Keep Calm and Carry On

Zoe Ackah – Epoch Times

Not every­one we inter­viewed agrees totally, but what we can say is there’s no need for panic. Toronto has a hous­ing short­age, and con­dos are a great way to buy an afford­able place to live. They are the main source of new rental hous­ing. There is a healthy mix of investors, end users, and tenants.

Com­ment: Amen! Thank you for a ratio­nal view­point, one informed by the infor­ma­tion and not just neg­a­tive hyperbole.

Sorry, there is very lit­tle chance of sig­nif­i­cant price decline, but we sug­gest you think of the GTA as a group of inde­pen­dent sub-markets. What is true for Markham may not be true for Eto­bi­coke, so do your home­work before you buy or sell.

Look­ing back a decade, you’ll see a year that is shap­ing up to look rather like 2006 – very average.

A greater vari­ety of unit sizes and con­fig­u­ra­tions can be expected in the next decade.

Pre­pare to engage in increas­ingly seri­ous con­ver­sa­tion around infra­struc­ture build­ing, tran­sit fund­ing, and use of sec­tion 37 funds.

All in all, the adjust­ment to Places to Grow leg­is­la­tion, increased immi­gra­tion to the GTA, and the price of gas are push­ing our city toward matu­rity. It’s time to effec­tively plan and thought­fully build a city that has suf­fi­cient tran­sit, com­mu­nity facil­i­ties, and hous­ing options for everyone.

BILD Pres­i­dent talks low-rise, tran­sit, and devel­op­ment charges

Com­ing down from the fever­ish high-rise explo­sion of 2011–2012, Build­ing Indus­try and Land Devel­op­ment Asso­ci­a­tion (BILD) pres­i­dent Bryan Tuckey feels the future requires rethink­ing some plan­ning habits.

Is there a future for tiny units in giant tow­ers, ultra-costly tran­sit options, and huge devel­op­ment charges passed on to consumers?

Wel­come back the walk-up

As we begin to explore the space between rugged, sin­gle fam­ily indi­vid­u­al­ity and mega-tower enforced col­lec­tiv­ity, Tuckey is putting forth a mod­est sug­ges­tion – six-storey wood-frame construction.

“It’s much more flex­i­ble,” says Tuckey. Not to men­tion less expen­sive to build. Here is where Tuckey thinks fam­i­lies will find the larger and more afford­able units they need.

Today in Toronto you can build a max­i­mum of four floors framed with wood. Allow­ing for six is not just less costly to build, but also less costly to the environment.

Tra­di­tional cement releases lots of CO2. Tuckey says wood is actu­ally “much more sus­tain­able from a car­bon sequester perspective.”

So what does that mean for you? Get ready to take the stairs to your sixth floor pad, and the bus to work.

Bus shel­ter

At the recent BILD High-Rise Forum, there was a lot of transit-related frus­tra­tion. It’s some­thing all Toron­to­ni­ans share.

Though devel­op­ers work­ing on the water­front are still wait­ing for their light rapid tran­sit, Tuckey is actu­ally rather bull­ish on bus rapid transit.

“I think buses are really under­val­ued in how much they can move and how flex­i­ble they are. There’s poten­tial for buses.”

Hav­ing worked exten­sively on the Shep­pard sub­way, he feels we need to be ask­ing what we can afford plenty of, because we can all agree solu­tions are needed fast.

Megacity-mortgage

Most peo­ple agree the city would be bet­ter served if there were increased coop­er­a­tion between local res­i­dents, munic­i­pal politi­cians, and builders.

These con­ver­sa­tions (after we col­lec­tively grieve fed­eral and provin­cial tran­sit fund­ing short­falls) will revolve around what is done with—and what we should do about—the enor­mous devel­op­ment charges col­lected on new hous­ing in the GTA.

“You have to have an adult con­ver­sa­tion around all these things,” say Tuckey. “You’re ask­ing the new home­owner to pay for infra­struc­ture that lasts for 70 to 100 years, and pay for that infra­struc­ture on their mort­gage. Is that fair when munic­i­pal gov­ern­ments can get that money for per­cent­ages less?”

Not to men­tion how these fees impact the price of hous­ing. There is no doubt we need them, but how can we keep them in the com­mu­ni­ties that paid for them in the first place?

“They can’t cap­ture a lot of the rev­enue they gen­er­ate,” say Tuckey. “Much of the dol­lars from Toronto and the GTA don’t stay here in ser­vice or infrastructure.”

Small price decline for GTA real estate market

Marc Pin­son­neault, a senior econ­o­mist from the eco­nomic and strat­egy team of the National Bank, feels the GTA real estate mar­ket will see a mod­est decline in prices through 2013.

“I think that prices are going to decline some­what for 2013 as a whole. For the Toronto mar­ket we expect a decline of 2.5%.

