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AlvinofDiaspar
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From the Star:
Sky's the limit for condos?
When it comes to highrise living, T.O. is tops in North America — at least for now
May 25, 2006. 08:10 AM
TONY WONG
BUSINESS REPORTER
We have become a nation living in concrete boxes, thrust into the sky.
More than 17,000 new condos sold in Greater Toronto last year — the most ever in the history of the area.
And we don't take a back seat to any place else on the continent. In Miami, the number sits at 7,500, in Chicago, 6,800, and in New York, 6,450. More resale condos sold in the first quarter of this year than at any time in the past five years.
Toronto, says Jeanhy Shim, president of Urbanation, a market research firm that tracks the condominium business, is the largest market in North America.
The pundits have declared it dead more than a few times over the years, but the condo market has chugged along, oblivious to the fact that it is defying the predictions of some of the best analysts in the business — many of whom still say a reckoning is yet to come.
But, it seems, not yet. In the resale market, for the first time this year multiple offers have been a trend — a feeding frenzy that seemed largely restricted to houses in Forest Hill and single detached homes on leafy streets.
"That was a shocker," says Jamie Johnston, a ReMax realtor who specializes in condos. "It's the first time I've seen a pattern of multiple offers."
The good news for realtors is that Toronto is the hottest market in North America. The potentially bad news (if you're an investor) is that Toronto is the hottest market in North America.
"We know that everything that goes up must come down. When anything seems too unbelievable, it usually is," says economist Frank Clayton of housing research firm Clayton Research. "And the longer the sales go on and prices appreciate, the bigger the adjustment we're going to have."
The problem is, economists such as Clayton have been forecasting the slowdown of the market for a few years, but the opposite has happened. So are we in a new realm where condo sales will stay at lofty levels?
Some realtors seem to think so. Last week, the Greater Toronto Home Builders' Association reported condos accounted for 44 per cent of all new sales in April, well above a historical 25 per cent average, as buyers shy away from detached and low-rise houses.
Ten years into a spectacular market, association president Desi Auciello couldn't sound more satisfied.
"We believe the best may be yet to come," Auciello says, citing the recent GST cut as another boost.
Realtors may be forgiven for thinking the market has entered a new paradigm — although the last time those words were uttered was in the days of the technology boom, before it imploded.
While most economists don't think this will happen to the housing market, some think the condo market is particularly vulnerable to a correction.
There are already signs that developers may be hedging their bets. Several new projects in Toronto have been offering bonus commissions to agents. One luxury downtown project, for example, is offering agents a 5 per cent commission (instead of the standard 2.5 to 3 per cent) on every sale. Another project on the lakefront is offering agents a 4.5 per cent commission next week on any penthouse sale.
If agents sell two or more suites, they can win $2,000 or a trip to California.
By the end of this year, housing economist Will Dunning estimates, 14,700 units will be completed and ready for occupancy. He expects more than 14,000 units to be completed in 2007.
"We won't start seeing a lot of the effects until early 2007, but there will be a wave coming."
While it won't quite be the Poseidon Adventure, Dunning has repeatedly warned that he thinks there is a "high risk" that the market is overbuilt.
One thing he and Clayton agree on is that there are a significant number of investors in the market, anywhere from 25 to 40 per cent. If the market softens, many will be placing their units back on the market.
"Things are totally out of whack; the numbers of condos being sold don't support demographics," Clayton says. Even if the conservative estimate of 25 per cent is applied, that means there will be at least 3,000-plus condo rentals coming on the market every year for the next several years. Those condos are expected to compete with apartments and other condos to drive rental prices down and vacancy rates up.
When investors can't rent their units, they tend to unload them. At least that's the fear.
So far, of course, the much-anticipated correction hasn't materialized. And realtors such as Jamie Johnston, who think the market still has legs, have never looked more prescient.
Still, Johnston, who is an economist by training with an MBA specializing in real estate, is the first to admit that not everything is perfect. For one thing, the spread between resale prices and new condo prices is growing.
The price difference historically between new and old condos has been about $50 per square foot. Developers are now asking about $100 per square foot more for new condos, Johnston says.
"There are still some good new projects coming to market, but there are other projects that will not hold the pre-construction prices being offered today," he said in a recent report.
While he thinks the resale market will continue to be buoyant, Johnston says some of the new condo prices are a result of developers trying to make as much hay out of the market as possible.
