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Tag Archives: condo closing

Toronto condos: 2014 to be the year of The Big Move

A record 20,000 new condos could come to completion across the GTA.

Susan Pigg – Toronto Star

Javier Lirman has seen the dark underbelly of Toronto’s condo boom, hundreds of times.

The owner of Toronto moving company Cargo Cabbie has spent hours jockeying for parking spots, hanging around underground loading docks and waiting for condo elevators that seem to have gotten smaller as buildings have grown taller.

Comment: To be fair, I am certain newer elevators are larger than older ones, if not the same size. They have definitely not gotten any smaller.

Things like that matter to a guy whose job it is to move people in and out of their high-rise homes on a tight schedule and still have time to assemble weighty Ikea furniture when needed.

“Any type of Ikea wardrobe drives us crazy, no matter what model,” says Lirman with a laugh.

Next year is going to be an especially busy year for Lirman — and for Toronto’s condo industry.

An estimated $25 billion worth of condominiums are under construction across the GTA. A record number of units — development research firm RealNet estimates close to 20,000 — are slated to be completed in 2014 and their owners, or tenants, will move into their gleaming new glass and granite homes.

Comment: Remember, that is only an estimate. I have heard many “estimates” from supposed “experts” that there would be 30,000 condo completions in a year that saw maybe 15,000. Take these complete guesses with a grain of salt.

“We’re a small, local company. We like to believe that slow, steady growth is the way to go, but we are being pushed along very hard and very fast” as Toronto’s condo market explodes, says Lirman.

Comment: Well, the condo market has been exploding for a decade now, he has had a lot of time to get prepared.

More than 75% of the moves Lirman and his crew do involve condos, and that’s not letting up anytime soon given that there were 63,909 new units under construction across the GTA as of the end of October, according to RealNet.

“Exactly how many units we’re actually going to see occupy (in 2014) is really hard to predict because we’re entering a phase that is uncharted in history. We’re completing more units than we’ve ever completed because more units were sold in 2011 than have ever been sold in history,” says RealNet president George Carras.

Comment: But we have not completed more than at any time. The record number of completions was back in 2011, so we have actually had less each year since. Not to say there won’t be more in the future, but people seem to be talking like new records have already been set, and they have not.

Toronto Condo Construction
“If 2011 was the strong takeoff year (for new condo sales), in 2014 they are all coming in for a landing.”

Well, not quite all of them.

More than 28,000 condos sold in the pre-construction phase in 2011, the most by far in a single year. Many are unlikely to be completed for another year or so because of construction bottlenecks — a shortage of skilled trades and equipment — that have limited completions to about 16,000 units a year.

Comment: And there is the real truth of it all. The actual number is 15,750 average per year. There is simply no way to increase that number in any meaningful way. We just don’t have the manpower, supplies, supply chain… Just going from 15,000 to the record of 18,000+ is a 20% increase. To suggest that we can push out 30% more condos this year or next, where are all of the extra workers and materials going to magically come from?

But so many are already well underway, Carras believes we could see closer to 20,000 new units open for the first time in one year. And that’s left developers scrambling to make sure all goes smoothly, not only with The Big Move but, more importantly, with The Big Close.

Comment: But the problem is, if there are 50,000 units being built right now and 100,000 construction workers in the city, then you have 2 per unit. Even if there are suddenly 100,000 units to build, you still only have 100,000 workers. So now you have 1 per unit and each unit takes twice as long. The number of units is not quite as important as how many people there are to build them. Never mind the finite supply of concrete and steel and other materials. There are no new concrete factories or steel mills being built.

Developers, and federal finance minister Jim Flaherty, will be watching closely to see how many condo buyers struggle or fail to close on units they bought in the pre-construction phase two or three years ago with meagre down payments, before tighter mortgage lending rules and last year’s slight bump up in interest rates made finalizing deals more difficult.

In the past few months, mortgage brokers, realtors and developers have seen a surge in people, especially the self-employed, “scrambling” to get final financing from institutions that have not only toughened lending requirements, but grown more leery of the condo sector.

Comment: My brother-in-law and his wife were caught in that crunch. Things changed, both the mortgage rules and their lives, since they bought in 2010. But they did manage to make it work, it was a panic, but they closed.

Already, some buyers have had to walk away from deposits or borrow from family or secondary lenders at higher rates. Others have sought developer approval to put their units up for sale on the so-called “assignment market” as the project was just coming to completion, in hopes they could find a new buyer before final payments were due.

Veteran condo developer Scott McLellan of Plaza, whose company has an unprecedented 2,511 new units coming to completion in 2014, on top of more than 1,100 that closed in Liberty Village in late 2013, acknowledges the coming surge of closings is being watched closely.

“There is a concern in the industry,” acknowledges Plaza’s senior vice president. “There are a lot of bigger projects closing” in 2014.

But McLellan believes the closings at Plaza’s King West Condominiums in Liberty Village are a sign that all will be fine in 2014.

