major banks make construction loans. It is a huge stretch to make suck a conclusion. I could say you did poorly on your math test in 1997, therefore I can no longer trust you to do math for the rest of your life.
When I speak with lenders that were active in the business in 1989 that admit to being very reckless. In the 80's a person could buy a pre-construction condominium with $500 down, and sell the contract the next day to someone else. Many of the developments went under construction with 20% presales.
There are 170 projects and 45,560 units under construction in the Toronto CMA as of Q4-2011 and 90% of those units are sold.
Lenders will not even look at a deal if it is less than 60% sold and unless you are one of the top ten developers in Toronto, they won't meet until you're 70% or 80%. Additional requirements are 15% deposits for every purchaser (which they are looking to increase to 20%). All purchasers must have mortgage pre-approvals. If the purchaser does not posess a Canadian driver's license or passport, the deal does not count. If the purchaser also bought a second unit, that second unit does not count toward the 70% to 80%. In some cases, if a purchaser cancels a deal after construction funds have been forwarded, the developer must immediately forward the lender the equivalent down payment to be added to their equity!
The lender is also requiring more equity in the deals, not just the land, whose value has been increased significantly with the condo boom.
A couple of the major banks in Canada have reached their exposure limit for high-rise apartments and have stopped lending. They are being very prudent. They have learned from their mistakes.
I'm tired of writing, if you would like to discuss further, please feel free to contact me and come to my office to discuss.