But if price gouging and speculators don't kill the market, there is one potentially big factor that might: high building costs.
The costs of building and developing properties, from land to labour, have skyrocketed. This could lead to a situation where projects are killed if the numbers don't add up, Shim says.
A study by construction cost consultancy Altus Helyar says development costs in Toronto increased by 8 per cent last year and are expected to increase by 8 per cent again this year.
If costs keep rising, Shim worries that Toronto could become another Miami, where projects have been shelved by developers who are worried that prices aren't sustainable.
Still, Shim, along with realtors such as Johnston, think the market still has a ways to go.
For one thing, if you want to live in affordable housing downtown, condos are it. Higher housing prices have shifted buyers into the condo market. Then there is another segment that is now actively choosing condominiums.
"It's not about living in condos because you can't afford a single detached home any more," Shim says. "More people want the convenience of living in a condominium and are willing to pay for it."
Unlike the bubbly 1980s, where condo prices crashed by 40 per cent, Shim says this time is different. Banks are more stringent, and developers typically have to pre-sell 60 to 70 per cent of their units before construction.
The market continues to benefit from both the first-time buyer and the move-up buyer, and will continue to be fuelled by the baby boomer who is downsizing, Johnston argues.
Meanwhile, price increases have been relatively benign in the condo market in the past, mainly because of a highly competitive market. Since the first quarter of 2003, the price per square foot for condos has remained relatively flat at $301. In the first quarter of this year, prices rose to $324.
Some investors believe the Toronto market has legs because it isn't Miami or New York, or even Vancouver, where prices have gone up considerably more, argues Israel Schwartz, who is considered one of the shrewdest wheelers and dealers in the market.
"There is no such thing as a first-time house buyer in the Toronto market any more," he says. "It's about being a first-time condo buyer, because most people don't have a choice if they want to live downtown. That's what's fuelling this."
Toronto developers have managed to boost their bottom line by building smaller units, but at an affordable price level for entry-level buyers, says Schwartz, who sees shrunken condos as an inevitability.
"Ten years ago, you paid $250,000 for a 900-square-foot place, and now you're getting 600 square feet for the same price," he says. "But at least you're getting your foot in the door."
AoD
Sky's the limit for condos?
When it comes to highrise living, T.O. is tops in North America — at least for now
May 25, 2006. 08:10 AM
TONY WONG
BUSINESS REPORTER
We have become a nation living in concrete boxes, thrust into the sky.
More than 17,000 new condos sold in Greater Toronto last year — the most ever in the history of the area.
And we don't take a back seat to any place else on the continent. In Miami, the number sits at 7,500, in Chicago, 6,800, and in New York, 6,450. More resale condos sold in the first quarter of this year than at any time in the past five years.
Toronto, says Jeanhy Shim, president of Urbanation, a market research firm that tracks the condominium business, is the largest market in North America.
The pundits have declared it dead more than a few times over the years, but the condo market has chugged along, oblivious to the fact that it is defying the predictions of some of the best analysts in the business — many of whom still say a reckoning is yet to come.
But, it seems, not yet. In the resale market, for the first time this year multiple offers have been a trend — a feeding frenzy that seemed largely restricted to houses in Forest Hill and single detached homes on leafy streets.
"That was a shocker," says Jamie Johnston, a ReMax realtor who specializes in condos. "It's the first time I've seen a pattern of multiple offers."
The good news for realtors is that Toronto is the hottest market in North America. The potentially bad news (if you're an investor) is that Toronto is the hottest market in North America.
"We know that everything that goes up must come down. When anything seems too unbelievable, it usually is," says economist Frank Clayton of housing research firm Clayton Research. "And the longer the sales go on and prices appreciate, the bigger the adjustment we're going to have."
The problem is, economists such as Clayton have been forecasting the slowdown of the market for a few years, but the opposite has happened. So are we in a new realm where condo sales will stay at lofty levels?
Some realtors seem to think so. Last week, the Greater Toronto Home Builders' Association reported condos accounted for 44 per cent of all new sales in April, well above a historical 25 per cent average, as buyers shy away from detached and low-rise houses.
Ten years into a spectacular market, association president Desi Auciello couldn't sound more satisfied.
"We believe the best may be yet to come," Auciello says, citing the recent GST cut as another boost.
