Myke Thomas – Cal­gary Sun

The purse strings are being drawn tighter for some new con­do­minium devel­op­ments in Toronto, just two months after Finance Min­is­ter Jim Fla­herty expressed con­cerns about apart­ments in Canada’s biggest city.

Accord­ing to cana​di​an​realestatemagazine​.ca, lenders are no longer rolling out the red car­pet for Toronto condo devel­op­ers; they’re rolling it up and “lock­ing the vault when indi­vid­ual condo investors come to call.”

Com­ment: Well, no… Some projects are not get­ting financ­ing. Any­thing from a new builder or a ques­tion­able devel­op­ment, they might have trou­ble get­ting money from the bank. But Concord-Adex, Tridel or Monarch can still get what they need because of their name and track record.

Recently, Equi­table Trust reported a $63 mil­lion drop in orig­i­na­tions for its com­mer­cial divi­sion because its appetite for Toronto condo devel­op­ment is vir­tu­ally nonexistent.

There is a great fear, and not just in the finance minister’s office, the GTA is on the verge of a mar­ket cor­rec­tion — mean­ing prices will fall with an over­sup­ply of units, as has hap­pened in the Van­cou­ver area, which has seen a drop in sales vol­ume and prices.

Com­ment: But we do not know for sure that Van­cou­ver prices are drop­ping because of an over­sup­ply of con­dos. Since house prices are also drop­ping there, it is safe to assume it is some­thing else. And their prices were 35% higher than ours – with dif­fer­ent demo­graph­ics, hous­ing stock and mar­ket moti­va­tors. Com­par­ing it to Toronto is as bad as com­par­ing Canada to the US – like apples to Audis… not the same. And Toronto is NOT over­sup­plied. With 28,000 con­dos com­ing online and 100,000+ peo­ple mov­ing here every year, hous­ing is still in short sup­ply. That is why decent houses have been get­ting 10 offers each for years now.

Financ­ing a condo devel­op­ment in the GTA has already been restricted — many devel­op­ers have had to meet pre-sale tar­gets between 70% and 80% in order to get the cash to bring in con­struc­tion crews. Just a few years ago, the stan­dard for pre-sales was 50% of units avail­able in a project.

Com­ment: NO. It was not. It has ALWAYS been 70%. That is sim­ply wrong. Some projects are at 80% now, if they are on the bub­ble. And down­pay­ments must be in the 15–25% range, depend­ing on the lender and how much the builder has in the bank. That is one of the rea­sons our condo mar­ket is solid. If a project launches with 300 units, the aver­age price is around $360,000 (which is a resale num­ber, new is likely higher). So they need say 75% of units sold with 20% down – that is $16,200,000 paid out by buy­ers before the crane goes up. If it is $400k per unit, with 80% sold at 25% down then the vote of con­fi­dence is in the $24,000,000 range. Then the bank – noto­ri­ously stingy – funds the rest. With 140 some-odd projects on the go right now, that is $3–3.5 bil­lion in cash laid out to get these projects off the ground. That is a lot of money prop­ping up the Toronto condo mar­ket – and it is not going away any time soon.

By slow­ing the flow of the dough, banks, other lenders and investors hope to reduce the size of the cor­rec­tion they have no doubt is com­ing due to the mar­ket cre­at­ing more rental units than can be absorbed and a glut of units for sale — both new and resale — that can only bring down prices.

Com­ment: Show me a mech­a­nism for this cor­rec­tion. No one can. But I have 10–15 solid rea­sons why we have the cur­rent mar­ket situ­ta­tion and why it will continue.

Lux­ury hotel con­dos are part of the financ­ing dilemma.

By the end of this sum­mer Toronto will have four tow­ers in a city where a red-hot mar­ket has brought ris­ing con­cern about a real estate bubble.

Com­ment: There is no bub­ble. Price growth in the 2–5% annual range after infla­tion is NOT a bub­ble. The 127% in 15 months back at the end of the 1980s, now THAT was a bubble.

The granite-and-glass tow­ers, includ­ing two of Canada’s tallest res­i­den­tial build­ings, are open­ing in quick suc­ces­sion, adding hun­dreds of hotel rooms and more than a thou­sand con­do­mini­ums just as Cana­dian hous­ing hype hits a fever pitch.

None of the four projects has sold out and the push by devel­op­ers to sell their remain­ing units before a resale mar­ket kicks in has the feel of a tick­ing time bomb.

Com­ment: That is just bad tim­ing, flood­ing the mar­ket with a lot of units that have a small client base. It has noth­ing to do with a cor­rec­tion or bubble.

The busi­ness struc­ture means buy­ers of the units are sub­ject to com­mer­cial tax rates rather than lower res­i­den­tial rates, and the bar for financ­ing is higher.

Com­ment: And the folly of condo/hotel com­bos is a whole other story. Look how well that went at 1 King West…

“There were some units that had $20,000 (annual) prop­erty taxes for an $800,000, or 1,500 square foot unit because it was zoned com­mer­cial. So lenders wouldn’t touch it,” said Cal­lum Ross mort­gage con­sul­tant Jason Friesen.

Com­ment: And I have heard tell of larger units with $80,000 prop­erty tax bills – and condo fees half as much.

Bankers and investors from across the coun­try will be closely watch­ing the scene in Toronto — new financ­ing mod­els there will no doubt make their way across the country.

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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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tridel vs con­cord adex

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