[interested]

First let me say I think 88 Scott is in a great location and will be a good building.
That said, I can't help but feel that anyone buying at this point is taking a huge risk. You said you will live in it. Are you prepared to wait 3-4 years at least for completion and then live in it another 5 years at least because if things just stagnate or do not go up significantly, factoring in your costs, you will possibly lose money. 8-9 years is a very long time.

I have to tell you I thought in 2008 to 2009 that the downturn would be more severe and certainly longer and that has proven wrong. I still believe we may test 2008 prices but more likely will go back to 2009 to 2010 prices.

I think buying precon today is just plain risky. Please realize there will be some winner projects and some losers. Also, since so many projects have been cancelled/postponed...it is possible that in 4 years or so when this is ready that the next 2 year excess will have been worked through and due to the decrease perhaps in new projects that may occur, you may hit the sweet spot that there is a relative shortage when 88 Scott is ready. However, since you don't want to sell, and assuming you want to live for 5 years there, I don't think any of us have a clue what 8-9 years will look like.

My suggestion is this: are you able to sleep at night? I am not kidding here. Peace of mind is really important.
Having done the math (and assume interest rates at least 2% higher than now to be safe) can you afford to carry the property and what if it declines by 10% say in value...a very distinct possibility, will you be able to qualify and carry. If the answer to any of this is no..then I would get out.

Personally, and as a landlord I tell you what I tell my own kids at this point....I would not buy a property today PRECON because I feel the downside risk outweighs the upside potential.

Sorry, probably not what you want to hear. I think there will be opportunities to buy assignments and resale at better / dollar costs.

Either way, should you continue with your purchase...I wish you all the best with your purchase.

Can I ask what is your view, size, and cost/sq.ft (excluding/including parking and locker)?

 

[Ryan_T]

Thanks for the input. I realize this is high risk, but I'm quite fond of the location. I've been wanting to move there for years. I have planned to not move from where I am until closing date.

What do you mean exactly by 'qualify and carry' in case of 10% drop? Will the bank request more direct payment from me to offset the lost equity? I've known this to happen in some countries, but not sure if this is common practice in Canada.

The unit is on the high 20s, south facing, just under 700sqft (1B+D). No parking (700+ only) and no locker (though this may change - I was thinking of adding one since I'll most likely need it).

 

[interested]

Remember that if prices drop, and given that your mortgage at the beginning is mainly interest rather than principal repayment, the mortgage does not drop much.
Let say you have a mortgage from a lender who for whatever reason decides not to renew or you decide you wish to change lenders. Presumably the new lender will appraise the fair market value at the time you seek the mortgage.

Others would have to answer whether or not you need to requalify with the same lender. I am not sure one would or would not.

Perhaps you could discuss this during your cooling off time with your banker and get some direction as this could be important.

However, I could see if you bought for say$400K with $40K down and a CMHC mortgage and a 5 year term. Say in 5 years the property is worth $350K. If your mortage was mainly interest, you may now have only $10K equity left or thereabouts. If you need to go to a lender, would it not be responsible for them to say your property is a larger risk because if you default in 2 years for e.g. due to job loss, the value of our mortgage is virtually the same as the total value of the property. So I could see them saying we won't loan.

the other thing is rules can easily change. 20th floor and South should be beautiful.
I would buy the locker by the way and if you can I would try and buy it now and confirm it.

I bought PRECON in 2007 a locker for $3500+HST and closed the condo 2 months ago. I did not pay until closing. Lockers were now $4500+HST for those who asked to get one at closing. Point is if things are not selling well, later they may throw in lockers but if they are in demand...you want to live there...they can go up considerably in price or not be available. Just my thought.

 

[marsh]

My two cents - first if you do go ahead - buy the locker as the other post said- I think lockers are going to be extremely popular for storage as units get smaller - and lockers seem to be harder to get and are getting more expensive. So I think having a locker would help with resell value.
I think the big question is how much of a down payment are you making? If you are putting down the minimum 5% you are at a much greater risk of being underwater on your mortgage should prices drop.
Lastly, as a prior post said, ask yourself where your life is going to be in the next five years and whether buying this unit will still suit your life at that point in time. Buying a condo is a big step, and ultimately no one really knows what the market is going to do. So if it feels right and you feel you can handle the downside risk, then go ahead.