Realtors may be forgiven for thinking the market has entered a new paradigm — although the last time those words were uttered was in the days of the technology boom, before it imploded.
While most economists don't think this will happen to the housing market, some think the condo market is particularly vulnerable to a correction.
There are already signs that developers may be hedging their bets. Several new projects in Toronto have been offering bonus commissions to agents. One luxury downtown project, for example, is offering agents a 5 per cent commission (instead of the standard 2.5 to 3 per cent) on every sale. Another project on the lakefront is offering agents a 4.5 per cent commission next week on any penthouse sale.
If agents sell two or more suites, they can win $2,000 or a trip to California.
By the end of this year, housing economist Will Dunning estimates, 14,700 units will be completed and ready for occupancy. He expects more than 14,000 units to be completed in 2007.
"We won't start seeing a lot of the effects until early 2007, but there will be a wave coming."
While it won't quite be the Poseidon Adventure, Dunning has repeatedly warned that he thinks there is a "high risk" that the market is overbuilt.
One thing he and Clayton agree on is that there are a significant number of investors in the market, anywhere from 25 to 40 per cent. If the market softens, many will be placing their units back on the market.
"Things are totally out of whack; the numbers of condos being sold don't support demographics," Clayton says. Even if the conservative estimate of 25 per cent is applied, that means there will be at least 3,000-plus condo rentals coming on the market every year for the next several years. Those condos are expected to compete with apartments and other condos to drive rental prices down and vacancy rates up.
When investors can't rent their units, they tend to unload them. At least that's the fear.
So far, of course, the much-anticipated correction hasn't materialized. And realtors such as Jamie Johnston, who think the market still has legs, have never looked more prescient.
Still, Johnston, who is an economist by training with an MBA specializing in real estate, is the first to admit that not everything is perfect. For one thing, the spread between resale prices and new condo prices is growing.
The price difference historically between new and old condos has been about $50 per square foot. Developers are now asking about $100 per square foot more for new condos, Johnston says.
"There are still some good new projects coming to market, but there are other projects that will not hold the pre-construction prices being offered today," he said in a recent report.
While he thinks the resale market will continue to be buoyant, Johnston says some of the new condo prices are a result of developers trying to make as much hay out of the market as possible.
But if price gouging and speculators don't kill the market, there is one potentially big factor that might: high building costs.
The costs of building and developing properties, from land to labour, have skyrocketed. This could lead to a situation where projects are killed if the numbers don't add up, Shim says.
A study by construction cost consultancy Altus Helyar says development costs in Toronto increased by 8 per cent last year and are expected to increase by 8 per cent again this year.
If costs keep rising, Shim worries that Toronto could become another Miami, where projects have been shelved by developers who are worried that prices aren't sustainable.
Still, Shim, along with realtors such as Johnston, think the market still has a ways to go.
For one thing, if you want to live in affordable housing downtown, condos are it. Higher housing prices have shifted buyers into the condo market. Then there is another segment that is now actively choosing condominiums.
"It's not about living in condos because you can't afford a single detached home any more," Shim says. "More people want the convenience of living in a condominium and are willing to pay for it."
Unlike the bubbly 1980s, where condo prices crashed by 40 per cent, Shim says this time is different. Banks are more stringent, and developers typically have to pre-sell 60 to 70 per cent of their units before construction.
The market continues to benefit from both the first-time buyer and the move-up buyer, and will continue to be fuelled by the baby boomer who is downsizing, Johnston argues.
Meanwhile, price increases have been relatively benign in the condo market in the past, mainly because of a highly competitive market. Since the first quarter of 2003, the price per square foot for condos has remained relatively flat at $301. In the first quarter of this year, prices rose to $324.
Some investors believe the Toronto market has legs because it isn't Miami or New York, or even Vancouver, where prices have gone up considerably more, argues Israel Schwartz, who is considered one of the shrewdest wheelers and dealers in the market.
"There is no such thing as a first-time house buyer in the Toronto market any more," he says. "It's about being a first-time condo buyer, because most people don't have a choice if they want to live downtown. That's what's fuelling this."
Toronto developers have managed to boost their bottom line by building smaller units, but at an affordable price level for entry-level buyers, says Schwartz, who sees shrunken condos as an inevitability.
"Ten years ago, you paid $250,000 for a 900-square-foot place, and now you're getting 600 square feet for the same price," he says. "But at least you're getting your foot in the door."
AoD
