The Toronto Condo is King
Optimistic Toronto developers are riding the increasing shift of housing demand toward homes in the sky
From his penthouse in Toronto’s hip fashion district, Peter Freed can track the development of his next six condo projects taking shape along King Street West. One of Mr. Freed’s buildings will have interiors by Philippe Starck, the must-have French designer of the moment. Another will be inspired by the Neoplasticism art movement made famous by Mondrian, where design is pared down to the basics of lines and the primary colours red, yellow and blue.
Mr. Freed has eight projects on the board worth a total of half a billion dollars, a tiny fraction of the record 33,980 units under construction in the city. Canada’s biggest city has become North America’s biggest condo market, with more units now under development than Manhattan, Chicago and Los Angeles.
As Mr. Freed looks off his terrace, where the lap pool and giant padded loungers are looking a little forlorn on a wet spring day, he is confident Toronto will not also become North America’s biggest condo meltdown. “Right now, there’s very large demand,” says Mr. Freed, dressed casually in jeans, shirt-tails hanging out, no laces in his shoes.
At 39, the laid-back developer is the fresh face of an eclectic group of condo kings who are transforming the very skyline of the city. Along with other design-focused builders like Cityzen Development Group, stalwarts like Tridel Corp. and Menkes Developments Ltd., and newcomers like Bazis International Inc., Mr. Freed is banking on the view Toronto is undergoing a seismic housing shift.
Figures show a marked slowing in the Canadian housing market this year, including a 7.3% year-over-year drop in existing homes sales in Toronto in April and a subsiding of the mania that drove the condo market into overdrive last year.
But builders say demographics, immigration, government regulation and cultural change will continue to skew demand for housing toward the condominium. Housing hotspots like Calgary may have already burned themselves out in a frenzy of building and soaring prices, but Toronto’s rise as a global city will allow it to ride out any short-term weakness, they say.
“We understand there’s 75,000 people a year for the next 20 years projected to move into the city core,” says Mr. Freed.
So Toronto’s condo kings, mostly privately held, backed by joint-venture partners and old-fashioned bank loans, are knee-deep in a building boom that has seen 67,984 condo units in 316 buildings launched since 2004.
To anyone walking the city streets, the scale of activity is eye-popping, with dozens of cranes swinging across the skyline, the monotonous thud of foundation pilings being driven into the ground and convoys of cement trucks causing endless traffic snarls.
They are building by the waterfront, around the subway line in the north of the city and in the east end where work-live lofts are all the rage.
At Concord CityPlace, an 18-hectare master-planned city near the waterfront, 21 condo towers will eventually arise from barren railway lands, along with town homes, lofts and a large park. The city-within-a-city will be home to 16,000 people.
“People ask us all the time what’s going to go on in the market,” says James Ritchie, vice-president of sales and marketing at Tridel, the biggest builder of condos in Toronto and owned by the DelZotto family. “To be candid, it’s very difficult to tell you where it’s going to go one way or another, other than when we look at the fundamentals, what’s happening here in Toronto and how its going to affect housing. The fact is, it’s sustaining itself.”
Toronto real estate developers need to be an optimistic lot. Not only do they have the current U. S. housing bust hanging over their heads, but also the still-fresh memory of the Toronto property crash of the early 1990s.
“We didn’t call that a recession in our industry; it was a depression,” says Sam Crignano of Cityzen, which has 14 projects and 9,000 units on the board, including the Daniel Libeskinddesigned glass L Tower at the foot of the city on Front Street. “It was that perfect storm — a number of factors all converged to create that disaster.”
Double-digit interest rates, overbuilding, the introduction of the GST and a recession that sent unemployment soaring to 12%, brought the Toronto property market to its knees. According to Goldman Sachs, it was the fourth longest of 24 housing busts in the OECD since the 1970s. Prices declined from December, 1989, to September, 1998, a 34-quarter marathon that took values down 50% in some areas.
Not only did the residential market fall apart, but Canada was home base for some very public flameouts in the commercial and retail real estate sector, with Campeau Corp. and the Reichmann’s Olympia&York Developments Ltd. filing for bankruptcy.
