As temperatures started to climb across the Greater Toronto Area (GTA) this past spring, so did condominium sales, according to new figures from the Greater Toronto Homebuilders' Association (GTHBA).
For the first time in the association's 84-year history last March, highrise condominiums represented almost half the 4,708 new homes sold across the city.
Prices, however, remained stable with the average home costing $379,846 in the lowrise category and $278,203 for highrise condominium apartments, reports RealNet Canada, a company regularly used by the GTHBA as an independent source of new- home market information.
"The pace has been absolutely crazy, in some cases," says Jamie Johnston, broker/owner of two Re/Max Condos Plus offices near the Toronto waterfront. "We are on track right now with a record-breaking year, for sure."
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| File photo by Larry MacDougal, Business Edge |
| Booming sales of waterfront condominiums are helping to spark an absolutely crazy selling pace in certain sections of the Greater Toronto Area. |
Johnston says the market looks like a game of checkers lately, with certain areas and price ranges selling more than others. "I've noticed the biggest growth right now is parts of downtown and the waterfront, especially with units under $200,000. Builders are doing more of those, and they are definitely in demand," he explains.
Over the past six months, he adds, those sales have been fuelled by investors who want to rent units out or resell for a quick profit. "That's the million-dollar-question, though. Nobody knows exactly how many people are buying for investment reasons. I can tell you anecdotally that I've seen more investors in the past six months than I have in quite a while," Johnston says.
"With interest rates and the overall economy, people are realizing what a good investment real estate can be. But no matter what category you're in, you have to be very particular. Look at the location and type of unit," he warns, calling some buildings "hot" and others "cold".
Last year, 13,750 highrise condos were sold in the GTA, representing a 16-per-cent increase over the 11,871 units sold in 2003. That carried overall home sales - the lowrise market reported only 27,974 units were sold, down 10 per cent over the 30,918 lowrise properties sold in 2003.
GTHBA president Julie DiLorenzo says that kind of market activity could be due to several reasons - a wide selection of affordable condo units under $275,000, popularity with new immigrants who are accustomed to the highrise lifestyle and graying Baby Boomers looking for a low-maintenance living.
But DiLorenzo, a Toronto condo developer, expressed frustration at municipal and provincial governments. "The condo market will be fine if the government does not keep regulating the industry," she said in an e-mail to Business Edge. "Expect costs to skyrocket if the government keeps the pace of all these regulations."
As one example, Queen's Park has been hinting at abolishing the Ontario Municipal Board, which is the only venue where government officials listen to third-party evidence, she says. DiLorenzo adds it's also the only venue where most "intensification" gets approved.
In a market report posted to his office's website, Johnston scoffs at analysts who believe the market is about to crash. Economically, price bubbles occur after three years of double-digit price increases, he says.
Johnston admits real estate markets have shown signs of crashing in many parts of the United States, but he hasn't seen that happen yet in Canada. "We may feel some effect here, but that will not be until next year at the latest. When you examine condo sales by building, you will find that prices in hot buildings have increased by seven to 10 per cent, whereas cold buildings have experienced zero- to three-per-cent growth," he writes in the report.
Will Dunning, a real estate analyst who runs his own Toronto-based research firm, adds Asian immigrants are particularly driving the condo market. "You're seeing a lot of Chinese people who are buying for investment purposes," he says. "Condominiums are popular with a lot of other immigrant groups, but not as much as the Chinese."
Dunning says he's noticed a sharp increase in condo units overall that are being bought for investment purposes. That will lead to a downward pressure in coming months on rental prices throughout the GTA market.
"I wouldn't recommend buying a condo as an investment, really. There are two ways investors can recoup their investment: Monthly rent and appreciation or eventual resale value. There is so much of an oversupply that you won't be able to get that much in rent and, depending on the area, resale value is questionable," says Dunning.
Investing in a condominium can be tricky, however, especially for singles and young couples, says Michael Connon, a financial planner with Assante Capital Management Ltd. in Thornhill.
"I'm advising my clients to be careful," he says, pointing to charts such as the S & P Capped Real Estate fund, which show numerous peaks and valleys since 1997. "Traditionally, you'll see runs on the market, but then they quickly revert back to the mean. It's not a good idea for someone who is just starting out in investing. Real estate should be about 20 per cent of someone's established portfolio, but not a first investment."
Connon says in order to be a successful investor, someone should be able to sustain one year without income from the property. Investors also need to have an emergency fund in case a roof or furnace suddenly needs repairs. "It should make sense as an investment without counting on capital appreciation. Make sure it carries itself. If it goes up, that's a bonus for you."
GTHBA and RealNet officials reported highrise sales increasing for most parts of the GTA during May over last year, but especially in the Halton Region. About eight condominium units were sold during May 2004 while 208 were recorded during the same time this year - a jump of about 2,500 per cent.
York Region, which includes the busy Markham and Richmond Hill areas, was also high with 109 sales reported last May and 242 units during the same month this year for an increase of 122 per cent.
That trend didn't continue in Peel Region, however, which had a 21-per-cent drop in highrise sales this past May. About 309 units were sold this May compared with 392 at the same time last year.
Across the GTA, sales for highrise units were up 60 per cent for May, with 2,194 this year and 1,373 during the same month in 2004.
Johnston says that type of demand will slow down during the later part of this year, as the spring selling season finishes and new units come onto the market. He adds supply likely won't outstrip demand, however, because most builders need to have 75 per cent of a project presold before banks will approve the financing needed to begin construction.
DiLorenzo adds Canadian banks have become tighter with that requirement in recent years, scrutinizing practically every purchase agreement before letting a developer go ahead.
The Toronto condominium market has also been surprised in recent months by several high-profile luxury projects, including one by the Ritz-Carlton hotel chain and another by New York City developer Donald Trump.
The smallest condo unit in the proposed Trump project is to be 2,200 sq. ft. with only four units per floor. Prices are reported to start at $1.2 million.
"I'll believe it when I see it," says Johnston, noting this is the second time Trump has tried to develop condo buildings in the city. "Anyone can come to town and announce a building. It all comes down to the moment when they first put a shovel into the ground" to start construction, he says.
Web Watch: www.remaxcondosplus.com
www.newhomes.org www.wdunning.com (David Hatton can be reached at hatton@businessedge.ca)
