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CBC Radio “World at 6″ Interview

Yesterday I was featured on a CBC national radio program, “The World at 6″, talking once again about the small condo phenomenon in Toronto. Have a listen! Questions or comments? Contact me.

CBC Radio Interview from Andrew la Fleur on Vimeo.

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Wall Street Journal Chimes in on the Toronto Condo Market

I guess this makes it official: everyone is talking about the Toronto condo market. I was interviewed a couple weeks ago for an article on our condo market by a writer for the Wall Street Journal, and today that article hit wsj.com. Read the entire article here. See what people on Twitter are saying about the article here.

The article certainly has a bearish slant to it, with the basic thesis being: the market has been booming for so long it therefore must crash. Certainly not something we haven’t heard before many times over the last decade, but should this article give individual investors pause as to whether or not they should be buying a condo in Toronto right now?

I was asked my opinion on the market and the prospects for a ‘correction’. What I told the writer was the same thing I’ve been saying on this blog for a while now: the likelihood for a correction in the short term is very low, the fundamentals right now are strong. However, even the most bullish investor must admit that a key driver to this market has been the lower-than-low interest rates we have had over the last few years. If rates continue to stay low, demand will continue to be strong, prices will continue to rise, and thus, the potential for a correction will grow. In other words, no market can rise at 6-8% per year ad infinitum, but as long as money is cheap, the market will likely keep its momentum.

I would love to hear your comments. Leave one below or email me.

Graphic above taken from the wsj.com article.

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Will the Condo Market Crash?

It’s that time of year again, the time of year after a very busy spring market (I would argue a typical spring market) that was full of bidding wars, new price records being set, sellers making enormous profits, buyers extending themselves to the max, and the pundits were left scratching their heads saying: is this a bubble? Is the condo market about to crash? Cue the headlines proclaiming that prices will soon fall. It seems every year around mid-July when all the final stats are in for the busiest time of year for real estate (April, May, June), the mass media looks to tell us that this is not sustainable and that it is all about to fall apart.

The Globe and Mail and the Toronto Star are competing for your eyeballs right now running the same story: some of the good folks at TD bank are claiming that sometime in the next 2 years the market will slow down and prices will fall. Wow, what a bold prediction (sarcasm)!

Here are my problems with this prediction (and others like it):

1. They are extremely vague. Interest rates will go up and incomes will go down, therefore prices in Toronto and Vancouver will fall 10%. Really? How will this happen? Why will this happen? Show me some statistics in the market right now that leads you to believe this is going to happen. These articles are always very short on specifics.
2. They are too broad in scope. Economists and bankers are trained to think of the big picture. We live in a global village, however, real estate is still local. If you want to know what will happen to the downtown Toronto condo market – talk to the experts who live and breathe the market, not some economist who has never set foot inside a Toronto condo.
3. They are too long term. Trying to predict the real estate market beyond about 6 months is a fool’s game. Look at any of the predictions made 2 years ago for where the market would be today and you’ll see what I mean.
4. They are media driven. Bad news sells. Good news doesn’t. This is a simple concept we all understand. If a pundit comes out and says that everything seems fine and will continue along as it has been, that pundit will soon be out of work!

I only see two things causing a change in the Toronto condo market in the short term:

1. RAPID rise in interest rates. If interest rates rise, this won’t likely impact the market – because they will rise slowly and the market will adjust accordingly. If they rise quickly and significantly, then we will see a big impact. (Consult further: Toronto condo market in 1989.)
2. MAJOR economic catastrophe. If Greece defaults, or the U.S. doesn’t get their act together and they are downgraded, the world will feel the pain and the trickle down effect will most likely and eventually hurt the Toronto condo market.

Thoughts or questions? I always like to hear from my readers. Leave a comment or contact me directly.

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The Manhattan Theory

Is Toronto on its way to becoming just like Manhattan? This question has been asked for years now, and the comparisons can be made that Toronto is a sort of ‘mini New York’ – a major financial and cultural centre, the heart of a mega-region, and home to some really expensive real estate. But are we moving away from being an affordable city for the middle class to a city built primarily for the rich? Will $1000 per square foot to purchase a mid-grade condo and $2500/month to rent a studio soon become the norm here?

I’ve had some interesting conversations with some of my clients with international experience lately, and here are some of the sentiments and theories that they are espousing:

• Like Manhattan, prices and demand are rising to the point where Toronto could perhaps become a city where much of the real estate is owned not by individuals, but by corporations
• Could we reach an average price level where home ownership becomes a possibility only for the wealthy? – i.e. the first time buyers market will cease to exist (can’t make these condos much smaller than they already are!)
• Will first time buyers will be forced to look outside the downtown, (as is the case for many in Manhattan), live in the inner suburbs for years before saving enough and building enough equity to move back into the city?
• What about investors? It is taking higher and higher down payments to get condos to cash flow – will this continue, or as prices rise, will we finally see rents rise as more and more would-be buyers are priced out of the market and forced to rent?