 

[Kenny]

Remember that if prices drop, and given that your mortgage at the beginning is mainly interest rather than principal repayment, the mortgage does not drop much.
Let say you have a mortgage from a lender who for whatever reason decides not to renew or you decide you wish to change lenders. Presumably the new lender will appraise the fair market value at the time you seek the mortgage.

Others would have to answer whether or not you need to requalify with the same lender. I am not sure one would or would not.

Perhaps you could discuss this during your cooling off time with your banker and get some direction as this could be important.

However, I could see if you bought for say$400K with $40K down and a CMHC mortgage and a 5 year term. Say in 5 years the property is worth $350K. If your mortage was mainly interest, you may now have only $10K equity left or thereabouts. If you need to go to a lender, would it not be responsible for them to say your property is a larger risk because if you default in 2 years for e.g. due to job loss, the value of our mortgage is virtually the same as the total value of the property. So I could see them saying we won't loan.

Why wouldn't they loan? It's insured. If the guy defaults, they get what they're owed from taxpayers. It would probably be more of an issue if you put 25% down to avoid CMHC fees.

 

[interested]

^^^
I don't know the details of CMHC insurance. Presumably it is insured when the term is taken and the insurance I would assume ends with the term. This may not be the case and perhaps it just reinsures and rolls over with a new term. Let's assume though it is not CMHC insured for argument sakes. Either way, would not CMHC have an argument that the bank did not do its due diligence if it would give a loan to market value that exceeded the value of the market and potentially sue the bank for negligence.
Again, I have no idea about this.

I was just trying to point out Ryan that he should look into these issues before his 10 day rescission period has expired.

 

[daveto]

Ryan, you've just bought something for $4-$500k, and you're now on the internet asking strangers for advice. How many years of your life will it take you to save $4-$500k? Don't you think you should have had all this answered before you signed on the dotted line?

The fact that you are here looking for advice should tell you all you need to know about the wisdom of your current purchase.

 

[Ryan_T]

This factors into my decision, but will not be the base. I'm simply gathering as much information as possible.


I've been in internet communities that can be very informative, and often a good barometer for the subject/topic. I'm putting some stock into your input because I trust you are much more experienced, or have observed the market much more intensively than I have.

 

[drewp]

Ryan,

I think there are different factors to consider when you are purchasing pre-construction.
I would look at what the current market conditions are. I always like to be conservative so lets say 650 a square foot is what 88 Scott would sell for now. Again view, layout finishes, supply and demand....etc will decide what it is really worth.

The current market is stagnate at best. Certain questionable areas have dropped 5% if not more since the spring. New listings are up substantially, and sales are down 20%. Doesn't sound to promising right now for the Condo market. The silver lining for me is the rental market. In C1 the average 1 bedroom was renting for 1642 last year and this year Q3 report is 1802. C8 last year the average 1 bedroom condo rented for 1648 this year 1764.

So does this offer you any comfort? No not really, but what should be noted is that people are still moving to the core whether it is to buy or rent. There still is demand to live in Condos in the core. I have said this time and time again the demographics have changed and more and more people are moving to the city.

If the rental market was faultering I would say hold off on the purchase, but to me this is an indicator that the market has just shifted from buying to renting. When the rental market gets too high which will be in the spring in my opinion we should see re-sale pick up again by next summer/fall because those who were on the fence might be getting too frustrated with high rental rates and bidding wars.

Now with more than 100000 people moving to the GTA (20000-30000 in the core) demand for Condos will always be there. Resale will be flat for the year with a slight drop in less than desirable areas. Pre-construction needs to drop around 550-600 a square foot to get investors excited again. Because we are seeing a lot of projects being postponed I think we should see price corrections next year.

That being said if you are paying close to 700 a square foot I would be a little uncomfortable because you could get a better deal on re-sale right now and rent it out until you are ready to move in. Or look for a condo that is priced in the low 600's to be sure that your money will go far in the future. Remember last year we saw a record with pre-con and most of these units should be ready by 2015. My guess is the market will pick up from 2013-2015 with rental rates slowing down again.

Also how long to you want to hold on the property? What are you paying for your unit? What does the layout look like?

Just stick with your gut and as interested said as long as you can sleep at night you did fine. All the best.

 

[interested]

^^^
Ryan,
That was a great post and sage advice from drewp in my view. And he is a realtor I believe so we have many times accused realtors of being biased to encourage the market. I think he has given you a sage somber look at the market.

Of interest, there is an article showing that the number of new projects in the 3rd quarter is 5. This is quite a low number. Tells you builders don't think they can successfully launch at current prices I believe.