Of the 1,141 King West units sold in the pre-construction phase over the last two to three years, just two buyers did not close. One died and the other could not be located.

Comment: So the only evidence we have of this “closing crisis” is 2 out of 1,141 or only 0.18%? And neither failed close was due to mortgage issues? So 0 of 1,141 over 2-3 years failed to close because of the new mortgage rules? And why are we making this an issue?

About 100 units were sold on the assignment market before final payments were due and all the new buyers have closed, he says. He estimates that 40% of the project is owned by investors, and most are leasing out their suites for hefty rents rather than flipping the suites for a profit: Just 36 (or 3%) of the units have been sold on MLS so far and another 21 units are up for sale.

Comment: Which also puts truth to the lie of condo speculators and flippers. We have 57 units out of 1,141 sold or for sale. Like my brother-in-law, a lot changes in 3 years. Since he bought his condo, he got married and moved to Vancouver after getting a promotion. He is keeping the condo as a rental, since he can cover his costs. He could have sold, sure, but he did not need to. Point is, a lot of sales are due to life circumstances, not investors looking for profit.

McLellan believes the biggest issue for Toronto’s condo industry in 2014 won’t be finalizing closings as much as “getting sales back.”

Comment: Yet resale condo sales were up almost 30% in December, with prices up 6%. Sure, there were fewer new condo launches this year, but the resale demand went up as the new condo sales went down. Just shows that condo demand remains steady and buyers will turn to wherever the supply is. But take note, both the new and resale condo markets both boomed in 2013, hopefully putting to bed all the talk of the condo market crashing.

Condo realtor turned developer Brad Lamb believes “the great Toronto development boom is over” and that condo sales, which averaged about 19,425 units a year from 2010 to 2013, will slip to an average of 12,000 a year as developers continue to hold back on new project launches.

(Lamb, who claims an essentially unblemished record of accurate predictions over the years, expects condo prices to “rise meaningfully” and rent to climb by mid-2016 as the “ample supply” of units begins to dwindle.)

Comment: I can’t recall him being wrong. He is the most realistic guy out there. He does not scream doom and gloom, he uses actual data and reality to base his opinions. As do I. And amazing, he and I tend to see eye-to-eye a lot.

Veteran development consultant Barry Lyon believes sales will average 12,000 to 15,000 units a year going forward, more in line with demographic demand. He sees 2014 as the year of incentives — from free parking or lockers to breaks on maintenance fees — as a way for developers to entice buyers back to their showrooms.

Comment: It is not as much about demographic demand as builders not having prime land to choose from. Smaller buildings in non-downtown locations (suck as DUKE, Streetcar’s projects, Enigma Lofts and the like) will dominate. The days of 70 & 80-storey behemoths downtown are waning. Twelve-storey condos simply have fewer units than 65-story skyscrapers.

“Developers will be trying to win over markets they’ve been ignoring for the past several years, particularly first-time buyers and the end-user market,” says Lyon.

“I think developers are going through withdrawal pains from their addiction to investors. They are going to have to wean themselves off their dependency.”

Comment: Not so much. Renters still wanna rent. And with no new rental buildings being built, condos are the only supplier to the rental market. They are also working with the city, who wants low and mid-rise buildings along “Avenues” contained in the new city plan. Buyers are also rebelling against giant ant farms in the sky. They want neighbourhoods, cheese shops and their own local to enjoy a pint. And you can’t get that at Yonge & Front. But you can get it in Leslieville or The Junction.

That should mean more of a focus on small or mid-rise condo projects where owner-occupants actually care about the look, size and feel of the unit because they plan to live in them, rather than own them as investments and rent them out.

“The new sweet spot will be buildings with 100 to 150 units” along main streets just outside the downtown core, Lyon believes.

Comment: Like I just said…

That should, at the least, make Lirman’s job of moving folks a little easier. Just in the last three years, he’s found what used to be four-hour condo moves stretching to six or eight, largely because of elevator issues or unexpected surprises as buildings got bigger.

The most memorable, so far, was arriving at a downtown condo complex to find the moving and delivery entrance was about two city blocks from the elevators of the 42-storey building the client was leaving.

That meant Cargo Cabbie’s crew had to pile all the condo contents onto trailers about three levels underground, then pull those from the elevator loading area back to their waiting truck using a small John Deere tractor.

“We need to adapt as the city is changing, but some days I’m just scratching my head,” says Lirman.

“Keeping a smile and being easy going helps. But thank God no one has ever called us from that building again.”

Comment: Yup, that is CityPlace. Had a client who bought and then sold at 11 Brunel Court. His parking spot was under one of the other buildings. I remember seeing that tractor in the garage. Some developers just plan things badly…

Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto Realtor with Century 21 Regal Realty. He did not
write these articles, he just reproduces them here for people who are
interested in Toronto real estate. He does not work for any builders.