Toronto Condo and Real Estate Blog

By John Barber - Globe and Mail

In Amsterdam in 1636, a single tulip bulb could sell for the contemporary equivalent of a nice view from the 47th floor above downtown. But the price of Toronto condos is still rising. Nobody knows how much it will be worth tomorrow, although many are speculating.

If the inevitable real estate cycle had any sense of drama - or farce - it would designate this week as the top of the wheel and the height of folly.

First came the money-mad “launch” of 1 Bloor East, the epitome of a frenzy. One man who held a place for a real estate agent in the ruly mob that camped for days beneath the hoarding told The Globe and Mail he earned $2,000 for the service. Given the way prices rose throughout Tuesday’s launch, that payment was likely a “sound investment,” to use a phrase often heard in this market.

Every day brings more strange tales of the Bloor Street frenzy, the latest involving alleged ethnic conflicts among competing agents. The whole business is so crazy it seems fated to end badly - just as so many panicky property grabs did in 1989, when the market last collapsed.

But the 80-storey, Kazakh-financed Bloor Street tower had less than a week to shine as the city’s tallest theoretical residential building before a usurper appeared. Yesterday, a competing developer unveiled an equally dramatic and potentially taller condominium tower, called Aura, to be built on Yonge Street at the northwest corner of Gerrard Street.

Height matters in this game, with steadily rising prices charted on a giddily up-thrusting skyline. Michael La Brier, president of developer Canderel Stoneridge, said that his 75-storey Gerrard Street tower will actually be taller than the 80-storey tower Bazis International wants to build on Bloor Street. But his estimate would seem to discount the “architectural fins” that knife the clouds above his competitor’s building, varying in height from one sexy drawing to another, as marketing demands.

As of now, Mr. La Brier said, Aura, billed as “Canada’s largest condo tower,” is also taller. “If they go higher,” he added, “I really don’t care.”

Really?

Design is the focus of a healthier competition among today’s high-rise developers. Canderel Stoneridge only won approval for its tower after agreeing to spectacular architecture, as determined by what the developer called an “international architectural peer review process.” The impressive design that resulted, by architects Graziani + Corazza, has become the building’s main selling point.

Meanwhile, Bazis keeps adjusting its own design. Most recently, it acquired two vastly expensive properties just south of its site in order to create a heftier base for its fin-topped tower.

The freakier the tulip, the more desirable it is - given the right circumstances.

Mr. La Brier is well aware of the phenomenon, which he described as the “greater fool theory.” People will happily pay more than something is worth as long as there appears to be a renewing supply of gulls to sell it to.

That’s what drove Toronto’s last speculative housing boom, according to Mr. Le Brier. But this one, he insisted, is different. “Any building properly placed and properly priced will sell,” he said.

As of now, prices at Aura will be about $500 a square foot, according to the developer. He expects about half the buyers to be investors rather than residents. As for 1 Bloor East, he added, “I don’t think anybody has any idea what their pricing is.”

The Toronto condo boom becomes all the more remarkable when seen in light of the U.S. real estate collapse. The day people went crazy on Bloor Street, Reuters reported condo fraud so rampant that mortgages on as many as 200 suites in a single 43-storey Miami condo fell into foreclosure before anybody moved in, the result of complicated scams hinging on deliberately inflated prices.

A day later, ABC reporter Jeffrey Kofman went to Miami to report on the larger picture. “Since the South Florida condo market peaked two years ago in a frenzy of hype and a seductive aura of easy money, sales have stalled, prices have been in a free-fall,” he reported. The state is now infested with “condo vultures” feasting amid the devastation.

In downtown San Diego recently, developers converted a just-completed “luxury condo” into affordable housing after wealthy buyers failed to appear. No wonder: They all joined the rush to Toronto.

If everything goes well, greater fools will soon follow to join the canny investors who are minting money in the current craze. The problem, as everybody knows, is that there are never enough of them.

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It’s tremendous for real estate brokers and developers

By Kerry Gold - Globe and Mail

Miranda Pearson remembers that when she decided to leave her common-law partner, with whom she was renting an apartment, she began secretly searching for a property to buy. Once the relationship fell apart, she saw real estate as her ticket to freedom.