Also, the article in the POST says that even Brad Lamb, who has been a strong proponent is somewhat cautious.

Good luck with the decision.

 

[cdr108]

^^^

Also, the article in the POST says that even Brad Lamb, who has been a strong proponent is somewhat cautious.

.

what article from POST ? can u post in full plz

 

[Ryan_T]

Thanks drewp, interested, and marsh. Definitely a lot of food for thought. I agree on the locker as well.


I'm putting in at least 25% for DP, and most likely will be living there at least 5 years - unless something drastic happens. The unit is on high-20s, C11 (Floorplan). I prefer the C8/9/12/13 better, but those are either sold out or on lower floors.

 

[interested]

Post article:
http://business.financialpost.com/2012/11/01/toronto-condo-projects-delayed-as-sales-plunge/
Toronto condo projects on hold as sales plunge

Garry Marr | Nov 1, 2012 12:04 PM ET | Last Updated: Nov 1, 2012 6:42 PM ET
More from Garry Marr | @DustyWallet
National Post/Tyler Anderson
National Post/Tyler Anderson Toronto condo king Brad Lamb said Thursday developers are facing a decision about whether to mothball a project by turning their development site into a parking lot or small office building.

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Just five projects launched in Toronto in Q3-2012, as developers choose to review their pricing assumptions and unit mix

Toronto’s tallest condo towers designed for bull market that no longer exists

Architect Frank Gehry is designing three condo towers in Toronto that would be North America’s tallest residences. His latest contribution to his home town comes as the Canadian government is trying to cool the market after home prices surged 85% in the past decade.

The three sculpture-like towers, funded by theater promoter David Mirvish, will rise as high as 85 floors beside a century-old theater and near the Gehry-designed Art Gallery of Ontario. The skyscrapers, with a combined 2,600 residential units, will compete with hundreds of other projects in a city with more residential buildings under construction than anywhere else in North America.

Read the rest of the article here.

Even Toronto condo king Brad Lamb, long a strong advocate of the high-rise sector, sees the writing on the wall.

He doesn’t think any sort of catastrophe is in the making but concedes builders have woken up to a new reality in the city when it comes to constructing new towers.

“Here’s what’s happening: Projects under construction are well sold and going ahead, there’s no issue. But projects waiting to get their [sales] numbers to start construction are slightly delayed as they get the units they have to [sell] to get going. We are selling but at a slower pace,†said Mr. Lamb, a broker in the city who is also developer.

His observations come as new data from condominium research firm Urbanation Inc. show there were 3,317 condominium apartment sales in the third quarter, a 30% drop from just a quarter earlier. The research firm says developers started putting off new buildings after unsold inventory hit a record high in the second quarter.
Brent Lewin/BloombergUrbanation, a research firm that tracks condominium sales, says developers started putting off new buildings after unsold inventory hit a record high in the second quarter.

Mr. Lamb said developers are facing a decision about whether to mothball a project by turning their development site into a parking lot or small office building. “What we did with one site is rent all the space out for 10 years,†Mr. Lamb said.

It’s not just Mr. Lamb. The trend seemed to catch fire in the third quarter to the point it affected sales.

“With slowing sales and a record level of unsold inventory in the market in the second quarter, condominium developers reacted quickly by delaying their project launches, especially in the ‘416’ area,†said Ben Myers, executive vice-president of Urbanation, adding that just five projects launched in Toronto in the third quarter.

The question is whether prices will go next. Already the average unsold unit in the Toronto census area was being offered at $573 a square foot at the end of the third quarter, up just 2% year over year.
Related

REITs beat condos every time

Housing starts slow as condo market cools

Unsold inventory in what was the former city of Toronto is being offered at $670 a square foot, up from $668 a square foot from a year ago.

The good news is the lack of new supply is helping to reduce supply as unsold inventory hit a record 18,123 in the second quarter of 2012. It dropped to 17,182 in the third quarter. Urbanation says the share of unsold inventory in the Toronto (metro area) remains below the 10-year average of 22%.

The market for the resale market continues to soften. There were 5,050 sales of existing units in the third quarter, a 32% decline from 3,413 units sold in the second quarter. Prices are also flat, with the average unit selling for $407 a square foot, the same as the second quarter.

It is exactly what we had been expecting, some cancellations . . . Supply starting to react to demand, that is a functioning market and the way it should be

Investors might have resorted to smaller units to combat the high prices, Mr. Myers said. The average size of unit sold shrank from 910 square feet to 891 square feet, reducing the average end sale price to $362,000 from $370,000.