Now, the U. S. housing meltdown looms large, with prices down about 14% from their 2006 peak and so many homes on the market it would take nearly a year to shift the supply. The developers have noticed the first quarter softening. But they are not afraid.
New condo sales totalled 3,433 in Toronto, only eight fewer units than last year, according to Urbanation, a condo tracking firm. And the price per square foot for sales rose to $388 from$348.
However, with a glut of new buildings nearing competition or currently under construction, the market is definitely expected to cool
.
Brad Lamb, Toronto’s biggest condo broker, and its most flamboyant, says new condo sales could be off as much as 40% this year and resales 10%. Mr. Lamb has his head plastered onto the body of a lamb on billboards all over the city. He also hosts Big City Broker on HGTV, a “docusoap” looking at the business of real estate.
“But last year was an incredible, stupid year, where literally every property we put on the market sold by auction, with four or five bidders for every property,” he says. “We’re still getting that a bit, but it will start to taper off. The time to sell is about 30 days. A year ago it was 15 days. It will probably go to 60 days, which is a normal market. Sixty days is still a seller’s market.”
The condo kings take a long-term view of a city they say is still in its infancy.
“Over the last 10 years Toronto has grown by over a million people,” says Alan Menkes, president at Menkes Development, which has been developing homes in the Toronto area for the last half century. Its latest project is the Four Seasons Hotel and Private Residences, a two-tower development in tony Yorkville, where luxury suites will run from 1,100 to 9,000 square feet and prices from$1.2-million to $16-million.
“You’re adding jobs, you’re adding buying power,” Mr. Menkes says. “They come with capital and they’re looking for housing.”
Immigration is the main driver behind the condo story for Toronto, say developers, each one of whom can reel off the statistics on their fingers. Immigration to Canada totals roughly 225,000 a year and some 40% to 50% settle in Toronto. The Greater Toronto Area is expected to swell from about 5.5 million people to 6.9 million in 2016 and 8.3 million by 2031. The city proper is projected to reach 3.05 million by 2031.
The Ontario government increasingly wants that population contained. In 2005, the province slapped an 800,000-hectare greenbelt — about the size of Prince Edward Island–around Lake Ontario, protecting a large swathe from development. The effect has been to intensify construction around established cities and vertically.
Immigrants are used to living in apartments, developers add. The condo is a natural alternative.
“The house is really more a North American phenomenon because no one in Europe can afford it because land is so expensive,” says Michael Gold, president of Bazis North America. The developer has 35 projects underway around the world, including 1 Bloor, an 80-storey tower to be built on the corner of Canada’s priciest retail strip. “We really see Toronto catching up to the rest of the world.”
Mr. Ritchie is loath to call the recent increase in building “a boom.” Rather, he prefers to call it a slow, steady ramp up to accommodate the growing swell of people.
Besides immigrants, young people — especially women — are fuelling condo demand. They live with their parents longer, save money and move directly into home ownership.
“One of our developments at Broadway and Redpath, I would say 25% to 30% of those units were purchased by single women probably in their late-20s, early-30s on a career path,” says Mr. Crignano of Cityzen.
Mr. Lamb says his company has reams of buyers in their 20s, drawn by the affordability of condos. “They used to be over 30,” he says. “It’s a very industrious generation of young people who see the benefit of owning their own property.”
The condo scene is turning Toronto into a young and very social city, Mr. Lamb adds. “CityPlace is like Peyton Place or Melrose Place,” he says. “In a building like CityPlace with 400 people — 400 people typically under 40 — I can tell you the scene at the pool is crazy.”
At the other end of the spectrum, empty-nesters and a wealthy international set are demanding luxury and high-end design.
Mr. Freed says demand for more expensive units has risen gradually and that the luxury buyer is prepared to shop around. “We sold 20 high-end units in other buildings that were between $1-million and $2-million, but we had a lot of people who didn’t buy,” he says. “They didn’t want to be in buildings with people who were buying units for $180,000.”
In March, he sold $20-million worth of condos in two weeks at one of his higher-end buildings, where units range from $1.5-million to $5-million.
Mr. Menkes says 70% of the Four Seasons Private Residences have been sold. “We’re really providing a product that was not available before. We’re putting Toronto on the map in terms of international draw,” he says.