Sorry for the random collection of thoughts, but these are some of the talking points I’ve been having lately with some of my clients. I’d love to hear what my readers think about this subject and where people see prices, rents, and the first time buyers market going in the next 5-10 years. Leave a comment or contact me!

Image from photos4travel.com

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Is Toronto Special?

I love my overseas clients. They have such a different perspective on the Toronto condo market than we locals do. In general, they are far more optimistic and excited about the future potential of our city than we ourselves often are. They understand that the Toronto condo market is special.

I was meeting a new client yesterday at the Ritz-Carlton, and no surprise we got to talking about the market. I was somewhat surprised when this banker from Hong Kong said that he he believes Toronto is still severely undervalued. The Ritz Carlton  in Toronto is selling now at about $1100 per square foot. An equivalent property in Hong Kong would cost approximately $4000 per square foot he informed me. He remembered telling the sales people when he bought his unit for roughly $650PSF 5 years ago that they were being way too conservative with their pricing (they should have charged much more). He went on to say that luxury properties like this in Hong Kong will rent out between $10-$15 per square foot per month, versus Toronto where $3 per square foot is considered a high water mark presently.

Another thing that makes Toronto so special compared with other major world cities is that we still have a first time buyers market.  As a first time buyer on an average university graduate-type salary, you can actually buy a decent piece of real estate in Toronto and walk to King and Bay (our country’s financial heart) in 10-15 minutes. Where else in the world can you do this? In other cities like NYC or London, you buy in the outer burbs, have kids, save,  save, save, and then maybe when your kids are grown and moved out you might have enough saved up to buy your dream apartment in the city. In Toronto you can still do it when you’re 25. Amazing and rest assured, this will not be the case in Toronto forever.

I am still very bullish on Toronto. The next 10 years may have their ups and downs, but the trajectory of Toronto on the global scene to me is clear and this is a fantastic place to invest your money. I believe Toronto will continue to see tremendous growth over the long term.

If you are a non-resident of Canada and you would like to discuss investment opportunities in Toronto, please contact me.

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It’s All Just Politics, Baby

I’ve been to two different ‘VIP Agent’ type selling events in the past week  and I have been once again reminded that buying condos in this town can be a bit of a shell game. The lineups for these events are now at late 2007 levels all over the city. People are camping out for days, and literally clawing over each other for units. Agents are clamoring to get their clients’ the best units before they all sell out.

Here are 2 recent examples that should serve as reality checks to anyone left who still thinks that the process of buying in a brand new development is (or should be) ‘FAIR’:

1. I waited in line all day for an event where there was supposed to be approximately 75 units priced around $200-$250K, and an additional 150 units priced above $250K. I was #27 in line, so I thought I stood a very good chance of getting a unit in that range for my client. Turns out that in actuality I was probably #57 or even higher as large number of at least 30 agents and their clients just showed up at the start time and by-passed the lineup completely (this was obviously pre-arranged ahead of time). When we finally were brought inside, they were virtually sold out of all units under $250K!
2. Because of my reputation as one of the top agents downtown, I was granted a ‘priority number’ for a VIP sales event several days ahead of the actual event (regular agents were forced to wait outside for hours/days). Even though I was #3 in line, when we were invited into the sales area to buy, we saw there were several people already signing deals and low and behold, all the units we wanted to buy were already sold! Surprise!

In the final analysis, the words of a Realtor acquaintance of mine who managed to get to the front of the line (in example #1) without waiting while I froze my butt off outside sums up the current state of the VIP-buying Toronto Condo Market when he said, “It’s all just politics.” It’s a game of who knows who, who owes a favour to whom, and who knows how to work the ‘back channels’ the best.

Think twice before you believe any Realtor who claims to have ‘VIP’ access to every project in town. It’s simply not possible. Even a top agent like myself (top 1% of all agents for condos sales, member of various ‘Platinum/VIP’ Agent Clubs) cannot promise EVERY buyer first access to EVERY development. No matter how ‘VIP’ you think you are, there is always someone more VIP than you!

My advice for those looking to buy at these VIP events: choose an agent you trust, and who has a solid track record of sales. Choose someone who will put your best interests first, who understands how the game is played, and will use every resource available to get you as far to the front of the line as possible. Above all: Never.Give.Up.

Questions or comments? Contact me.

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Imitation is the Sincerest Form of Flattery, But Plagiarism Bites

This has been an ongoing issue with my website almost since day one, so I thought I would finally write a blog post about it. I have had so many cases of other Realtors blatantly ripping off my website that I have lost count. I’m not talking about agents stealing concepts or general ideas that are on this site, I’m talking about flat out word-for-word (and in some cases, source code-for-source code) copying.

The most recent case was an email that I received from a prospective client. He forwarded me an email that he received from another Realtor (whom I have never met) about Theatre Park. The client was confused at the origin of the email and thought I was involved with it somehow. Reading through it I realized that the words of the email were copied and pasted from my recent blog post about Theatre Park. Brutal!

I know that the Toronto condo market is the NFL of condo markets, and that I am part of a hyper-competitive industry (30,000 Realtors in the Toronto Real Estate Board). We all copy each other to some extent (myself included), but when imitation crosses over into plagiarism, I can’t help but throw up a flag and call a foul.