“I expect it’s quite common, that people secretly scour the real estate,” says the soft-spoken Briton who is a well-known Vancouver poet and educator. “I felt very guilty about it. I knew I wanted to buy somewhere, but not with him. I was having a secret affair with my real estate agent.

“But not a real one,” she adds, laughing.

Her story illustrates what most brokers — at least those who care to admit it — have long known: When married or common-law couples go their separate ways, the real estate market often benefits. Top Toronto condo marketer Brad Lamb, for instance, estimates that sales due to couples splitting up represent about 25% of his business.

“I love the divorce market,” Mr. Lamb says in a phone interview. “I would say that certainly a quarter of our business is attributed to the breakdown of the marriage — which we are encouraging should break down every three and a half years.

“I’m advocating that very strongly,” he adds, tongue-in-cheek.

Turning serious, he says divorce is a “terrible thing” for people to go through.

“But for real estate agents, we do really well because we sell them the apartments they both lived in before they get together, then they get married and buy a bigger apartment or house, and we sell them that. Then when they split up, inevitably, five years later, we sell the house or condo, and they buy two more.

“In a matter of five years, you are doing six or seven transactions, as opposed to 20 years ago, [when] you’d be doing just one.”

And it’s not just older couples who are divorcing, but people in their 20s and 30s. Gone are the days when mom and dad stayed together in the same house for 50 years.

Some real estate agents are wary of discussing the effect of relationship breakdowns on their business. In fact, several refused to be interviewed for this story.

But Mr. Lamb says: “You can’t put your head in the sand [and] not … acknowledge the realities of the world. Divorce in first-world countries is a huge economic benefactor to many, many, many businesses, not just real estate.”

Scott Shallow, a top-selling agent with Brad J. Lamb Realty, is one such benefactor. He estimates that relationship breakdowns can at times account for as much as one-third of his business.

“There was a time in the summer I kept spinning my head around in circles because the phone would be ringing every day and it would be somebody splitting up and they would want me to sell their place and find them two others,” he says.

“It’s a fantastic part of the business,” he adds, laughing. “You know? It’s unfortunate, but it’s certainly keeping things alive in the real estate market.”

In fact, he’s currently helping a divorced couple find separate homes. But, so amicable is their split, they are viewing the same properties together.

“They’re not all like that — trust me,” Mr. Shallow says. “Most of them are like, ‘I need a rental right now. I don’t care how. Get it tomorrow. I’m packing my suitcase right now.’”

In Ms. Pearson’s case, she borrowed money from her parents for a down payment, and purchased a one-bedroom condo suite in Vancouver’s tony Kerrisdale Village for $150,000. She sold it three years ago for $200,000, and bought a two-bedroom unit in the city’s Kitsilano neighbourhood for $312,000. Today, the 1,000-square-foot condo, which she shares with her son, is worth about $500,000.

She believes the high cost of real estate in Vancouver has changed the rules of relationships. “The stakes are higher,” she says, seated in her comfortable living room overlooking the North Shore Mountains.

“I know quite a few people who would break up if it weren’t for the cost of real estate,” she adds. “They are living in a nice house and they don’t want to downsize to a condo, or they just can’t.”

When Vancouver writer Mary Frances Hill packed her suitcase, however, she didn’t need a real estate agent. She had held on to the condo suite she was living in even when she moved into her fiancé’s house. They had a child, but the relationship ended and two years later, Ms. Hill moved back to her Mount Pleasant condo as a single mom.

“It made it easier to leave,” she says. “When things went awry, I wasn’t so desperate. I had this freedom in my back pocket.

“It’s realistic in Vancouver’s real estate market,” she adds.

Mr. Shallow understands that feeling, because he’s witnessed it first hand.

“For a lot of people … it’s so nice just to be free and portable, and stick the key in the door and turn it and, ‘That’s my life.’ No emotional baggage. No planting flowers, shovelling snow, cutting the grass, cleaning this huge house. All that crap.”

It’s an urban joke to label certain easy-living condo buildings “Divorce Towers” or “Divorce Court because it’s believed a lot of divorced people live there.

But Mr. Rennie, the Vancouver property marketer, doesn’t believe such buildings exist.

“Usually, you find guys with ponytails and old cellphones and big briefcases moving into hip places, and they hit on girls,” he notes dryly.