The developers see every downtown Toronto parking lot or disused industrial space eventually filled with condos, mixed with shops and restaurants, and an increasingly educated and wealthy buyer moving in.
Even if there are lean years ahead, they say they are much wiser than they were in the early ’90s, with buildings pre-sold before the foundations are dug.
“The fiscal discipline that has been instilled in developers today because of the ’90s debacle has put us in much better standing,” Mr. Menkes says. “Just in terms of banking underwriting, when we do construction loans, the discipline is much more rigorous.”
Cautionary notes aside, it is clear the condo kings are thrilled to be participating in the rise of Canada’s condo city.
“I’ve lived in Toronto my whole life,” says Mr. Freed. “To see certain downtown neighbourhoods take shape and become so liveable, so fast, it’s incredible.”
GTA New Home Market Report
High Rise New Home Sales Top Low Rise Sales in GTA
RealNet Canada Inc. releases the March 2008 GTA New Home Market Report, providing insight into sales activity, index price and remaining inventory of Low Rise and High Rise projects by product type for each Toronto Real Estate Board district.
There were 3,077 new home sales recorded in March 2008 in the Greater Toronto Area, down 20% from the same time last year. March 2008 Low Rise sales accounted for 45% (1,391) of the new home sales activity in the GTA, representing a decrease in sales of 8% from the previous month and decrease of 29% from the same month last year. According to the RealNet New Home Price Index the average asking price of a low rise home increased by 5.9% within the last 12 months. March 2008 high rise sales totaled 1,686, an increase of 57% over the previous month and down 11% compared to same time last year. Similar to Low Rise, the average asking price of a high rise unit increased by 16.4% since March 2007.
Go to the full GTA New Home Market Report.
Toronto MLS Rentals Up
In the first four months of 2008, leased condominium activity transacted through the TorontoMLS system increased nine per cent to 3,075 townhouse/apartment units. Rents trended upward during this period, increasing in all categories except three bedroom apartment units. Benchmark two-bedroom apartments rose four per cent to $1,852 per month, and one bedroom apartments rose the same amount to $1,445 per month.
The Toronto Real Estate Board’s’s Central area saw the most leased transactions in the first four months of 2008 with 1,794. About half of these (870) took place in C01.
The overall Central figure was up six per cent compared to the same timeframe in 2007, which saw 1,690 transactions, with the entire increase being real and not the result of rental units becoming available in new buildings.
The West area proved to be TREB’s second most active with 694 units leased during the first four months of 2008. Once again, the largest portion of condo-townhouse units were rented in the West area of the GTA. W20 (Meadowvale/ Streetsville) saw 42 transactions, the most recorded in any individual MLS District.
See the full Toronto real estate rental report »
Deal on MLS real estate listings
Web Brokerages win full access in U.S — but not in Canada you say.
Online real estate brokers will be guaranteed full access to listings of homes for sale under an agreement announced by American federal officials Tuesday. Under the proposed settlement with the U.S. Department of Justice to resolve a 2005 antitrust lawsuit, the National Association of Realtors agreed to prohibit real estate brokers who use multiple listing services from withholding their property listings from Web-based brokerages such as ZipRealty and Redfin.
Such companies rely heavily on Internet tools to work with their customers, and frequently offer their services at much lower rates than most traditional brokerages.
“Today’s settlement prevents traditional brokers from deliberately impeding competition,” Deborah A. Garza, deputy assistant attorney general with the Justice Department’s antitrust division, said in a statement. “When there is unfettered competition from brokers with innovative and efficient approaches to the residential real estate market, consumers are likely to receive better services and pay lower commission rates.”
But Tuesday’s settlement won’t result in sudden changes to what consumers find online when they are looking for homes. That’s because in 2005 the National Association of Realtors suspended an earlier policy that allowed brokers to withhold listings from online brokers’ Web sites - so most sites have had access to all brokerages’ listings for more than two years.
The agreement is quite significant for online companies and traditional ones as well. “We can compete as aggressively as we want without worrying that a broker will decide not to share his listings with us,” Redfin Chief Executive Glenn Kelman said in an e-mail to the Mercury News on Tuesday. “There has been a huge debate in online real estate about whether we could survive working as a broker within the MLS rules, and get access to all the listings for sale. That is now a settled issue.”