So I wanted to put it to my loyal readers and followers: what should I do about these plagiarizers? Should I expose them publicly on this blog or some other forum? Should I threaten legal action (or actually pursue it) where warranted? Should I stop taking myself and my blog so seriously and ‘get over it’?

The angle I have taken to date has to simply ignore them, keep my eyes locked in the forward position, and concentrate my energies on creating the best, most informative, most BS-free, and most insightful Toronto condo blog on the Internet. What say you readers??

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Is Toronto Different?

Are we different? This recent piece from MSNBC on the differences between the U.S. and Canadian housing markets once again hits on the big question of why did we not experience the housing market crash that the rest of the world (especially the U.S.) did. Are we fundamentally different and insulated from the U.S. housing market? Even more important – moving forward is the Toronto Condo Market at risk of collapse?

Doomsayers like Garth Turner would say that we are exactly the same as the U.S. in that we have lax lending requirements and our own versions of sub prime lenders, and that we are living way beyond our means. Of course, Garth has been saying this for about 3 years now, and written two books about it, and still we are awaiting the big crash that he says is imminent.

Most bankers and economists would tell you that Canada is different because we are more conservative or something like that.

Both sides of the argument to me sound like a whole lot of cliché and not much analysis of the numbers or reasoning behind their statements. Predicting the real estate market beyond the next quarter or so is always a fools’ game. Look at every long-term prediction that has been made by bankers, Realtor associations (like TREB or CREA), economists, and pundits over the past 5 years. One thing they all have in common is that they were all wrong! The best these so called ‘experts’ can do it seems, is tell you that things will be slightly different next year than they were this year.

There is no debate now that the Toronto condo market is losing steam. Listings are up, sales are slowing, prices are weakening. The inevitable questions are now are will it crash? How long will this ‘down market’ last? Isn’t it our inalienable right as Torontonians to always have an upward moving condo market?? But the biggest question is, where do I put my money as an investor? There are good opportunities in every market, including down markets, in which to invest. I’m investing now, and you should too. Contact me if you’d like to discuss.

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What Happened The Last Time

You know the resale condo market is slowing down when the mainstream media starts writing articles telling us that it is. By the time the MSM gets on the train, it has already left the station and is well on its way to its destination. Reader of this blog and clients of mine have already known that the market has peaked and has been slowing for quite some time already.

On the pre-construction side however, it’s a different story. Buyers and agents are still lining up for the latest and greatest pre-construction launches all over downtown (seems to be one just about every week). Demand is still far outstripping supply with projects like FIVE condos supposedly receiving several hundred worksheets in the first few hours post-launch, and other projects like The Berczy and King Edward Hotel practically selling out overnight.

This is all eerily similar to the pattern we saw the last time the market slowed down. The resale market started to show signs of cracking around June/July 2008, but the pre-construction market kept humming along until the fall of ’08 when it too was affected. But prices if you recall, did not come down in pre-construction until around the spring of ’09 when everyone was ‘relaunching’ their projects with reduced pricing and finally the momentum came back.

The resale market is much more sensitive to changes in the overall housing market than the pre-construction side. Individual sellers are much more inclined to reduce prices compared to slow moving developers who don’t do anything without talking about it for at least a month or two. The pre-construction market will slow this year, but developers will probably not notice it until the Fall.

Does this mean it is a bad time to buy pre-construction? Not necessarily. I believe there are good opportunities to buy in any market, you just have to know how to evaluate the opportunities and make smart buying decisions. One project that is a still a great buy for me remains DNA3. Questions or comments? Contact me.

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What Ever Happened to Cash Flow?

Investing in Toronto condos used to be a pretty straightforward proposition: buy a property with as little down as possible then rent it out with the income from the rent covering your mortgage, taxes, maintenance on the property etc. For much of 90s and the first half of the 2000s, this was the way it worked in Toronto and many investors took this approach. Sometime around late 2006 this all changed when property values continued to rise while rental rates began to stagnate and in some cases drop. Positive cash flow with 20-25% down disappeared.

When the market dipped in late 2008-early 2009, prices fell, interest rates fell, and rental rates stayed the same. It was a perfect storm whereby positive cash flow with 25% down reappeared on the Toronto scene, and a few savvy investors noticed this and began to buy once again. The market heated up in mid 2009 and has stayed hot ever since.  Prices rose, and so did interest rates. Today, it’s safe to say that buying a resale condo downtown for more than about $500 per square foot will result in a negative cash flow situation (assuming 25% down). Nobody likes negative cash flow!

The obvious question is how sustainable is a market like this where investors are buying condos by the thousands priced at $600-$800 per square foot that they know for a fact will not generate positive cash flow? So many investors are counting on their properties to appreciate so that they will make a profit. This could very well happen, but by definition this is speculation rather than investing.

I’d like to know what cash flow rates in the larger cities like New York or London are like. Any of my readers with experience in these markets, feel free to comment on how investors approach this issue in one of these cities that Toronto is being compared to more and more often these days.

Questions or comments? I always welcome my readers’ feedback!

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