Com­ment: And what will drive this decline? Low inter­est rates? Shrink­ing sup­ply? Increased demand? Prices will rise around 3–4% in 2013, all the major real estate play­ers agree. Econ­o­mists have NEVER been right about the real estate indus­try, not for 10 years. NOT ONCE.

“Over­all the price decline in the GTA will be lower than the national aver­age,” he explains.

Com­ment: The national aver­age price is unlikely to decline either, even with Van­cou­ver sink­ing like a stone. Again, no major real estate player thinks so, and they have been right EVERY year. While econ­o­mists, again, have been WRONG EVERY YEAR.

High­rise will feel it most

Pin­son­neault feels high­rise prices will decline most, and notes the large amount of prod­uct cur­rently on the mar­ket for sale.

Sta­tis­tics for March pro­vided by Real­Net indi­cate that of all 445 active projects, 80% of the units are sold, with 229 cur­rently under con­struc­tion being 89%, and 144 in pre-construction already 56% sold.

Com­ment: Take note of that. Read it again. When you see a crane, that means almost 90% of the units are sold. They are not all flood­ing the mar­ket once the build­ing is built. They are sold before they are even built.

“Even if the pre-sale rate is quite good, the num­ber of projects that have been launched and the num­ber of units it implies is so large that the num­ber of unsold new con­dos is still quite large,” Pin­son­neault says.

Com­ment: But the 10% inven­tory fig­ure is right in line with the long term aver­age, so where is the con­cern? Urba­na­tion and those who track con­dos for a liv­ing see no problems.

He feels hav­ing inven­tory is less of a prob­lem when a build­ing is not in the mid­dle of construction.

He thinks devel­op­ers will hold back on build­ing until the mar­ket absorbs some of the units and the price begins to rise.

Com­ment: They might. But with­out know­ing for sure that some have held back, and talk­ing to each and every one of them, this is all just pure spec­u­la­tion and com­pletely mean­ing­less. Projects could be on old due to the plan­ning depart­ment, size changes, per­mits, trades, sup­plies, you name it. Just because a project is delayed does not mean that builders are hold­ing back to pre­vent flood­ing the market.

As of the end of Feb­ru­ary, the CMHC recorded 1,026 com­pleted but unsold condo units in the GTA. The num­ber of unbuilt units on the mar­ket may increase in the months to follow.

Com­ment: So a thou­sand unsold con­dos is the cri­sis? Really?

Want to know when prices will begin to rise? Pin­son­neault sug­gests we take a close look at the num­ber of units cur­rently on the mar­ket. He thinks prices will begin to rise again when the num­ber of units avail­able begins to drop.

Com­ment: Which is now. April is see­ing more sales and less inven­tory – and higher prices. Natch.

“Sim­ply let the price adjust for a few quar­ters,” he says. “Prob­a­bly houses or con­dos will become more afford­able after the cor­rec­tion. We don’t see sales recov­er­ing in 2013, that’s for sure.”

Com­ment: Cor­rec­tion? What cor­rec­tion? Oh right, the one econ­o­mists have been pre­dict­ing for 10 years… the one that has never happened.

Happy medi­ums for GTA

“We’ve been build­ing and design­ing a gen­er­a­tion of small units. It’s fine that these work now, but in 10 or 20 years, how is urban liv­ing going to evolve?” asks Mimi Ng, Menkes res­i­den­tial sales & mar­ket­ing vice-president.

As Places to Grow pushes devel­op­ment ver­ti­cal, the ques­tion becomes cre­at­ing some­thing for everyone.

“There’s a grow­ing num­ber of move-up buy­ers, sec­ond and third-time condo buy­ers who don’t want the work of a house, but need some­thing big­ger,” says Ng. “We’re start­ing to see it already.”

Com­ment: And this is what is cre­at­ing the pres­sure on houses. There are not enough big­ger con­dos, or afford­able larger con­dos, for move-up buy­ers. And since no new houses are being built, all of these con­dos buy­ers cre­ate an ever big­ger demand for a sta­tic sup­ply of homes.

Ng pre­dicts more town­houses in the 416. The tall tow­ers and mega projects near tran­sit were con­ceived of five to seven years ago and are what devel­op­ers are just deliv­er­ing now.

Per­co­lat­ing in the col­lec­tive builder con­scious­ness today, and slated for deliv­ery in the next decade, are projects decid­edly more mod­er­ate in scope.

“Mid-rise and medium den­sity is going to be a grow­ing wave in the future,” Ng says. But think rooftop ter­race, not small back yard.

Tall orders

That’s not to say we won’t see any more “sexy tow­ers.” There will always be a mar­ket for big, glam­orous projects in the down­town core.

“As a city, Toronto is still fairly under­de­vel­oped. We have all these huge pock­ets of the core that are not devel­oped,” says Ng.

