Toronto condo market is secure

Derek Raymaker – Globe and Mail

Predicting the future of the high-rise residential market can be risky.

Take the forecasts for 2002, for example. In the wake of the 9/11 terrorist attacks, a temporary economic slowdown in the United States and a three-year condo-building binge in downtown Toronto, a lot of economists and analysts predicted that the high-rise market was heading toward a glut of supply, and possibly shrinking prices.

So what happened? Total sales of new condos in Toronto rose 44%, to more than 15,000.

Last year provides another example. Nearly identical figures for new condo sales in 2005 and 2006 – 17,693 and 17,617, respectively – prompted even some of the industry’s boosters to predict that while there would still be a strong market in 2007, the earlier pace probably could not be sustained.

What happened? New condo sales in Toronto skyrocketed to 22,059 – and that’s only up to November, December data not having been released yet. Many of these sales came in the fourth-quarter as buyers tried to close deals before the Jan. 1 introduction of Toronto’s controversial land transfer tax.

Few market watchers have been willing to predict a downturn in demand for condominiums, a demand felt not just in downtown Toronto, but increasingly in North York, Mississauga, Markham, and, recently, Brampton.

As long as prices for detached and other low-rise housing remain largely in the $400,000 to $600,000 range – even for the most modest of dwellings – the relative affordability and wide variety of locations in Toronto’s condominium market will keep demand high.

This past year saw the introduction of innovative design elements and a greater emphasis on sustainable building features aimed at lessening the impact of housing on the environment. In both cases, buyers responded well, especially to buildings that pushed the design envelope with features such as soothing terracing and angular architecture.

“In the last 12 months, there has been a much greater emphasis on design than we’ve seen previously,” said Jane Renwick, executive vice-president and editor of Urbanation, a publication that tracks high-rise development.

Among the more bold high-rises launched last year – ones that set the bar higher for future such projects – were Bazis International’s One Bloor at Bloor and Yonge streets, and Pier 27, a project by Cityzen Group and Fernbrook Homes at the foot of Yonge.

“This year’s buying furor for some projects was largely driven by design,” Ms. Renwick added. “Builders are finally realizing that good design has some pull with buyers, but it also contributes a lot to the aesthetics of the city.”

For many years, one of the main criticisms aimed at some condo projects – especially those located outside of the subway corridors – was that they were largely isolated from other community amenities.

But now, there is a move afoot to bring more commercial, retail and community uses into the mix at projects, according to Barry Lyon of N. Barry Lyon Consultants, which advises condo developers across the country. “Well-educated, younger residents are bringing with them a lot of the complementary components that are needed for healthy communities,” he said.

In Toronto, it seems that big-box retailers such as Home Depot and Wal-Mart are keen to establish more of a presence in the city’s centre, especially along Eastern Avenue.

In the coming year, potential buyers could see three or four levels of residential condominiums built on top of central big-box stores. The concept has already been executed successfully in downtown Vancouver.

Ms. Renwick points to Lanterra Developments’ Maple Leaf Square, adjacent to the Air Canada Centre at the foot of Bay Street, as an example of how a condominium and commercial amenities can be combined successfully on a large scale prior to construction. Its two towers are nearly sold out.

Other trends to watch for in 2008, Mr. Lyon said, include a surge of building activity in the eastern part of downtown, and Waterfront Toronto’s West Donlands community taking shape, bolstered by the introduction of the Cherry Street streetcar line. “The waterfront is becoming real. All these years of planning will finally bear fruit.”

As long as prices remain low, relatively speaking, demand for condominiums will continue to be steady.

But Mr. Lyon noted that land and construction costs in downtown and midtown Toronto have been spiralling higher, to the point where developers feel they can charge more. It’s this spiral effect that can ultimately destroy the one thing – affordability – that sustains the market.

Another element that will likely have a greater impact on the Toronto condo market this year is the re-emergence of the investor-buyer, who rents out purchased suites for income. In the late 1980s, these buyers played a big role in creating the real estate bubble by flipping their suites. Since then, they’ve consistently made up 20% of the market.

This year, Ms. Renwick predicts investors will increase to 30% of the market, but they will concentrate on buying suites in downtown locations and along subway lines.

Mr. Lyon added that investors have shown a reluctance to flip their properties, holding on to them for an average of three to five years before reselling.

“Flipping is the last thing we want to see,” he said.

————————————————————————————————–———-

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