Recreational property markets
After an extended period of extraordinary growth, more balanced market conditions have emerged in recreational property markets across the country, according to a report released today by Re/Max The Re/Max Recreational Property Report found that a substantial increase in the supply of recreational properties listed for sale, combined with fewer buyers overall, characterized most recreational markets this year. Of the 45 markets surveyed, 91 per cent (or 41 markets) were in the transition stage, moving from strong sellers into balanced market conditions.
The only exceptions were Salt Spring Island, two markets in Saskatchewan—Last Mountain Lake and Qu’Appelle Lakes and Lakes Candle, Emma, and Waskesiu — and Newfoundland’s East Coast —where inventory levels were relatively low. Affordability was a primary factor in 35 per cent of markets surveyed, given serious upward pressure on recreational values in recent years.
“Market conditions have shifted, but don’t expect to see bargain basement prices or fire sales,” says Michael Polzler, Executive Vice President and Regional Director, Re/Max Ontario-Atlantic Canada. “The recreational market continues to experience solid demand — a trend that is expected to continue throughout 2008. The influx of new listings has yet to translate into downward pressure on recreational property prices. Prime waterfront properties, while more plentiful than in year’s past, will still command top dollar.”
Adverse winter weather conditions during the first four months of the year hindered recreational activity. Sixty-seven per cent of markets reported softening in the number of sales year-to-date, while average prices remained stable or experienced moderate increases over 2007 levels for the same period. Economic concerns, fueled by negative GDP growth in the first quarter and soaring energy costs, have also played a role in the transitioning market.
“We’re coming off the longest period of economic expansion since World War II,” says Elton Ash, Regional Executive Vice President, Re/Max of Western Canada. “Recreational property values have appreciated beyond our wildest dreams across the country. More balanced market conditions are a welcome change for purchasers.”
For the first time in many years, in fact, a good selection of entry-level waterfront is available in markets across the country. Eighteen per cent of those surveyed offer properties under the $200,000 price point, including; Central South Cariboo in British Columbia; Parry Sound, East Kawarthas and Kingston in Ontario; Summerside, PEI; South Shore, Nova Scotia; Shediac, New Brunswick; and the East Coast of Newfoundland.
Recreational property buyers also found themselves divided between two borders this year. The housing market meltdown in the US combined with a Canadian dollar at par created serious investment opportunities for secondary properties in Florida, Arizona, Texas, and California. Some of those very same factors have spurred American recreational property owners in Canada to list their properties for sale, with many looking to take advantage of ideal market conditions here.
“Many Canadians are capitalizing on market conditions in major American centres,” says Polzler. “For some purchasers, the move is strictly a short-term investment strategy with a pay-off at the end of the day, while for others, retirement is the main objective.”
The report also found that younger buyers were a factor in 40 per cent of recreational markets surveyed. “Baby boomers are clearly not the only purchasers that appreciate the recreational lifestyle,” says Ash. “Generation X is quickly becoming a force in the marketplace, spurring demand for condominium product on ski hills, oceanfront properties in good surf locales, and water frontage on trendy lakes with celebrity residents.”
Other highlights:
- Alberta’s red-hot economy has helped boost recreational property markets in British Columbia, Atlantic Canada, and some parts of Ontario.
- Affordability is prompting buyers to consider back lots, riverfront, condominiums, hobby farms and leased land.
- Some purchasers looking to secure an exit strategy are buying recreational properties or secondary homes in residential neighbourhoods in close proximity to the water’s edge.
Toronto Commercial Real Estate
More than 700,000 Square Feet Leased In May
Toronto Real Estate Board Commercial Members reported 717,361 square feet of leased space through the TorontoMLS system in May, Commercial Council Chair Garry Lander announced today. This figure is down 27 per cent from the 990,715 square feet recorded in May of 2007. “Thus far in 2008 there has been more than four million square feet of space traded through the MLS® system,” Mr. Lander said.
Prices for leased industrial space (all size categories) averaged $6.08 sfn in May, down one per cent from the figure of $6.14 sfn recorded during May of 2007. Prices for commercial space in all size categories averaged $14.43 sfn, a nine per cent decline from last May.
Sales Market Highlights
Toronto Real Estate Board Commercial Members reported 60 sales of Industrial/Commercial properties in May of 2008. Of these, 36 were Industrial properties of all size categories, which sold for an a average of $95.93 per square foot. This compares to a figure of $100.29 per square foot from non-MLS® sources, due to the sale of a number of unusually expensive industrial buildings last month.