Jeff Barnett, of Alain Pinel Realtors and the national chair of a Realtors group called MLS Forum, said the listing-sharing portion of the agreement is a plus for consumers. “It’s in the best interests of the seller to promote their listing on all real estate Web sites,” Barnett said.
Though the agreement will still allow home sellers to opt out of displaying information about their for-sale home online, only a tiny fraction do so, Barnett said.
For traditional brokerages, Barnett said, the most important aspect of the proposed settlement is that it would prohibit companies not actively involved in selling homes from harvesting listing information off of MLS sites and then charging brokers referral fees for those listings.
Tuesday’s settlement will not take effect until late summer at the earliest, or 60 days after it wins court approval. It would be in place for 10 years. It neither imposes a fine on the National Association of Realtors, nor does it force the group to acknowledge any liability.
Hopefully this American decision will prompt the Competition Bureau in Canada to take some action against anti-competitive practices of organized real estate in this country.
Realtors settle Internet Policy lawsuit
The National Association of Realtors agreed to give discount Internet brokers access to its listings of home sales, resolving a U.S. antitrust lawsuit that accused the trade group of trying to restrain competition. The settlement, filed in U.S. District Court in Chicago, calls for the realtors group to revise a policy that let real estate agents exclude their sales information from Web sites. The government said the practice propped up an old-fashioned business model and harmed consumers who can save 1 percent of the price of a home by using a Web-based broker.
“Today’s settlement prevents traditional brokers from deliberately impeding competition,” said Deborah Garza, deputy assistant attorney general in the Justice Department’s antitrust division. “When there is unfettered competition from brokers with innovative and efficient approaches to the residential real estate market, consumers are likely to receive better services and pay lower commission rates.”
The agreement comes as the housing market, in the midst of a two-year slump, has showed no signs of recovery. Today, the Commerce Department reported that sales of new homes in April were the second lowest since 1991.
U.S. sales of previously owned homes probably will fall to 5.39 million this year, the realtors association said in a May 15 forecast. That would be a drop of 24 percent from 2005’s all-time high of 7.08 million, making it the worst housing recession since the four-year slump.
On-Line Realtor Pleased
“We are reasonably happy but not completely overjoyed,” Glenn Kelman, chief executive officer of Redfin, a Seattle-based on-line brokerages, said in an interview. “It throws the gate open to all sorts of business models.”
Kelman said the settlement will still allow realtors to bar some on-line comments and price comparisons from firms such as Seattle-based Zillow.Com and Cyberhomes, a service of Fidelity National Financial, Inc. of Jacksonville, Florida.
Richard Gaylord, president of the realtors association, said in a statement that the settlement will let the group focus on “re-energizing the housing market” during a difficult period.
“Competition is alive and well in the real estate industry,” he said. “In fact, the competitive nature of our industry is even more apparent in times of market turmoil like those we are currently experiencing.”
Internet Brokers
Internet brokers, who seek to cut costs by charging only for the services a seller wants, sprung up in the 1990s and now operate in all major metropolitan areas.
Traditional real estate agents for such companies as Coldwell Banker Residential Brokerage and Re/Max International Inc. usually charge a commission of 5 percent to 7 percent of a property’s sale price, while discount brokers charge 2.5 percent to 4.5 percent, or a flat fee depending on the services provided.
In 2006, consumers paid $93 billion in real estate commissions, the Justice Department said.
In most markets, real estate brokers participate in the Multiple Listing Service, which lets them share information about properties that are for sale. By using the service, brokers and buyers can get listings on almost all homes in the market.
About 800 of the listing services across the U.S. are affiliated with the National Association of Realtors, which sets policies governing their use.
Listings
Realtors usually give their clients printouts of the listings and not full access to the database. However, some brokerages that operate online let customers see all the Multiple Listing Service information via the use of a password.
Those sites, the Justice Department said, help real estate agents be more productive and let them pass cost savings onto home buyers with lower commissions or rebates. The agency filed its case in 2005 and it was set to go to trial in July.