“The change in the mortgage insurance rules may have forced many buyers to settle for smaller units than they had previously desired,†he said. “The number of resale transactions for units priced over $400,000 fell 40% compared to last quarter, while there was a 38% quarterly drop in units traded over 1,000 square feet.â€
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Benjamin Tal, deputy chief economist at CIBC World Markets, said the pullback in sales and decisions by builders to hold off construction is probably good for the market.

“It is exactly what we had been expecting, some cancellations,†Mr. Tal said. “Supply starting to react to demand, that is a functioning market and the way it should be.â€

In the interim, condominiums in the pipeline continue to get built. There were 207 projects with 56,336 units under construction in the metro area. It was the eighth straight quarter in which apartment construction starts have outpaced completions.

Mr. Tal expects downward pressure on price. “Demand will fall faster than supply; supply is not as flexible as demand,†said Mr. Tal, adding prices have already started to fall in the luxury segment of the condo market.

The economist said people need to remember that the high level of unsold inventory is restricted to the condo market. “It will probably be more severe than the rest of the housing market, especially in the big cities of Toronto and Vancouver.â€


The bolding is mine. There is also a bit at the beginning referring to the Gehry/Mervish project.

 

[interested]

^^^
I would think you will be able to get floor plans you prefer on an assignment though there is no guarantee...at a later date as there are in large projects usually a fair amount of "investors".
I don't think you have to compromise on the floor plan in this market as it now stands personally.
Also, if you decide to continue, ask them if there is a C13 if that is the plan you like (I didn't look at them) that has come back or is in rescission period as you are.

 

[Ryan_T]

The top two floors of C13 was available, but I decided not to take them. They either face potentially mechanical, or a glass wall across the street. As for those in rescission period, I did ask, but they're all firm. These floorplans are nearly identical, it was just the view that was different; South instead of North. I've grown to like mine. The balcony is open unobstructed to South and Southeast, and there are no talls across the street yet.Good view of the lake and berczy park.


I read Lamb's articles. He sang a similar tune on multiple publications. It sounded to me almost as if he's trying to highlight the market's weakness to encourage investors to take advantage of the current situation. Buy when the developers are vulnerable and rentals are climbing. Of course, anyone in the business would be trying to inject the same sort of rose-tinted picture back into the system.



This is TheRedPin's compilation, taken from UrbanNation Q3 report.

- “Just five projects launched in Toronto in Q3-2012, as developers choose to review their pricing assumptions and unit mix.” - Ben Myers, Urbanation Executive Vice President
- Average unsold unit in the Toronto CMA offered at $573 per-square-foot (psf) in Q3; 2% increase year-over-year
- Unsold pricing in the former City of Toronto rose from $668 psf to $670 psf year-over-year
- 5.5% decrease in unsold inventory from 18,123 units in Q2 (a CMA record high) to 17,182 units in Q3
- In the Toronto Census Metropolitan Area (CMA) there were 3,317 new condominium apartment sales in Q3, a decrease of 30% from Q2.
- 20% of the 86,108 units (341 projects) unsold; share of unsold inventory in the Toronto CMA remains below the 10-year average of 22%
- Condominium apartment construction outpaces completions for the 8th consecutive quarter; units under construction in the CMA have set another record high at 207 projects and 56,336 units
- In 2012, average project construction – from sales launch to occupancy – took 3.85 years compared to 2.68 years in 2003
- Urbanation’s UrbanRental report indicates a record-high lease-to-listings ratio in Q3
- Transactions in the resale condo market fell 32% quarterly in the Toronto CMA from 5,050 in Q2 to 3,413 in Q3
- Pricing on a per-square-foot basis remained flat in comparison to Q2 at $407 psf while average unit size traded and the average end-selling price decreased, 910 sf to 891 sf and $370,000 to $362,000 respectively.
- Resale transactions for units priced over $400,000 fell 40% compared to last quarter; 38% quarterly drop in units traded over 1,000 sf
- Just 10 projects, or 2,035 condominium units, registered in Q3
- Decline in resale listings quarterly from 10,163 in Q2 to 9,032 in Q3
- More than half of the 56,336 condominium units under construction are expected to be completed next year, which could add as many as 14,000 new condominium rental units to the Toronto CMA via private landlords; a 25% increase in condominium rentals in the Metropolitan Area