See full Toronto Real Estate Commercial report »
Competition Bureau’s inactivity
Canada’s Competition Bureau just got a report card that it may not want to show its parents. The Global Competition Review, published by Britain’s Law Business Research Ltd., has maintained Canada’s 3½-star “good” rating, but warned that the regulator’s performance slipped last year after its reputation “appears to have faltered.”
The problem? Despite additional staff, the report said the bureau’s overall level of activity and timeliness “appears to have slumped over the past few years.” Citing anonymous authorities in the competition bar, academics and economists, the report said critics complain that the bureau’s “strong” emphasis on policy work and international issues may be “eating up too much of the bureau’s resources.”
Key points of concern cited are: a decline in cartel fines to $7.9-million last year from $39-million in 2006, a “scant” record of enforcement against companies that abuse their industry dominance and declining efficiency in its reviews of mergers that trigger competition reviews. The report, which ranks the world’s leading competition regulators, credited the bureau for its work on an alleged cartel in the chocolate industry. But it chided the Ottawa regulator for its drawn-out reviews of the Labatt Brewing Co. Ltd. merger with Lakeport Brewing Co. Ltd. and its two-year-old abuse-of-dominance probe of sugar makers.
A bureau spokesman said he agrees with the review’s finding that criticism reflects a “perception problem.” The facts, however, dispute the public image, he said, noting that in the past year the regulator has closed more abuse-of-dominance cases and launched more cartel cases than during the previous 12 months.
We’ve been hearing for over a year now that the Competition Bureau is investigating the real estate industry and their MLS cartel which controls the Canadian real estate industry but to date no results.
Ontario housing starts down
Developers are seeing fewer people at their model homes and the Ontario Home Builders’ Association said yesterday that the province’s uncertain economic prospects are likely to blame. “The general economic slowdown and declining consumer confidence in Ontario is starting to be felt by home builders, who are reporting slower traffic,” OHBA president Mark Basciano said yesterday. “If consumers aren’t confident about their jobs or their investments they aren’t likely to be looking to purchase a new home.”
While Canadian housing starts were up by 3.5 per cent nationally to a seasonally adjusted and annualized 221,300 units, Ontario was the lone province that saw a decline in May, according to figures released by the Canada Mortgage and Housing Corp. yesterday.
Starts slipped by 7.4 per cent to a seasonally adjusted 67,600 units.
“A slowing economy, rising mortgage carrying costs and more balanced resale markets will dampen the pace of new home construction through 2008,” CMHC economist Ted Tsiakopoulos said.
In the Toronto area, which accounts for more than half the provincial total, starts were down 3.3 per cent to 36,800 units. The downswing was mostly due to a decline in the more expensive single detached home starts, the CMHC said. “Rising house prices continue to shift demand away from single detached homes towards less expensive condominum apartments,” said CMHC senior market analyst Dana Senagama.
Thanks to record sales of condominiums in 2007, housing starts are still up by 33 per cent on an unadjusted year-to-date basis in the Toronto area.
A solid gain of 24 per cent for building permits in the Toronto area for April attributable to condominium sales should also ensure starts for highrise buildings remain strong this year.
“A backlog of apartment sales commencing construction will keep starts elevated this year,” said Tsiakopoulos. But those numbers are being tempered by a slowdown in the detached home segment – which most buyers have traditionally preferred.
Last year, for the first time, condominiums edged out houses for a greater than 50 per cent share of the Toronto new home market.
Builders don’t sound worried about housing starts for this year, which are cruising on momentum from 2007. But the outlook for next year appears less certain.
“We are cautiously optimistic for the remainder of 2008, however 2009 and 2010 will be a concern for home builders if the overall provincial economy doesn’t show signs of improvement,” Basciano said.
Toronto home sales in decline
Tough economic times and dwindling affordability hit Toronto market
Warmer weather is failing to heat up the Toronto area housing market as it was hit with the fifth consecutive month of declining year over year sales since the start of the year. Existing-home sales in May plunged 16 per cent to 9,411, compared with 11,146 a year earlier, according to figures released yesterday by the Toronto Real Estate Board.
Many analysts had expected pent-up demand left over from the spring market, when buyers were hampered by slush and snow. But April and May have not brought encouragement to realtors.
“With economic uncertainty, people become more cautious,” said Pascal Gauthier, an economist with TD Bank Financial Group.
Manufacturing has been hit hard in Ontario, with General Motors announcing this week that the Oshawa truck plant will close next year. The planned move was just one in a string of bad news announcements that have damaged consumer confidence.
