Tara Perkins – Globe and Mail

From his office, the chief exec­u­tive offi­cer of real estate devel­oper Dia­mond­corp looks south toward the tow­ers of the Toronto sky­line. But what Stephen Dia­mond sees is the extended expanse of tree tops between his office and the down­town core.

The houses beneath those trees are the rea­son the devel­oper is com­fort­able mak­ing big bets on the city’s condo mar­ket. Unlike down­town Tokyo or Lon­don or New York, Toronto has a plethora of single-family homes in its core, he points out.

So although it is true that there are more con­dos under con­struc­tion in Toronto than any­where else in North Amer­ica, he doesn’t see it as wor­ri­some: It’s just the next phase of the city’s development.

His view sets him apart as fears grow about the health of the condo mar­ket in Canada’s most pop­u­lous city, where devel­op­ers are build­ing at a record pace. But Mr. Dia­mond is con­fi­dent enough that he has raised a new $130-million fund that will be used to build more condos.

“From an urban fab­ric point of view, Toronto is unique in the world,” Mr. Dia­mond said in an inter­view. “It’s one of the few cities that has both a very healthy core and low-rise single-family homes almost within walk­ing dis­tance of the core.”

Com­ment: It is SO nice to hear peo­ple who actu­ally work in the real estate indus­try, build­ing con­dos in Toronto, speak of the mar­ket. They tell a very dif­fer­ent tale than the “experts” and pun­dits. Who do you believe more? Those who do this for a liv­ing, or those in the peanut gallery?

He believes that what is occur­ring is a nec­es­sary switch from build­ing out­ward to build­ing upward. “We’re not sup­ply­ing too many units, we’re sup­ply­ing them in a dif­fer­ent form,” he said in an interview.

More than 6,000 newly built con­dos sold in Toronto in the first quar­ter, the high­est num­ber ever for the January-to-March period, research firm Urba­na­tion said Mon­day. But the aver­age num­ber of sales per project was down, as builders unveil more new projects every week. There were 338 active condo projects in Toronto in the first quar­ter, a record high.

Com­ment: Peo­ple for­get to men­tion that over the past decade, house sales have dropped by half while condo sales have dou­bled. One went down while the other rose, almost match­ing each other. And that is just resales. With all the new peo­ple com­ing to Toronto every year, you would expect an increase – but there is, all the new con­dos. Look­ing at the stats we can see every­thing bal­anc­ing out, it all makes sense. It is not like we just added 50,000 condo sales to the market.

Urba­na­tion has iden­ti­fied the ris­ing amount of unsold condo units as a fac­tor that could derail the mar­ket. There were 15,554 unsold units at the end of 2011 – 27% more than a year earlier.

Com­ment: Weird, that is very dif­fer­ent from Tridel’s num­ber. But either way, the amount is actu­ally 5% of total inven­tory, which is quite low.

Finance Min­is­ter Jim Fla­herty recently sug­gested that devel­op­ers in Toronto are pre­pared to build until sales evap­o­rate, a sce­nario that he said could lead to a condo mar­ket crash.

Com­ment: No… When sales dry up, con­struc­tion stops. The crane does not go up until 70–80% of units are sold, with 20–25% down on each. Then the bank funds it. Then the build­ing starts. So if sales dry up, con­struc­tion dries up. And that will be a grad­ual process, it will not stop overnight. It has been ris­ing slowly (there were 129 projects under con­struc­tion at the end of 2006 – now 5−1÷2 years later there are only about 20–25 more. This did not explode overnight and it will not end that suddenly.

Twelve years ago, most of the new hous­ing in Toronto was low-rise homes. Now most of it is high-rise tow­ers. Con­struc­tion of sin­gle homes is at all-time lows.

Com­ment: Because sprawl has stopped. Green­belt poli­cies pre­vent mas­sive hous­ing tracts. There is increased inter­est in urban liv­ing. Prices force first time buy­ers into con­dos. Immi­grants like tower liv­ing. Invest­ment con­dos pro­vide rental hous­ing. There are 10 dif­fer­ent rea­sons why houses mor­phed into condos.

Immi­gra­tion trends sug­gest that the Toronto cen­sus met­ro­pol­i­tan area will need between 42,500 and 52,000 new dwellings a year. Only 28,500 were deliv­ered last year, Mr. Dia­mond noted. Vacancy rates remain low.

Com­ment: And peo­ple are wor­ried about over sup­ply? We have house sales up 17% with list­ings up only 4%. And new con­dos are being built at half the rate of poten­tial absorp­tion. How are there too many?

“Every mar­ket is cycli­cal,” he said. “But Toronto has a great, great future. Unless some­thing that emerges that’s going to throw this city com­pletely off base, we have a lot of confidence.”

Com­ment: And what would that be? Oh right, no one knows…

Mr. Dia­mond (whose father was A.E. Dia­mond, a founder and the first chair­man and CEO of Cadil­lac Fairview) was a munic­i­pal and plan­ning lawyer for most of his career.

He has spent the past three years invest­ing Diamondcorp’s first real estate invest­ment fund, which raised $70-million from Rio­Can Real Estate Invest­ment Trust, Ster­ling Sil­ver Devel­op­ment Corp. and the Dia­mond family’s ven­ture cap­i­tal firm. It pro­duced about 2,500 condo units in seven projects.

Mr. Dia­mond said all lev­els of gov­ern­ment should change tax incen­tives and devel­op­ment fees to encour­age the con­struc­tion of larger condo units, such as three-bedrooms, rather than the smaller units that are dom­i­nat­ing the cur­rent developments.

Com­ment: Yes, but only if they can be pro­duced at a price com­pet­i­tive with houses. The aver­age 3-bedroom condo is well north of 1,000sf and tends to cost $700-800k. Fam­i­lies can get a nice house in the east end for $500k or less. With a yard. How is a condo going to com­pete with that?

“If we did that, then I don’t think there’s any bub­ble in the city of Toronto at all, because we need to accom­mo­date the pop­u­la­tion,” he said.

Com­ment: There you go. The condo boom is not a bub­ble, but is sim­ply pop­u­la­tion dri­ven. So sim­ple and so true.

—————————————————————————————————–
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.
—————————————————————————————————–

Related posts:

1. Surge in Cana­dian condo starts adds fuel to bub­ble talk This report reflects unbe­liev­able strength in Cana­dian hous­ing starts, and…
2. Bub­ble Not at Burst­ing Point for Toronto Condo Boom The glass mush­rooms of condo tow­ers sprout­ing up across the…
3. Toronto not in condo bub­ble Fears of a condo bub­ble in Canada’s biggest hous­ing market…
4. Canada Hous­ing Bub­ble Talk Dis­missed Canada’s hous­ing agency said yes­ter­day there is no com­pelling evidence…
5. With no sign of cool­ing in Toronto condo mar­ket, hous­ing starts to rise sharply Ontario, par­tic­u­larly Toronto, had the country’s biggest increase in multiple-dwelling…