The Chicago-based realtors group, which has more than 1.2 million members who work in the residential and commercial real estate industries, didn’t admit or deny the Justice Department’s allegations in settling the case.
The agreement puts the group under enhanced government oversight for 10 years. There was no financial penalty. Garza, speaking to reporters in Washington, said the Justice Department generally doesn’t seek fines when it first tries to halt anti- competitive behavior.
“What we’ve done is achieve a very lasting and important change to the conduct of the realtors association and its affiliated listing services”, Garza said.
NAR-DOJ Settlement
A Boon for Internet-Savvy Brokers?
The National Association of Realtors (NAR) resolved an ongoing Department of Justice (DOJ) civil lawsuit on Tuesday by agreeing to a settlement that will ensure brokers operating on the internet have the same access when it comes to multiple listing services (MLSs).
In a statement, the DOJ said, “NAR will repeal its anticompetitive policies and require affiliated multiple listing services (MLSs) to repeal their rules that were based on these policies. NAR will enact a new policy that guarantees that Internet-based brokerage companies will not be treated differently than traditional brokers.”
The decision was made after brokers claimed that internet-based brokerages utilizing Web-based tools and efficiencies did not have access to listings posted by NAR-affiliated MLS brokers. Under the new rules, brokers with virtual offices will not be excluded. In addition, brokers will no longer be prohibited from MLS membership because of their electronic business model.
“Today’s settlement prevents traditional brokers from deliberately impeding competition,” said Deborah Garza, deputy assistant Attorney General of the Antitrust Division. “When there is unfettered competition from brokers with innovative and efficient approaches to the residential real estate market, consumers are likely to receive better services and pay lower commission rates.”
NAR responded to the changes saying, “The proposed order ensures that the online environment in which listings are displayed is the fairest possible. It preserves the right of seller clients and brokers to protect the proper display of the listings while ensuring the widest possible online display.”
Mortgage rates dropping
Canadian financial institutions have begun to slash their mortgage rates amid lower borrowing costs in the bond market and more competition for mortgage business. BMO Bank of Montreal was the first to announce lower rates. Effective Wednesday, a five-year closed mortgage will carry a posted rate of 6.65 per cent, a drop of a little more than a third of a percentage point.
Bigger cuts apply to shorter-term mortgages. BMO’s one-year closed mortgage drops 8/10ths of a percentage point to 6.15 per cent. Its two- and three-year closed mortgages tumbled by 0.85 of a percentage point to 6.15 per cent.
These are all posted rates. Many consumers are actually able to get closed mortgages at rates that are a full percentage point or more below the posted rates. BMO, for instance, said its “special offer” rate for a five-year mortgage will drop to 5.59 per cent, down 0.34 of a percentage point.
Laurentian Bank and Desjardins Group’s caisses populaires and credit unions in Quebec and Ontario announced similar cuts Wednesday, effective on Thursday. TD Canada Trust soon followed.
Since December, the Bank of Canada has slashed its key overnight lending rate by 1.5 percentage points to three per cent as it tries to stimulate the Canadian economy. But until this week, cuts to fixed mortgage rates have been relatively modest as the credit crunch made it more costly for banks to raise money.
The wide spread between mortgage rates and government of Canada bond yields with the same maturity has since lessened somewhat, but one economist said these big rate drops may be due more to competition.
“This looks to me like more of a competitive move on BMO’s part to boost its share of new mortgages,” Ted Carmichael, chief economist at JP Morgan Securities Canada, told CBCNews.ca. “It may be an indication that mortgage activity is slowing down.”
Despite Wednesday’s higher-than-expected April inflation reading from Statistics Canada, most economists still see at least one more rate cut from the central bank.
Recent housing start numbers and real estate sales figures point to a cooling in Canada’s housing market from last year’s record pace.
Source: Toronto Real Estate Intelligence
Alberta homes prices down
A sign of the cooling housing market in Alberta was evident in numbers released by the Canadian Real Estate Association today showing the average MLS sales price in the province in April actually declining compared with a year ago. The CREA report said the average sale price in Alberta was $353,515 last month for all residential properties - a decrease of 1.7 per cent from the $359,640 registered in April 2007.