Sales are also down because potential owners are being priced out of the market, Gauthier said.
“Affordability has also been a big issue in the Toronto market, especially when you have a situation where house prices start to outpace incomes,” said Gauthier.
One-third of households in Toronto spent 30 per cent or more of their incomes on shelter in 2006, according to figures released yesterday by Statistics Canada. That was the highest figure of all urban areas in Canada. StatsCan also said the province as a whole had the highest shelter costs in Canada for both owners and renters.
“Affordability is the big factor crimping demand moving forward,” said Gauthier.
More people own their homes in Ontario than ever before, but the homeowners also have a lot more debt, according to the federal agency.
“Those who spend more than 30 per cent or more of their household income on shelter may do so by choice, or they may be at risk of experiencing problems related to housing affordability,” said Statistics Canada.
In Ontario, levels of home ownership are rising dramatically, helped by the low-interest-rate environment of the past decade.
Seventy-one per cent of households own their own homes, up significantly from 67.8 per cent five years earlier.
The proportion of households with mortgages also jumped in that time frame, to 59.1 per cent from 57.9 per cent.
The latest figure was the highest since 1981, when a flood of baby boomers was entering the housing market.
“With the aging population … the percentage of households with mortgages could be expected to decline and the percentage that are mortgage-free could be expected to rise,” StatsCan said.
“Instead the reverse occurred.”
This could be because of a large portion of renters moving into home ownership, but also because people are more willing to take on debt for such things as financing renovations or other big purchases.
Canada had $833 billion in outstanding mortgage debt as of February of this year.
Placing some downward pressure on prices in the Toronto market is more inventory in the form of new listings, which rose a significant 15 per cent in May.
Economist Gauthier, however, cautioned that the overall weak numbers for the Toronto market may look bleaker than the reality because sales are coming off the record highs of 2007.
“Depending on how well the economy does, there is a risk that it would unwind in a disorderly fashion. But what you are seeing right now is a cooling. It’s not coming off the tracks.”
Prices are still appreciating because sales still remain at historically lofty levels, even though they’re not now as high as they have been. The average price in May was $398,148, up a moderate 4 per cent from May of 2007.
The Toronto Real Estate Board said it is continuing to monitor sales declines in the city of Toronto after a controversial land transfer tax was implemented this year, adding further to the cost of buying a home.
The number of sales was down 19 per cent in May, compared with 13 per cent in the 905 region, the board said.
“The Toronto land transfer tax has been in effect for four months, and the decline in sales has been running for the same time period,” said board president Maureen O’Neill.
Home ownership at record levels
Canadian mortgage debt headed to $1-trillion mark
Never before have so many Canadians owned homes. And never before have they owed so much for the privilege.
Interest rates at or near historical lows combined with low unemployment and recent changes that allow people to buy houses with less money down and pay off mortgages over longer periods resulted in 68.4 per cent of Canadians in the housing market in 2006.
That’s up from 65.8 per cent in 2001 and 60 per cent in 1971, according to the latest Statistics Canada data.
The increase comes despite the fact that the cost of housing in many cities across the country has gone through the roof, outstripping inflation by far, while median incomes have essentially flatlined.
“Low mortgage rates have helped offset much, but not all, of the impact of rising house prices in recent years on mortgage debt-service costs,” said Bertrand Recher, a senior economist with Canada Housing and Mortgage Corp.
The overall result has been a small increase in the percentage of Canadian homeowners who spend more than 30 per cent of their gross income on shelter costs, according to Statistics Canada census data.
But latest CMHC figures show a sharper spike in mortgage-carrying costs in terms of after-tax income.
In 2007, average household spending on monthly mortgage payments had reached 37 per cent of after-tax income, up from 32 per cent in 2006.
“That’s significant - mortgage carrying costs are increasing,” said Recher.
“This burden is heavier on the shoulders of first-time buyers because they don’t have the equity.”
Most analysts, however, see little comparison between the Canadian housing market and its American counterpart, where hundreds of thousands of homeowners suddenly found themselves in way over their heads, creating a financial meltdown.
Canadian financial institutions jealously guard the number of mortgage defaults they endure. But among the country’s big banks, only about 0.27 per cent of homeowners were three months or more in arrears on their payments.
“Anecdotally, we are not seeing any rise in arrears or defaults across the country,” said Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals, an organization that speaks for mortgage lenders.
“Canadian underwriting standards by lenders and mortgage insurers are much more thorough than they are in the United States. Canadian lenders are much more conservative.”
One key factor in the rise of home ownership is the relatively new option of mortgages amortized over 40 years.
