Paul Brent – Property Biz Canada

Real estate players hoping to throw a shovel or two of dirt on Toronto’s condo market received little comfort at the condo panel at the recent Land & Development Conference.

Despite the shiny forest of completed condos and skeletal, crane-topped buildings in Toronto’s core, plus a slew of others that exist only as sales offices and architects’ plans, the condo market is surprisingly healthy.

Comment: This is why I don’t understand… Isn’t the forest of new condos, the plethora of cranes and all the sales centres direct evidence as to how healthy the Toronto condo market is?

That “not-dead-yet” message was delivered over and over by the four participants of the morning panel discussion which carried the title: What is actually happening in the high rise condominium market?

Plenty, it turns out.

“Significant change”

“I would say that right now the market is at the best it has been in the last couple of years but it is definitely not the strongest that we have ever seen it,” said Shaun Hildebrand, senior vice-president with Urbanation Inc. “It has undergone some significant change.”

Comment: Well 2011 was insane, still the record year.

Toronto’s quarterly condo sales are well off their quarterly peak of 30,000 units set in late 2011-early 2012, the researcher noted, dropping to a low of 14,000 last year but has rebounded to above 16,000 in the Q1 2014.

“It is really directly in line with what is happening in the resale market,” he observed. His presentation demonstrates that the resale and new sale condo markets are now closely tracking each other.

Comment: Not so much. The stats show me that as new sales drop, resale condos rise. And then as new condo sales rise, resale activity slows a bit. Tied, yes, but in a complementary manner.

“The fact that we are seeing some good stability right now I think is a good stepping stone for what we are going to see in the next couple of years,” he said.

He produced a survey which showed that many people were expecting the bottom to fall out of the condo market in 2013. It clearly did not as the resale market was able to shrug off new mortgage restrictions designed in large part to slow debt accumulation related to soaring residential pricing.

Core strategy

The Urbanation researcher said his firm is tracking “an abnormal amount of activity” by developers in the city’s old core or the former city of Toronto. Over the past 12 months, almost two-thirds of all new activity is taking place in the older, smaller city of Toronto.

Comment: Which has a lot to do with the West Don Lands project, Regent Park, River City, etc. Just happens to be a lot going on there at one time. Like Liberty Village a couple of years ago.

“This is really where the market is strongest, this is where unsold inventory is the lowest, this is where new project openings are happening and this is where buyers want to be. So we are seeing that the market has, at least for now, taken to spots of proven stability.”

That geographic concentration means that the condo market simply can’t expand to the high-water marks it set at the end of 2011, he concluded.

The good news is condo inventory, both pre-construction and under-construction, is down from near highs at the start of 2013 but it could and ideally should be lower to support further new construction and future sales.

Developers’ increasing focus on geography, limited openings, strong incentives and competitive pricing have meant that quarterly sales of both pre-existing and new launches are have rising at a gradual and “sustainable” pace over the last three quarters.

Less speculation

Investors (or speculators) are also playing a far less dominant role in the condo market, evidenced by the fact pre-existing project sales are now outpacing new launch sales, a stark reversal of the 2011-12 span when new launch sales dominated.

Comment: No, no. Investors and speculators are not the same thing. Speculators are one type of investor, but most of them consist of those buying condos to rent out for the long term. Let’s be clear about that.

Pricing is also much more competitive, evidenced by a closing of the gap between new and resale condo prices ($549 per square foot vs $519).

“This is important because we know that there are a lot of units under construction right now coming to completion over the next several years, so prices have some headwinds against them,” Hildebrand said. “The fact that prices are becoming more competitive now is going to put them in a good position to compete with the coming resale supply.”

Rents continue to grow, despite rising supply, which speaks to the influx of people into the Toronto area. The number of condos for rent in Toronto have nearly doubled since 2008 (42,972) to 2013 (77,255) but rents have not been hit as yet.

Comment: And until people stop moving here and stop needing somewhere to live, rents will not drop. With vacancy rates in the 1% range, the demand is still very very strong. Up to 100,000 move to the GTA in a given year, they all need somewhere to live.

Condos rule

Jeanhy Shim, president of Housing Lab Toronto, put the growth of condos in stark terms. In 1971, there were about 1,000 condos, accounting for fewer than 2% of all GTA dwellings. Today they number about two two million units or 28% of all dwellings with another 65,000 under construction. Once those are delivered, condos will account for about one-third of all residences in the GTA.

Comment: Because they are essentially the only housing being built. Especially in the 416, there are no houses being built.

She views the condo market as a tale of three markets: investors (mostly locals) who are buying and holding, rather than looking to flip; first-time buyers with good incomes but no savings; and resale buyers who comprise a more diverse group.

Shim, too, does not expect the condo market to fall off a cliff. Currently the core city of Toronto, which has grown quickly over the past decade, has been a magnet for adults aged 25 to 40, with some children aged 1-4, while families with older children dominate the outer areas of the GTA.

She identified a downtown baby boom of children aged 4 and under. What does that mean? “These people are not going to live in 500-square-foot shoeboxes forever.”

Comment: Which is where all the pressure for the limited supply of houses is coming from. They may not have choices soon enough. As more and more condos are built, more and more people move in, more get married, more have babies. And now more want houses – but there are fewer houses for sale every month. So demand rises and supply falls. This is why detached homes are worth almost $1 million with prices rising 10% or more every year.

The desire for a backyard will be challenging for young condo dwellers to fulfill, however, given soaring prices for detached and semi-detached homes and limited supply, she noted.

One floor for the condo market that is not captured in most data, which CIBC economist Benjamin Tal also noted, is the number of foreign workers and students in the city. The number of foreign students in the GTA has doubled to about 66,000 in 2012 from a decade ago.

“These students are renting,” Tal said.

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

Laurin Jeffrey is a Toronto real estate agent 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.
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