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Berczy: Post Mortem

Whenever a development launches in a prime A1 location like The Berczy, it is sure to garner a lot of attention. This is true no matter what the economic climate or how hot the real estate market is. The Berczy had many investors and first time buyers salivating at the prospects of owning in a beautiful building in one of the best spots in the city, but unfortunately many of them went home disappointed after sales started this past weekend. The situation reminds me a lot of a previous post I wrote last year – Prepare to be Disappointed. Some of my observations from the weekend:

• As early as Saturday afternoon I had already received several calls from agents or would-be clients from other Realtors who were lamenting the fact that there were no small suites to buy
• On both sales days – Saturday and Sunday, it seemed there were no small suites available by the time the clock struck 10:30am.
• There seemed to be an allocated amount of suites to each day of sales, so if you had an appointment at 10:00am Sunday you were better off than an appointment at 2:00pm Saturday.
• On Saturday there was a huge crowd of agents outside the sales centre trying to get in without an appointment. Presumably by Sunday they had gotten the message as they were turning people away if they did not have an appointment.
• No detailed price list was ever released so it’s hard to know if the developer was raising prices at the last minute or not since there was nothing to compare the stated prices to.
• The sales reps said they were NOT holding back units for future events
• The rescission rate for this event could be high because buyers were buying 2nd, 3rd or 4th choice of suite since their 1st choice was not available.
• Even the larger 1000 sq ft + suites were selling briskly over the weekend. This suggests that while investors went away disappointed, end-user buyers with means did mostly get what they wanted.
• My clients managed to get a 2 storey unit with 11′ ceilings for $491 per square foot.
• City view suites on higher floors were going into the mid $600s per square foot – still reasonable.
• Kitchen and Bathroom finishes were above average – especially nice were the integrated appliances and forward thinking design colour palattes
• Sales centre and model suite was very well designed and presented.
• Bottom line, this is not an investor-driven building and will likely be a fantastic piece of real estate when it is built in a few years.

Questions about The Berczy? Still want to buy a suite in the building? Contact me for up to date availability and pricing.

The Market Has Peaked, So Now What?

So the market has peaked (probably). Now what do you do? Well, first thing to remember is that most people won’t realize the market has peaked for about 3 months so if you are reading this you are way ahead of the curve. Secondly we are not talking about a market crash, and quite possibly we may not even see prices start to fall till Q3 or Q4 of this year. Making predictions on exactly how much prices will rise or fall is fool’s game, so I won’t go there, but I could forsee a scenario with flat or slightly falling prices by the end of 2010. Depending on what your situation is, here are some quick thoughts moving forward:

For Buyers:

It’s already much better now than it was just 2 months ago. Inventory is up, some sellers are starting to get a grip on reality, and you actually have multiple properties to choose from. Things will continue to get better as inventory continues to rise along with interest rates which will increase supply and decrease demand at the same time. Don’t rush into anything. Now is not the time to pay higher for a property than the last guy did. Buy smart, buy for the long term.

For Sellers:

Understand that the market has changed. Price your property for what it is worth and don’t follow the “price it low for multiple offers” strategy. Remember that if you want to command top dollar in terms of selling price, your property must show better than all the other properties on the market – proper staging and marketing is vital. Better to list now than wait till Summer. There is still time to close before the HST kicks in July 1st. Want to talk about selling your condo? Contact me.

Investors:

Keep buying if the property makes sense and the neighbourhood has good long-term upside potential. Stop buying if you are hoping to flip for a quick profit or if you are over extended.

Questions or comments? Thinking about buying, selling, or investing and want the advice of a professional who understands the market? Contact me

The Market Has Peaked

Some of my colleagues may not want to believe it, but we are now in a new market reality. The extremely bullish market we have been experiencing for the past 12 months, at times accelerating at a break neck pace, has ended. Top-10 anecdotal signs that the market has already peaked:

1. ‘Fake’ developer websites for new developments are at an all-time high. These are websites set up by Realtors looking to capture buyers when a new development launches. Many of these sites are designed to mimic the developer’s official websites / registration forms. We saw this trend emerge right before the market dipped in mid 2008.
2. Developers are starting to LOWER their commission offerings to agents. Lower commissions can only mean one thing: Developers believe it’s too easy to sell condos in Toronto right now.
3. Positive cash-flow is now a complete impossibility at just about every new development or resale condo downtown. Investors with a traditional investment mindset are heading for other markets.
4. One Bloor has about 700 units to sell, and the minimum up front investment is $100K. Demanding so much cash up front from buyers means the banks are restricting the cash flow to developers.
5. Developers have been practically encouraging ‘flippers’ by offering $0 assignments during the first 90 days of buying into a new development.
6. Resale sellers are holding off on offers, not getting an offers, then raising their asking prices in response. Buyers are moving on to other properties.
7. Listings for the GTA are up 48% for the first half of April compared to this time last year.
8. Listings are at an all time high for my company – Re/Max Condos Plus – one of the biggest players in the downtown condo market.
9. Interest rates have risen almost a full 1% over the past few months and (most likely) will continue to rise.
10. Government + the banking industry appear to be consorting to stifle demand for fear of creating a housing bubble.