“If I was told to shoo, I know exactly where I’d move into,” Mr. Shallow adds jokingly. “I wouldn’t want to live there … but if you’re a single person you move into buildings like Waterpark City [at Bathurst Street and Lake Shore Boulevard].

“I sell apartments sometimes there, and in the summertime [clients and I] go up onto the rooftop common terrace and there will be two women lying face down with nothing but a thong on.”

Such a singles club setting is just a temporary stopover for most, however — more good news for the real estate business.

“Nobody wants to admit that they will be single for the rest of their life,” Mr. Lamb says. “They meet Mr. Right or Mrs. Right and then they sell again. The whole process rotates every five years to the day.

“It’s tremendous for real estate brokers and developers.”

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Canadian Press: Talbot Boggs

Canadian investors and homeowners worried about a meltdown in the real estate market here in Canada can relax.

The subprime mortgage crisis in the U.S. isn’t like to happen up here in the cooler, more fiscally conservative north. The Canadian real estate market is not a bubble waiting to burst and owning a home is still a good investment and wealth management strategy, financial experts believe.

“You have a bubble situation when there is a lot of speculation and leverage in the market,” says Patricia Lovett-Reid, senior vice-president with TD Waterhouse. “We are not seeing that in Canada now.”

Lovett-Reid says Canadians don’t need to be worried about the subprime mortgage crisis in the United States spilling across the border.

An August forecast by the Canadian Real Estate Association shows that the average price of a residential home in Canada is expected to rise 10.4% during this year and national home sales will increase 8.1%, setting new annual records in most provinces. In the U.S., however, the National Association of Realtors in its September outlook projected a drop of 8.6% in existing home sales and 1.7% in home prices during the year.

Many of the conditions that led to the subprime mortgage situation in the U.S. don’t exist here in Canada.

Interest rates in Canada have not gone up as much as they have in the United States and mortgage financing here is much more conservative than it is south of the border.

Americans can get a tax write off of their mortgage interest payments, which encourages them to borrow and assume larger mortgages to buy a home.

“The deductibility of mortgage interest payments in the U.S. causes people to take on more debt because of the tax break,” says Paul Taylor, chief investment officer of BMO Harris Investment Management Inc. “Canadian homeowners are generally less indebted than Americans.”

At the peak of the housing mania in the U.S., subprime lenders were offering homeowners “dubious” instruments such as NINJA (No verification of INcome, Job status, or Assets) loans, Lovett-Reid says.

“As the mania for home ownership grew in the U.S., sub-prime lenders made homes seem affordable to a section of the population which would hot have qualified under conventional mortgage terms,” Lovett-Reid says.

Overall, the real estate market in Canada looks healthy although a correction might be coming.

A TD Economics report says the sales of existing homes in Canada could decline by four per cent next year compared to its projection for this year.

“The probability of the real estate market busting is small,” says Lovett-Reid. “A cooling of the Canadian real estate market (likely will) proceed in an orderly fashion.”

Taylor says real estate prices and starts will flatten out over the next few years, but real estate should continue to be a good investment strategy as part of a diversified portfolio.

Canadians can invest in real estate in several ways - by owning real estate that is their primary residence, owning rental property, land, or investing in real estate company stocks or Real Estate Investment Trusts (REITs).

REITs were exempted from the controversial tax on income trusts announced by federal Finance Minister Jim Flaherty in October last year.

REITs make up about 11% of the S&P/TSX Income Trust Index. The S&P/TSX REIT Index rose 24.7% in 2006 and the popular investment vehicle has not had a down year since 199, says the Guardian Group of Funds.

Another positive omen for real estate remaining a good, long-term investment is that the market is being driven by fundamentals, not speculation. Commercial real estate developments such as condominiums and housing subdivisions, for example, are being done a pre-sold basis, Lovett-Reid says.

And TD Economics expects national average home prices will rise by an average annual rate of four per cent over the next 25 years.

“While real estate purchased for speculative or income-generating purposes is a financial investment, home ownership offers the opportunity for capital gains through rising prices over time,” Lovett-Reid says. “There could be considerable variation at the individual city or neighbourhood level and volatility from year to year, but as one of, if not your largest asset, a home should be a part of your financial plan,” she says.

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

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