She sees Toronto’s devel­op­ment as long over­due, but expects a few grow­ing pains.

There is a grow­ing dis­con­nect between what Toron­to­ni­ans need and what the city can offer.

“We are being hin­dered by a lack of infra­struc­ture. Lower ranked cities have bet­ter infra­struc­ture. What major city in the world has no tran­sit fund­ing, yet this city is the engine of Canada?” asks Ng.

She also feels the pace of devel­op­ment has out­stripped the pace of com­mu­nity ser­vices down­town. Though tran­sit may be serv­ing an area and there may be bars and restau­rants, new com­mu­ni­ties lack parks, com­mu­nity cen­tres, after school pro­grams, and other fam­ily ori­ented ser­vices you would expect in a sub­ur­ban environment.

“There is a bit of a mis­match that over time will bal­ance out. The pop­u­la­tion is already demand­ing it.”

Flex­i­ble pro­por­tions required for Canada’s kitchen

Toronto is the first stop for many new Cana­di­ans when they decided to set­tle here. The first thing they do while wait­ing for res­i­dent sta­tus is rent an apart­ment in Toronto.

The CMHC says 22.3% of condo units are rental units. Its final 2012 report noted that con­dos were “vir­tu­ally the only source of new rental sup­ply in the GTA.”

Com­ment: Which is the main dri­ver of the invest­ment condo mar­ket. Investors do not buy them to flip them, they buy them to rent them out and hold them for years. With vacancy rates under 1%, ten­ants are liv­ing up for rentals. Some have bid­ding wars. Investors are thrilled to buy con­dos know­ing that they get their pick of qual­i­fied tenants.

The GTA vacancy rate rose slightly to 1.7%, but the CMHC is pre­dict­ing the num­ber will shrink to 1.5% over the next year.

Com­ment: I was told under 1% last month. Even if it is 1.7%, that is still VERY low.

Con­do­minium vacancy rates held steady at 1.2%, and the CMHC noted that demand for these units matched supply.

“It’s a hot rental mar­ket,” says Kwok Anson Kwok, VP of sales and mar­ket­ing for Pin­na­cle International.

“Peo­ple say there are tons of cranes, but it’s like turn­ing on a bunch of ovens. You don’t know what peo­ple are baking.”

Though there appears to be many units on the mar­ket, they will all be com­pleted at dif­fer­ent times.

Com­ment: And they are bought and paid for, they are not all going to be put up for sale, as so many peo­ple think. Even with 28,000 com­ple­tions this year, at least 90% are sold Of the remain­ing 10%, the builder will keep some and rent some, so they won’t all be listed. Nor will they all go on MLS. Even so, what is another 2,500 con­dos in a mar­ket that sees over 85,000 sales a year?

Landlord-lite

Who are these “investor-landlords?” Accord­ing to Kwok, today’s buy­ers are sur­pris­ingly diverse, and the line between investor and end user is very, very blurry.

Some are older peo­ple who pur­chase three units, one to live in and two to rent out for retire­ment income; par­ents buy­ing for their stu­dent chil­dren who will rent or sell the unit when their adult child mar­ries; or fam­i­lies buy­ing in the same build­ing to stay close to each other, but will rent out units as cir­cum­stances change.

Kwok feels that unit size and lay­out need to be as flex­i­ble as pos­si­ble so buy­ers have mul­ti­ple options.

“A lot can hap­pen in a cou­ple of years, so think­ing about poten­tial life changes is key.”

Com­ment: Which is why you see many con­dos for sale right after a build­ing is com­pleted. Peo­ple bought these up to 5 years before, lots of things in your life can change in that period of time.

For Kwok, a one plus den in the 575–700 sq. ft. range or junior two-bedrooms in the 880 sq. ft. range pro­vide opti­mum flexibility.

They are “small enough so I can sell it or rent it out, but it’s big enough so I could live in it.”

Flat until fur­ther notice

Pres­i­dent of Cityzen Devel­op­ment Group, Sam Crig­nano, is sur­pris­ingly relaxed con­sid­er­ing all the doom and gloom being bat­ted around about the GTA condo mar­ket. He’s a guy who’s been through a cycle or two.

Com­ment: Because the doom and gloom is just words. It is not real­ity. It has no basis in real­ity. It is just the neg­a­tive spin of the media and some pro­fes­sional spoil sports. Who cares, the data and infor­ma­tion out there con­tra­dicts their every word. As I point out as much as I can!

“I believe the mar­ket will remain flat for the first half of the year and we’ll begin to see some signs of life in the sum­mer with a bet­ter­ing in the fall.”

Com­ment: Bingo! Maybe even sooner. The first half of April was 180 degrees from what we saw in Q1 this year.

