Power back in the buyers’ hands
November 21st, 2008By Terrence Belford - Globe and Mail
Dig through the clutter of statistics - of sales declines, project launches, economic growth forecasts, volatile investment markets - and the future for Toronto condominium sales does not look bad at all.
In fact, according to a number of industry experts, we are probably heading into a buyers’ market.
“I think we are getting back to the days when sales people in new condo projects can’t just be order-takers,” says Barry Lyon of N. Barry Lyon Consulting Ltd.. “Buyers are no longer going to be numbers on a chart. Developers are going to have to be a lot more innovative and offer incentives to make sales.
“I can see the next six months as being a great opportunity for new condo buyers.”
What leads Mr. Lyon and others to that conclusion is a series of events that started this past summer as the international credit crunch began to take hold.
First, many developers decided they had better get projects to market before the situation got worse, so in some cases they brought forward launch plans. Then they found their lenders demanded higher pre-sales figures before they would consider advancing a dime to build new projects. If the requirement in the past was 60% of the units be pre-sold, now it is more likely to be 70%.
The pressure was on to do deals.
The result was a near-record number of projects launched this fall. George Carras, president of RealNet Canada Inc., says his company recorded 36 new condo developments launched between Aug. 25 and the end of October. Right now, there are more than 330 of them on the market across the Greater Toronto Area.
But at the same time, buyers stayed away in droves. Whereas last year sales campaigns geared to a project launch resulted in 47% of the suites being sold in a month, if not a week or two, this fall that figure dropped to just 27%, Mr. Carras says.
The slow uptake of new suites in what is traditionally the hottest period in the sales cycle came on the heels of September statistics that showed the market was down 28% from last year, and 3% lower than in 2006.
Now that may seem to spell doom and gloom to the layman, but veteran market watchers such as Jane Renwick, executive vice-president of Urbanation Inc., say that not too much should be read into that dip.
Last year, the condo market broke all records, she explains. It was an anomaly, the equivalent of the condo industry winning Lotto 6/49.
Comment: And that cannot be stressed enough. To keep things in perspective, we need to compare 2008 to 2006, which very few people are doing. 2007 was simply not normal and to use it as a basis for comparison is going to generate bad statistics.
“I think what we are looking at is just a return to more normal market conditions,” Ms. Renwick says.
That is a view shared by both Mr. Carras and Mr. Lyon. They see perhaps another six months of uncertainty. Some developers will delay plans to launch projects. Buyers, especially first-timers, will be more cautious when it comes to making a decision to invest in a new condo.
But that wait-and-see attitude will bring benefits as well. Mr. Carras and Mr. Lyon say they have already seen a drop in the price of land suitable for future projects. As fewer developers butt heads over who gets a specific chunk of land, demand drops and with it the owner’s asking price.
The same will likely be true for construction costs. Again, fewer projects means less competition for available labour and materials. Less competition means less upward pressure in price.
“I don’t see prices going down on new condos, but I can see any increases slowing,” says Ms. Renwick.
What gives the experts the most comfort are four key factors, Mr. Carras says. The first is the fact that the GTA continues to be the destination of choice for half of Canada’s net immigration - 100,000 people a year all looking for a place to live.
No. 2 is intensification. The province has mandated that Toronto grow up not out. That means condos, not single-family homes, are the way of the future.
The third factor is rental apartments. Few developers are building them any more. That means, in the future, those units will have to come from investors who buy condo suites and then rent them out.
Finally, while the experts predict the GTA will see about 18,890 condo suites coming on the market this year, that flood of new units is really just a drop in a very large ocean. RealNet says there are 1.9 million private dwellings in the GTA, so even though the numbers are impressive they reflect only a 1% increase in supply.
Comment: So many people say that all these news condos will flood the market and drive prices down. Nope, there just are not enough of them to do so. Real estate is big news, new condos are big news, so they get blown out of proportion and are made to seem bigger than they really are. And with demand for rental units increasing every year, all of these investment units being rented out will keep being rented. There is a demand and these condos are the supply.
So, back to Mr. Lyons and his contention that buyers will indeed benefit in the coming months.
“I think this is a great time for people to educate themselves about what is out there and to shop around,” he says.
“As developers jockey to make sales, I can even see them offering incentives such as help with down payment requirements. Over all, I think there is a great opportunity for buyers ahead.”
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