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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.

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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.

(more…)

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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.

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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.

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10 Days is a Long Time To Think

When you buy a new condo in Ontario, you have 10 days after you receive your copy of the executed agreement of purchase and sale and the condominium documents to rescind on your agreement if you choose to do so. This can be for any reason whatsoever, technically you do not even have to provide a reason. You are released from your obligations and your deposit cheque(s) are returned to you.

I think this law is valuable and necessary and that it does what it is supposed to do – protect buyers from doing something they will regret. Unfortunately, some people are thinkers, and thinkers often think too much.  A lot what-ifs and worst-case scenarios can play out in your mind over the course of 10-days and the initial joy and excitement of buying a condo can be replaced by anxiety and fear over future events that may or not occur.

Typical rescission rates for most new condos is about 20%. That means out of every 5 purchasers, 1 will change their mind during the 10 days and will return their unit. By contrast, conditional deals in the resale market go firm about 95% of the time.

In my own experience, buyers who rescind on their agreements tend to do so because of one reason: risk. They just don’t have the stomach for the risk involved in buying pre-construction – and there is a lot of it! This has led me to believe that some people just should not buy a pre-construction condo. They are not cut out for it, and they would be far better off looking at lower risk investment opportunities in the resale market.

Buying a pre-construction condo is a high-risk, high-reward scenario. If you tend to be a risk-averse person, understand the inherent risk involved and use the 10-day cooling off period to carefully consider whether you are comfortable proceeding.  Questions or comments? Contact me.

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Condo Market About to Explode

If you have been reading this blog and following the Toronto condo market for any length of time you know that sales are up, prices are up and generally everyone is feeling and acting very bullish on the market right now. Traditionally, this time of year is when the market starts to slow down and go into hibernation for the winter. I don’t see that happening anytime soon. If anything, the market is actually gaining momentum going into the winter months.

Some quick thoughts on the resale market:

• Inventory levels are still dramatically lower than any other time in the last several years
• Sales are up dramatically over this time last year, but remember that this time last year was when the market began to tank. Still, sales are at all time highs
• Buyers are falling into the trap of over-paying for condos because there is nothing else to choose from on the market when they are buying. Be patient! Keep your head on straight in multiple offer scenarios.
• New pricing precedents are being set in buildings all over downtown as a result of this inventory shortage and buyer behaviour.

Some quick thoughts on the new condo market:

• Over the next 6 months I expect to see at least half a dozen major new condo launches – X2, River City (West Don Lands Phase 1), DNA3, Number One Bloor, ICE 2 (already underway), U Condos Tower 2 (already underway), and more!
• Line ups and camping out for weeks will once again become commonplace as buyers rush in to invest in this next wave of development in Toronto
• Buyers need to keep their heads on and compare existing projects’ remaining inventory with these ‘new’, ‘flavour-of-the-month’ condo projects. Just because it’s new, doesn’t make it better than the building next door that is 90% sold out. BUY VALUE!

Some of you might write this off as more drivel from a real estate agent / blogger-hack who is just doing his part to artificially inflate the market, but my loyal readers know that I tell it like it is. Questions? Thoughts? Leave a comment or contact me direct.

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What is a ‘Luxury’ Condo?

In case you haven’t heard the story that is all over the local news, there was a million dollar drug bust at a penthouse suite at a condo on Fort York Blvd. By all accounts it looks like the dealers were operating out of 219 Fort York Blvd.

I actually really like 219 Fort York. It is phase 1 of the Water Park City complex, completed in 2005. The building has great views, offers good value and decent location, and was the first tower completed in the Fort York Blvd neighbourhood.

My beef with the media’s reporting on this story is that they are referring to 219 Fort York as ‘luxury condominium’, and an ‘exclusive address’. It is not a luxury condo, and it is not very exclusive. It is clearly an entry level condo made for the masses and is particularly popular with first time buyers on a tight budget but who want to still be near the downtown scene. The building and it’s sister building (231 Fort York), also have a high percentage of tenant-occupied units.

I think it is time to retire the word ‘luxury’ from our real estate lexicon when referring to condos. The word is too vague and has lost its meaning. It was often used in the past when condos were considered to be a new and novel way of living. They were seen in the 80s and 90s as glorified apartments. Now, there are so many different types and styles of condos ranging from the very low-end right on up to the ultra-exclusive. Just because a condo has floor to ceiling windows and granite in the kitchen that doesn’t make it a luxury condo.

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Prepare to be Disappointed

I would love to paint a picture for my readers and clients that buying a new, pre-construction condo at a VIP sales event is a simple and straight-forward process where if you have money and are ready to spend it, you get exactly what you want when you want it. Unfortunately this is not always the case.

This past weekend I attended yet another one of these VIP broker-type sales events at one of the highest-profile condo projects downtown in the King and Spadina neighbourhood. Condos at this project are selling in the $800-1000 per square foot range. These are not low end condos.

My client wanted to buy a 1 bedroom unit for something around $500K. We lined up early, we knew exactly what we wanted, we even had our deposit cheque ready to be handed over. When the doors finally opened, we were told that there were no 1 bedrooms available (even though it was advertised that there would be). In fact, there were no units available unless we wanted to spend at least $750K.

Of course, I knew this would likely be the case beforehand and had prepared my client for this reality. But most people attending these “VIP sales events” have no clue what they are walking into.

My best advice to buyers is “prepare to be disappointed”. Even though you may know exactly what you want to buy and have the financial means to do so, you may go home empty handed. It’s the nature of these sales events. They are built around hype and anticipation. Once you are through the doors they know that given the chance, most people will buy just about anything

Questions or comments? Feel free to contact me or leave a comment below.

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You Should Have Bought 2 Months Ago

The Toronto condo market is hot right now. No seriously, it is.

After months of writing to my readers about how slow the market has been, there has been a fundamental shift in the marketplace over the past 4 weeks. Multiple offers are back with a vengeance. The best properties are selling over asking and in less than 1 week. Buyers are feeling the pinch and I am starting to get used to the phrase ’sorry, that property is sold’ when I go to book appointments for my buyer-clients.

The stats for April should be released by the Toronto Real Estate Board any day now, and they will almost certainly reveal that sales are up and prices are up beyond what anyone was anticipating for this month.

Why? What happened? Has Barrack Obama worked some kind of magical spell over our economy? Are things not nearly as bad as everyone thinks they are? Are we all just living in denial and making things worse on ourselves by buying up all this real estate?

My thoughts on what has caused this recent upswing in the market:

1. Affordability. Prices have come down about 10% overall since the peak about a year ago. Interest rates have been basically cut in half since about 18 months ago. 
2. Spring Fever. Every year at this time the market is at its hottest. This is always the busy season, so in that sense this upswing shouldn’t surprise us.
3. Changing Attitudes. Sellers are more realistic on their asking prices, and buyers are more aggressive as many have been waiting to buy for 6 months or more.
4. Canadian Pride. People are starting to see and believe that maybe it’s true – things here in Canada are not nearly as bad as they are in the rest of the world. Where is the best place for your money to be long-term? Many are thinking once again the answer is real estate.
5. The Investor Equation. For the past couple years, it was very difficult to find a cash-flow positive condo in Toronto with 25% down. Now, due to lowered interest rates and lowered prices, with rents staying pretty flat, it is.

All this is leading many people to wonder if the bottom of the market was back in January or February. Certainly there were some great bargains had during those months compared to what we are seeing today.

What are your thoughts? Contact me or leave a comment.

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How Bad is The Market? Not “That” Bad

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