Paying off loans for homes over a longer period means much higher total interest costs, but lower ongoing monthly payments. The effect is increased affordability. Growth in such long-term mortgages has been nothing short of dramatic, figures show.
Between the fall of 2006 and fall 2007, 37 per cent of all mortgages carried amortizations longer than 25 years, up from nine per cent in the preceding period.
“Clearly they’re very popular,” said Murphy, adding that not only first-time buyers are opting for the new choice.
One real estate analyst who disagrees with the rosy assessment of the Canadian market is Liberal MP Garth Turner, who argues too many people, especially younger buyers, are taking on too much debt to buy into the housing game.
Low interest rates coupled with 40-year amortizations and negligible downpayments might make it easier to buy higher priced homes, but it’s also leaving buyers vulnerable, Turner says.
“The inevitable conclusion is that the current Canadian real estate market is floating on a sea of unrepayable, and perhaps unserviceable, debt,” Turner maintains in his book, “Greater Fool.”
Collectively, it is a lot of debt.
In total, Canadians owe an amount fast approaching $850 billion on their homes, more than double what it was a decade ago, with percentage growth in double digits in recent years.
If trends continue as expected, the value of all outstanding mortgages will surpass the $1-trillion mark sometime toward the end of next year.
The federal government is keeping a close eye on the developments, according to Finance Minister Jim Flaherty.
“We have been monitoring the mortgage market, as we do, and we’ve seen a trend toward longer amortizations and smaller down payments, and that is a matter of some concern,” Flaherty said recently.
“We’re continuing to watch that.”
Mortgage insurers, who take care of defaults, have also tightened their criteria.
Still, any concerns over the situation appear, at least for the moment, to be outweighed by more positive views.
Overall economic conditions remain healthy in Canada, with unemployment close to historical lows, Recher noted.
In addition, the forecast is for the rapid growth in house prices to moderate substantially while interest rates are expected to remain relatively stable, at least over the next year or two.
Adrienne Warren, a senior economist and manager with Scotiabank, said easier access to mortgages certainly make the economy more vulnerable, but it would take a sharp spike in interest rates - she estimated five percentage points - coupled with a general economic downturn to see people in danger of losing their homes.
“Given that the lending criteria has been relatively benign in terms of growth and inflation and interest rates, I’m not really overly concerned with this one segment of the market.”
One group blissfully unconcerned about rising carrying costs are those aging baby boomers who have paid off their mortgages, a group that has grown in recent years.
More than 42 per cent of all homeowners hold no mortgage at all, according to Statistics Canada.
Many longtime owners have taken their equity and downsized to condos, joining the flood of first-time buyers who have gained their first toe-hold in the world of home ownership by entering the relatively affordable condo market.
About 10 per cent of households are now in condos, a tripling in 25 years.
“There’s been quite an increase . . . in the percentage of owner-households that are in condos,” said Willa Rea, senior analyst with Statistics Canada.
“There’s a good deal of young people buying in and becoming homeowners. We’ve seen quite an increase there.”
While shelter costs for homeowners have risen, they remain higher than those for renters. Roughly 40 per cent of renters spend 30 per cent or more of their income on shelter.
“That hasn’t changed,” said Rea. “It’s pretty stable there.”
The analysis released Wednesday is based on census data collected more than two years ago. The next census will be taken in 2011.
Toronto Real Estate Board reports:
Steady GTA Resale Housing Market in May
The Greater Toronto Area resale housing market recorded 9,411 transactions in May, Toronto Real Estate Board President Maureen O’Neill announced today. On a year-over-year basis the GTA average price increased four per cent to $398,148 in May from the May 2007 average of $382,787. Prices increased three per cent in the City of Toronto to $434,271 from $422,163 during the same period a year ago, while in the 905 Region there was a five per cent increase to $374,629 from $355,341 last May.
“Price gains show that real estate continues to be a solid investment for the consumer,” said Ms. O’Neill. “We are confident about the market because employment in the GTA continues to be strong and interest rates remain low. As long as consumers have the financial resources to buy homes and a variety of choices to manage carrying costs, the market should remain stable.”
“May’s sales figures represent a 16 per cent decline in the GTA from the record month a year ago when 11,146 sales were recorded,” said Ms. O’Neill. “More than 9,000 properties changing hands still represents considerable market activity.”
In the City of Toronto, there were 3,711 sales, down 19 per cent from last May’s 4,578 sales and down 6 per cent from May 2006. In the 905 Region, 5,700 transactions were recorded, which represents a 13 per cent decline from the 6,568 sales during the same period a year ago but up 4 per cent from May 2006.