Questions? Comments? Got your own anecdotes or stats to add to this list? Think I’ve totally lost my mind?  Contact me.

Buy to Sell in a Buyer’s Market

While the title of this post may sound confusing at first, the meaning is simple: whenever you buy a condo, make sure it is a unit that would be easy to sell again in the future – even in a strong buyer’s market. This is advice I always tell my clients, especially investor clients. May seem like common sense, but it is worth exploring a little further.

Besides a brief 6-month window between October 2008 through April 2009, the Toronto market has basically been a seller’s market for the better part of the last decade. Anything sells in a seller’s market, and hopefully when it comes time for you to sell you reap the benefits of a strong seller’s market, but what if you sell and the market is slow? What if there are 10 listings for every buyer, instead of the other way around? Make sure you buy smart and buy a condo that will be easy to sell and sell quickly even in a buyer’s market.

Some more tips to consider when thinking about selling in a buyer’s market:

1. Always buy a property that a wide range of buyers would be interested in.
2. Avoid one-of-a-kind units. Cookie cutter condos are not always a bad thing when it comes to investment!
3. Be wary of units with special features like terraces, multiple parking spots, customized kitchens etc. Not all buyers appreciate these features and therefore they will not be willing to pay extra for them.
4. When in doubt, buy the smaller of two units. Smaller=Cheaper=More potential buyers
5. Go as high as possible. The 25th floor will sell before the 2nd floor in a slow market.

In a hot market like we are in, it is easy to lose sight of the fundamentals of real estate investing. Buyer’s often ’settle’ for a property that does not meet the above criteria just to get into the market. Don’t settle and always think about what if you had to sell during a buyer’s market.

Questions about buying investment condos in Toronto? Contact me directly or leave a comment here.

Greed

Greed is bad. Greed distorts reality and greed in the condo market hurts both buyers and sellers, consumers and developers. Recently I’ve noticed some signs of greed finding its way into the downtown condo market. To me, this is a sign the market is about to change as an impending inventory surge in the resale market in the latter half of this year will affect all sectors of the market including new developments.

Here are a few recent observations:

1. One developer recently offered 5% deposits on their remaining suites, but they also raised their asking prices by as much as $20K on each suite! I was very excited about this particular offering for my clients until I discovered the massive price increase that preceded it, therefore I could not in good conscience feature it on my blog.
2. Another developer I have been dealing with is ‘capping’ closing costs at $8000 for 2 bedrooms and $7000 for 1 bedrooms – not much of a cap at all when you consider the industry average is something more like $5000 which is up from about $3000 a few years ago.
3. Finally, another developer, in my opinion, raised prices far too much between the VIP stage and the public release stage. They had huge demand for suites at the VIP stage but they shut buyers out by limiting the number of suites they released, then after they raised prices demand seemed to wane off significantly as buyers moved on to other projects.

These are just anecdotes, but in my opinion they show that the tide has turned in the condo market – we have reached a tipping point and moving forward prudent developers will recognize buyers won’t buy just anybody’s cockatoo – they need to offer value and need to be reasonable, especially with investors.

Questions or comments?  Leave a comment or email me.

New Mortgage Rules Aimed at Cooling the Condo Market

Federal Finance Minister Jim Flaherty announced changes to the way mortgages are given out in this country today that are said to help prevent a housing bubble from forming. The keyword being prevent, meaning the government is very clear that they do not believe a housing bubble exists. I would have to agree with the sentiment in this city, however, I would add as I have been saying on this blog for months, the current pace we are at is not sustainable.

Personally I am not a fan of government intervention in the markets in this way, however, I don’t think these new rules will dramatically affect the market in any significant way. It seems more than anything, the moves today are meant to send a message to Toronto condo buyers in particular that condo flipping is not cool and real estate investing is not the same thing as speculation. Flaherty even mentioned “multiple-condo markets” in his statements to the press. Hmmm…I wonder what cities he is referring to?

My thoughts on the 3 key points in the release:

• Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.

Many lenders already do this by my understanding, so no big change here – if you want a 35 year amortization variable rate mortgage, you can get it, you just have to qualify for the mortgage funds at a 25 year fixed rate mortgage.

• Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save.

This change is so marginal that I don’t know why they did it other than to send a message that borrowing money against your home is just about always a really bad idea financially.

• Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.

This one is aimed at all those looking to buy with 5% down and flip in a year for a profit. Flaherty is looking right at you crazy capitalists and saying don’t even think about it.

For the full statement by the government of Canada after the jump. Questions or thoughts on this? I’d love to hear them – leave a comment or email me.

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Death of the Sales Centre?

Building a sales centre on the site of a future new condo development used to be the first thing that developers would do when launching a new project. Developers of Toronto condos typically would spend hundreds of thousands, sometimes millions in the construction of these temporary structures that were built to be torn down. Inherently wasteful but absolutely necessary to create an experience for the consumer to get a ‘feel’ for a theoretical building that only existed on paper and in plastic miniature.

