Condo investors making us a town of renters

Toronto Councillor Adam Vaughan can tell the minute he looks at a condo building in his downtown ward if it’s full of renters or home to owners.

“The bigger the building, the higher the rate of renters,” says Vaughan.
The optics can be even more obvious when he steps inside. Even newer buildings can have the feel of university dormitories with shabby lobbies and cheap carpeting meant to keep down maintenance costs for investors who own a unit or two but may live half a world away.
With Toronto’s condo market among the hottest in the world right now — almost 68,000 new units are now in the planning stages or under construction across the GTA — investors are cashing in big time on what looks like a sure bet compared to battered stock markets.
Some 45 to 60 per cent of all new condos planned for the GTA are being snapped up by investors, says market research group Urbanation. That number is believed to be closer to 80 per cent in the downtown core where 12 new highrises, with 5,707 new units, are creeping floor by floor into the Toronto skyline right now.

That frenzy of investor activity is now being seen — and felt — as developers try to keep condo prices down by building more, and smaller, units meant to maximize investments for people who will never have to live in studios smaller than hotel rooms.
The surge of investors is part of the reason new downtown units are now averaging just 749 square feet — about half the 1,440 square feet average being built in crowded Manhattan.
While there are growing concerns about where Toronto’s condo market is heading, the activity here comes as a shock to Jonathan Miller who monitors the U.S. as president and CEO of Manhattan-based Miller Samuel Real Estate Appraisers & Consultants.
“If this isn’t a bubble, I don’t know what is,” says Miller. “This is going to end badly.
“You can’t have such a rapid influx of supply without this going too far. One thing I’ve learned is that builders will build until they can’t build anymore.”
Ben Myers disagrees. The editor and executive vice president of Urbanation has recently started tracking rental demand for those condos.
“This (condo building spree) is providing the city’s rental stock,” he says, adding that some 100,000 new people are flocking to the GTA each year.
“We are one of the only markets in the world that is catering to renters and first-time buyers by creating these smaller suites. In my view, this is absolutely the best approach. Great cities grow and expand, they have people walking around and you can only do that if you have a lot of people living downtown.”
While Vaughan has fought hard to see continued construction of larger and three-bedroom units that provide a better mix of residents, he finds older condo dwellers are gravitating to smaller buildings where the number of owner-occupants tends to be higher.
Developer Peter Cortellucci has seen what’s happening downtown and his Cortel Group made a conscious decision to head the other direction. Its five new condo towers planned for the Vaughan Metropolitan Centre at Highway 7 and Jane St. will feature bigger units and sales contracts discourage buyers just looking for units to rent out.
“We’re trying to create a sense of community and a neighbourhood where people actually live,” says Cortellucci, vice president of Cortel.
“We took a bit of a risk with large units and we’ve been quite successful so far. We wanted people to come in and say, ‘I could really live here.’ We didn’t want it to be too far a stretch from their homes.”
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Economic trends that are affecting you

Home prices to stabalise

Housing prices in the Greater Toronto Area won’t be skyrocketing as much over the next few months as they did over the last year or so, says an analyst with the Toronto Real Estate Board.

That’s because more houses are being put on the market, according to Jason Mercer.
“With the prices having risen the way they did, more people are going to start listing because they think they can take advantage of the prices they’ll get,” said Mercer. If enough people list, that can drive prices down.
“There’s no question that it’s been a seller’s market recently, but as more inventory comes onto the market, things will start to become more balanced,” Mercer said.
Still, Mercer isn’t expecting prices to be slashed – he just doesn’t think they’re going to rise as quickly
“I still think there’s enough support for some price increases, but it’s not going to be what it has been,” Mercer said. The average price of a home in the Greater Toronto Area was $451,000 in August, up 10 per cent from the same time last year.

GTA home prices hit new high

By Sue Pigg

Toronto home sales were up 2 per cent in August over July, outpacing the rest of the country where sales declined 0.5 per cent, according to figures from the Canadian Real Estate Association.

Average house prices were down slightly across the GTA in August, to $451,663 from July’s average of $459,122.
However, average prices recorded in August were up 10 per cent year-over-year.
An easing of demand for high-end homes in both Toronto and Vancouver, which had been putting upward pressure on average prices right across the country, saw average Canadian prices decline to $349,916 in August from $361,181 in July.
The average price of a house or condo in Canada was up 7.7 per cent in August from a year ago, said Gregory Klump, CREA’s chief economist.
The price of a detached house in Toronto hit a record $648,491 in August — compared to $531,458 in the 905 regions — largely because of a shortage of listings. But prices are expected to ease somewhat as more houses come on the market over the next few weeks.
There were a record number of balanced markets across Canada in August, which included the GTA, said Klump. That means there was, for the most part, a healthy ratio of homes for sale to people looking to buy.
While Toronto’s spring market was unusually hot, fuelling bidding wars and double-digit price increases, those are expected to ease back into the low- or mid-single digit range going into 2012, said Jason Mercer, the Toronto Real Estate Board’s senior manager of market analysis.
“Looking ahead, less favourable economic fundamentals and heightened financial uncertainty are likely to take more wind out of the market’s sails,” said TD Economics housing analyst Francis Fong.
He expects the market to continue to “oscillate alongside the rest of the economy” until the end of 2012, and predicts house prices could drop about 10 per cent from current levels when interest rates eventually start to rise, likely in early 2013, said Fong.
Some 324,030 homes have changed hands in Canada so far this year via MLS, according to CREA.
“This bumpy ride that the global economy and financial markets are on is good for the continuation of low interest rates and low interest rates are good for the housing market,” said Klump.
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