“The Toronto Land Transfer Tax has been in effect for four months and the decline in sales has been running for the same time period,” said Ms. O’Neill. “We’re keeping a close watch on the effect of this new tax.”
Two specific areas North of Toronto experienced increased sales activity in May. In Uxbridge (N16) sales were up 10 per cent, while Stouffville (N12) saw a 12 per cent increase in sales, driven mainly by detached home transactions.
See the full Toronto Real Estate Market Watch Report »
Prices have doubled in last decade
A majority of Canadian homes have nearly doubled in value over the past decade, though price appreciation in the country’s urban markets has been more pronounced, a Royal LePage survey has found. The country’s most impressive gains were found in Edmonton, where the average price of a condominium tripled in price in the city and more than quadrupled in the suburban areas, Royal LePage’s ‘Urban vs. Suburban’ survey revealed.
The survey examined 32 urban and 26 suburban markets across the country and found the average price of a standard two-storey home in an urban neighbourhood appreciated by 129.2% to $522,999 over the last decade, while the same property in a suburb rose by 110% to $334,380.
The highest price appreciation was seen in Castledowns, Edmonton, where the average price of a condo rose 633%. A condo in the Edmonton suburb of Sherwood Park increased 416%.
“A look back at the last 10 years in Canadian real estate growth reveals that typically, home prices in urban markets have grown faster than those in the suburbs, with both areas showing impressive appreciation,” said Phil Soper, president and chief executive of Royal LePage Real Estate Services. “This decade has provided Canadians with the historically longest housing market expansionary cycle in the nation’s history.”
He said strong demand for amenities and limited supply in city centres have spiked prices upwards in urban areas, while affordability and spacious yards continue to attract buyers to the suburbs.
Factors driving price appreciation in the country’s urban neighbourhoods generally included limited property availability, a desire to be near the workplace, diverse amenities and, more recently, the rising cost of fuel.
Suburban price appreciation has mostly stemmed from the relative affordability of areas that are removed from the city core. The availability of affordable, larger properties with garages and more green space also appeal to buyers.
In Montreal, the combination of a shortage of inventory and virtually no space for new development led to the significant gains that the city experienced over the past decade.
A standard two-storey home in Montreal rose 120% over the last 10 years while homes in the outlying areas saw an average increase of 107%, the study reported.
In Toronto, a two-storey home within the city rose on average by 89%, while the same home in the suburbs rose by 82%.
The rise was more rapid in Calgary, where the same home rose by 207% within the city and 170% in the suburbs. “Calgary residents have seen boundary expansion in several urban communities, causing a steady increase in average prices during the entire decade, especially in the last 24-month period,” the report said.
See the full Royal LePage’s ‘Urban vs. Suburban’ survey »
Ontario’s Real Estate Regulation
The approaching height of summer brings a busy time for Ontario’s real estate market. Ontario is providing information and resources to help protect all consumers when buying or selling a home. When buying or selling real estate property, being aware of all the ‘do’s and don’t’s’ can help make an increasingly complex transaction less challenging.
Amongst the several things Ontarians should be aware of when buying or selling a property, include:
Your deposit on a property is insured.
To help stay informed of what to know before purchasing or selling property, a good source of information is the Real Estate Council of Ontario. RECO has a dedicated Consumer Information section that provides helpful information about mortgage fraud, title fraud, marijuana grow houses and much more.
“Buying or selling a home is an important, emotional milestone in our lives. Real estate transactions have become increasingly complex, so we encourage all Ontario consumers to get the facts and protect themselves in any real estate transaction,” said Ted McMeekin, Minister of Government and Consumer Services.
Before signing a representation agreement with your real estate broker or sales person, make sure you know how long the agreement will be in effect.
RECO is responsible for regulating trade in real estate, in the public interest, on behalf of the Ministry of Government and Consumer Services.
Before you begin working with a real estate broker or salesperson, you should use the Real Estate Council of Ontario’s (RECO) online search feature to confirm if he or she is registered.
The information available includes the registration status, the current expiry date of registration and regulatory activities related to the brokerage, broker or salesperson.
RECO’s website, at www.reco.on.ca, includes a dedicated Consumer Information section, which provides consumer-focused information about mortgage fraud, title fraud, marijuana grow houses and much more.
If you have a general question or concern about the conduct of a broker or salesperson, you may contact the Office of the Registrar at 416-207-4800 or 1-800-245-6910.
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.”