With the condo market heating up like it’s 2007 once again, many developers are skipping the sales office all together. Some new developments downtown are basically selling out without even advertising at all – strictly through word of mouth, database marketing,  and selling to the agent (Realtor) community.

Another trend is selling before the sales centre has been completed. Without naming any names, there are several developers who in my opinion are wasting their money constructing these elaborate sales offices and model suites only to have the entire building virtually sold out by the time the sales office is completed. This is especially true for projects that are already geared towards investors and/or that have a high % of 1 bedroom units.

Clearly the new condo market is red hot, so why are so many developers still shelling out all this money to construct these sales centres?  What about taking that money and using it on alternative marketing channels or here’s a thought: build a better quality product at a great price to differentiate yourself from the competition.  Perhaps the answer is simply that we are talking about a very staid industry that is very slow to change how they do business.

Thoughts or comments? Contact me.

Why No One is Buying Your Assignment

Around this time last year I predicted 2009 was going to be the year of the assignment. I was wrong. While assignments did begin to take a greater role in the overall Toronto condo market, they still have not gone ‘mainstream’. Quite frankly, this method of buying and selling real estate will probably never go mainstream, however, in 2010 it looks like assignments will be seen as a “Third Way” of buying condos in Toronto (the traditional two ways being pre-sale or resale).

People contact me just about every day and ask me about assignments - I want to buy an assignment! I want to sell my condo by assignment! The truth is, most people have no idea what is involved when buying and selling an assignment. When the Average Joe learns just a fraction of what there is to know about assignments, 95% of the time Average Joe ends up returning to the comparatively simple world of pre-sales and resales.

So for all the sellers of assignments, as well as those who may be thinking about buying a condo by assignment, I’d like to introduce to the the top-5 reasons why many assignment listings never sell:

1. No Market Exposure. You are not allowed to advertise assignments on the MLS. Many assignment listings don’t sell because no one knows about them!
2. Lawyers. Most lawyers hate assignment deals. They often look for reasons to kill the deal – and with assignments, you don’t have to look to hard.
3. Price. This is probably the #1 reason why many assignment listings don’t sell. You can’t price an assignment like a resale property. Investors buy assignments and investors don’t pay current market value for property!
4. Closing Day Too Far Away. Buying a pre-sale condo then trying to flip it a month later is a fool’s game. The unit must be at or very close to occupancy so that market value can be accurately predicted and the investor can safely determine if they are getting a deal.
5. Closing Costs. Did you get your closing costs capped by the developer when you first bought your condo? If not, there is no way to tell exactly what they might be. Buyers of assignments need some degree of certainty as to what closing costs they will incur, otherwise they will move on.

Bottom line, assignments are not for everyone, but for the right buyer and seller, working with a good Realtor and co-operative lawyers, they can be a fantastic way to transact in real estate. Questions about assignments? Contact me.

January Market Update from Re/Max Condos Plus

I am part of one of the best condo brokerages downtown – Re/Max Condos Plus. Our broker of record is Jamie Johnston. Jamie has been in this business a long time and he’s a very sharp cat. Follow him on Twitter and check out our company blog which Jamie writes. Jamie just put out his latest market forecast and as usual he has some pretty strong opinions. Keep reading after the jump for the full report and let me know what you think in the comments section or send me an email.

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Inventory Relief Coming Soon

The biggest story in the Toronto condo market over the past 6 months has been the disparity between supply and demand. Simply put, inventory (condos available for sale) is at an all time low, and demand is at an all time high. This has been a recipe for rapid price appreciation, frenzied buying, and sellers very much in control of negotiations.

2010 promises  to bring change. Several high-profile condo projects downtown are coming to completion this year and whenever this happens, huge numbers of units are put on the market by investors looking to cash-out their investments.

Specifically over the next few months, buildings that will likely be registering include London on the Esplanade (just registered), Murano (North Tower to be registered this month), VU (Jarvis and Adelaide), 550 Wellington, West Harbour City, Boutique, Glass House, CASA, Bloor Street Neighbourhood, and the list goes on…

Most of these are buildings that were selling during the heady days of 2005-2007 and 2010-2011 will see all of these projects come ‘online’ and they will be added to the inventory for the downtown market.

Buyers should soon be able to breathe a sigh of relief as all this product coming on to the market in time for the spring should make things a little easier on them, however, prices will likely continue to rise as demand will remaind strong for at least the next 2 quarters.

In about six months two key events will take place that will likely shape the real estate market for the following 6-12 months – the Bank of Canada will be raising interest rates, the HST will kick in.  There is a great deal of uncertainty surrounding these two events, however, many are predicting that they will have a negative impact on prices heading into the final half of 2010. Personally I believe there are too many variables at play to make any accurate predictions of what the market will do beyond the next 6 months.

Thoughts or comments? Leave them below or email me directly.