Any aver­age year will pale when com­pared to 2011/early 2012′s fever pitch. This year is shap­ing up to be rather aver­age, and maybe that’s a good thing.

Com­ment: Which is what every­one seems to for­get. The past cou­ple of years were off the charts, record-setting, just plain crazy. So now a drop to the still-very-high 5–10 year trend is not a sign of impend­ing col­lapse. It is a return to the high side of nor­mal. Which is still fair above what we had seen before a few years ago.

“The mar­ket now is tak­ing a healthy pause,” says Crig­nano. “We didn’t see any wild fluc­tu­a­tions on the cost side or on the sales side. I don’t think there’s going to be much down­ward movement.”

Com­ment: You said it!

As sup­ply and demand bal­ance out, but if you’re wait­ing for a large price cor­rec­tion, well…

Com­ment: … you are going to be wait­ing a long time.

“The rental mar­ket con­tin­ues to be tight. That sig­nals a ten­ta­tive buyer that’s on the side­lines wait­ing to see what hap­pens. I don’t think much is going to happen.”

Sam’s top 3 tips:

1. Look­ing for a deal? When you’re ready to move, the sales office is not the only place you can buy new. “Look for a unit pur­chased by an investor,” he says. They sell before occu­pancy because they bought low early on. This gives investors flex­i­bil­ity on the price, so bargain.

Com­ment: Hah! Like any investor is going to just give you a deal and lose money… But buy before reg­is­tra­tion, prices gen­er­ally rise 10% after the condo reg­is­ters. Assign­ments can be a good deal. Look for those who NEED out, they are moti­vated. Investors are not moti­vated, they can keep the unit and rent it out.

2. Be first, if you can wait. “The first pur­chasers who visit the sales office are usu­ally the ones who get a bet­ter deal. Try and get in there early on with an agent.”

Com­ment: But you have to be one of the first peo­ple through the door. A week later, you are too late.

3. Don’t choose build­ing over neigh­bour­hood. Shop neigh­bour­hood first, and con­sider what you will be sur­rounded by in five years when you finally take occupancy.

Sunny out­look long-term

“The indus­try might have taken a bit of a break to re-evaluate, but I think every­body is opti­mistic about sum­mer and fall,” says Brian Brown, vice-president of Life­time Developments.

His opti­mism is shared by many real estate bro­kers he works with, he says.

Com­ment: Yes, those of us who work in the indus­try and know what we are talk­ing about. I really don’t care about the oth­ers, this is not what they do for a living.

“I know there’s been some con­cerns, but a lot of devel­op­ers are feel­ing more com­fort­able these days. Even in talk­ing to the city, it’s not as if the num­ber of re-zoning appli­ca­tions they receive has slowed down.”

Brown does note that buy­ers are becom­ing more selec­tive. “It just goes to show if you have the right site at the right price it will do very well.”

Will there be some deals to be had? “Some of the devel­op­ers are being a lit­tle more cre­ative with incen­tives and pack­ages,” Brown says, but over­all he doesn’t see huge dis­counts hap­pen­ing any­where downtown.

Brian’s top 3 tips:

1. Choose a rep­utable builder. Be sure to visit the developer’s pre­vi­ous projects. Ask your bro­ker to see the project’s finan­cial infor­ma­tion. Financ­ing prob­lems could mean the build­ing may not achieve the build qual­ity you were promised.

Com­ment: No one is going to show you their finan­cial infor­ma­tion, that is just stupid.

2. Don’t buy purely on price. The loca­tion is most impor­tant. Who will be your neigh­bour in five years? Is there exist­ing tran­sit, retail, and schools?

Com­ment: Amen. Price should be the last thing you con­sider. Look at the neigh­bour­hood, builder, build­ing, view, units, size, etc. Then think about price if every­thing else checks out.

3. Deals on the last few units. Some devel­op­ers sell until they reach the amount of sales at which they can get con­struc­tion financ­ing, then pull the remain­ing prod­uct off the mar­ket, sell­ing the last units at a pre­mium price after the build­ing is com­plete. Other builders pre­fer to sell their entire inven­tory, short­en­ing the sales process (it costs money, too). The final few suites may be priced very well, or offered with extra incen­tives. These units aren’t “left-overs.” You may just find what you’re look­ing for.

Com­ment: No, the last ones are the ones that no one else wanted. And likely you will not want either. Builders will hold a unit for years instead of cut­ting the price $5,000. Trust me, there are NO deals with builders.

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Con­tact the Jef­frey Team for more infor­ma­tion – 416−388−1960

Lau­rin & Natalie Jef­frey are Toronto Real­tors with Cen­tury 21 Regal Realty.
They did not write these arti­cles, they just repro­duce them here for peo­ple
who are inter­ested in Toronto real estate. They do not work for any builders.
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