It was the first year-over-year monthly decline for the province since July 1996 when it decreased by 1 per cent. The number of sales throughout the province also fell by 23.2 per cent - 7,803 units in April 2007 to 5,996 in April 2008 - while new listings soared by 25 per cent - 14,017 last month compared with 11,213 a year ago.
Nationally, the CREA report said the average MLS sales price rose by four per cent - the smallest year-over-year price increase in over six years - to $317,619 from $305,499 in April 2007.
Across the country, sales dropped by 6.2 per cent compared with a year ago (52,385 units to 49,114) while new listings increased by 20.3 per cent (82,501 units to 99,248).
CREA said the number of new listings for homes for sale on MLS in Canada reached its highest level ever in April. Two new properties were listed for sale for every home that sold through the MLS system, said the national organization.
“This price trend is in line with the association’s projections for the balance of 2008,” said CREA president Calvin Lindberg. “Price increases are now maintaining at levels that are historically more consistent with the Canadian real estate market.
“There are more listings on the market which means more choice for the buyers. That also means sellers have to pay more attention to how they price their home.”
The association’s chief economist, Gregory Klump, said new listings are trending higher in Calgary, Vancouver, Edmonton, Toronto and Montreal - the country’s five most active markets.
Source: Totonto Real Estate Intelligence
Planning to renovate?
Forty per cent of Canadian homeowners say they intend to spend $1,000 or more on renovations this year – although economic conditions could cause some to scale back their plans, Canada Mortgage and Housing Corp. said Thursday. “It all depends on how consumers are feeling confident with the economy,” Julie Taylor, senior economist with CMHC’s market analysis centre, said in an interview.
In any given year, there is typically a gap between intentions and execution with it comes to home renovations, Ms. Taylor said after CMHC released a survey, conducted in February, on the home-improvement plans of householders in 10 major Canadian centres.
Still, Ms. Taylor said, consumer sentiment in Canada continues to remain “pretty strong” in spite of the deepening economic crisis in the United States and soaring fuel prices.
U.S. home backlog at record level
Sales pace tops forecast but prices fall 8 per cent amid unsold glut
Sales of previously owned U.S. homes slipped last month and the backlog of unsold properties hit a record high, according to data yesterday that suggested the market’s downturn still has a long way to run. Home resales fell 1 per cent in April to a 4.89 million-unit annual rate, the National Association of Realtors said.
The sales pace was a bit better than expected on Wall Street, but the stock of unsold homes surged 10.5 per cent to 4.55 million units, leading economists to warn of further market woes ahead.
At the current sales pace, the supply of homes reached 11.2 months’ worth, the highest since the trade group began tracking single-family and condo properties together in 1999. For single units, the supply was 10.7 months’ worth, the most in 23 years.
“The increase in unsold inventory suggests that the housing downturn will continue on through this year and well into next,” said Moody’s Economy.com chief economist Mark Zandi.
The report showed the median home price in April was down 8 per cent from a year ago, at $202,300. It was the second-largest price decline on record, following the biggest drop in February.
“The big surprise was the inventory of unsold homes rising to a record level,’ said Rudy Narvas, a senior analyst at 4Cast Ltd. in New York.
Other price measures have shown even steeper drops.
The Standard & Poor’s/Case Shiller home price index of 20 metropolitan areas showed a drop of 12.7 per cent in the 12 months through February, with prices down 15.8 per cent from their June 2006 peak. The March index will be released Tuesday.
“With prices collapsing, the incentive not to buy a home is increasing by the week, and with inventory showing no sign of improvement prices will keep falling,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.
Moody’s Zandi said about one-fourth of the sales likely were due to foreclosure, which he said was another negative sign.
NAR chief economist Lawrence Yun said that foreclosed homes, which sell at substantially lower prices, were increasingly showing up in the existing home sales data.
“Several markets are seeing a significant rise in home sales,” Yun said. “These markets are also the markets that have witnessed a substantial decline in prices.”
The trade association said last month’s existing home sales pace was 17.5 per cent below the rate of April 2007, with single-family home sales off 16.1 per cent and sales of multiple family units down 27.9 per cent.
Source: Toronto Real Estate Intelligence.