Sky’s the limit for Toronto condos?
May 26th, 2006When it comes to highrise living, T.O. is tops in North America - at least for now
Excerpt from an article by Tony Wong - Toronto Star
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 Toronto 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.
The good news for realtors is that Toronto is the hottest condo market in North America. The potentially bad news (if you’re an investor) is that Toronto is the hottest market in North America.
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% of all new sales in April, well above a historical 25% 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 Toronto condo market is particularly vulnerable to a correction.
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.
One thing he and Clayton agree on is that there are a significant number of investors in the Toronto condo market, anywhere from 25 to 40%. If the market softens, many will be placing their units back on the market.”The number of Toronto condos being sold don’t support demographics,” Clayton says. Even if the conservative estimate of 25% is applied, that means there will be at least 3,000 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.
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.
The price difference historically between new and resale Toronto condos has been about $50 per square foot. Developers are now asking about $100 per square foot more for new condos, Johnston says.
While he thinks the resale market will continue to be buoyant, Johnston says some of the new Toronto condo prices are a result of developers trying to make as much hay out of the market as possible.
A study by construction cost consultancy Altus Helyar says development costs in Toronto increased by 8% last year and are expected to increase by 8% again this year.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 Toronto 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 Toronto condo prices crashed by 40%, Shim says this time is different. Banks are more stringent, and developers typically have to pre-sell 60 to 70% 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 condo 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.”
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