BLOGGING FOR CONDOS

Sales Commentary
Almost half way through 2007 and this will be another record year for real estate sales on the Toronto Real Estate Board. And no one predicted it – not even this Company! May was an all-time record month with 11,146 sales, which were 18% higher than for May of ‘06. June is already tracking for another double-digit sales increase over 2006. On a year-to-date basis, sales are running 10% above those of last year. Condos are performing slightly better than the overall market. In June, overall condo sales were up by 20%, while Downtown condo sales were ahead by 21%.

Last month’s report talked about the chances of a market correction in the short term – and there is still nothing on the radar. You can see a correction coming – a slowing of sales, prices still rising at above average rates and a growing supply of listings. But sales volumes are still increasing. Prices are rising at above average rates but that’s because there is still a shortage of listings in relation to the number of buyers. Experts, desperate to get their market correction, are now saying that a forecast of rising interest rates will dampen demand by buyers. In part, they are right. Some people on fixed incomes can be eliminated from the market. But why is the Government raising interest rates? It’s because the economy is too strong – there are more jobs, people are making more money, and inflation is creeping back. Seems to me that more jobs, bigger pay cheques, and the fact that future housing will cost more to build are not factors that would cause the resale market to experience a price correction!!

To illustrate the explosive price growth in the condo market this year, we looked at sales in 99 Harbour Square on the waterfront. This is an older but very popular building with great water views. The latest sale of a one-bedroom unit (758 sq.ft. with parking) on a high floor occurred in June. It attracted 12 offers and sold for $383,000 – $34,000 over the list price. That’s $505 per sq.ft. The previous sale of an identical unit on a high floor took place in January and it sold for $325,000. In the previous three years these units sold for just under $300,000 with little price movement. On the other hand, a slightly smaller one-bedroom unit (692 sq. f.t.) facing north (city view) with no parking sold in May of this year at $255,000 – $5,000 over list price. The identical unit without parking sold last year for $234,000. In 2002 (that’s five years ago), these units were selling for $220,000. You get the point!

Rental Commentary
The Toronto Real Estate Board just released their Rental Market Report for the first four months of 2007. Rental activity overall was up 14% over the same period in 2006. The most active area called C01 (Bloor to the water and west of Yonge Street) experienced a 41% increase in rentals over the same period. If you include the area east
of Yonge, the downtown rental market is now 37% of the total condo apartment rental market for the whole GTA. More than 60% of the units rented downtown were one-bedroom units at an average rent of just under $1500. Studios or bachelor units made up only 4% at an average price of $1150. Two-bedroom units went for $2150 on average. And there were only 2 three-bedroom condo apartment units rented during the entire period.

Last Post, we discussed how prices have suddenly accelerated in the Toronto Condo Market. From annual increases in the 3-8% range, we are now seeing 10-15% this year. Multiple offers are also becoming quite common, and sale prices over list – just like the detached house market are frequent.
Now, INVESTORS HAVE LEFT THE RESALE MARKET. All the market activity this year on MLS is being created by end-users! There is a true shortage of condo units for people to live in downtown Toronto!! And no one is talking about that.
Investors do not want to compete with end-users for condos. If they do, the rents (which have not kept pace with prices) will not provide a decent return on investment. Instead, Investors have moved to new (pre-construction) development projects.
All you have to do is look at three hot new project developments which came to market last week: BURANO on Bay, L-TOWER at the Hummingbird Theatre, and PIER 27 on Queens Quay. There was a stampede of realtors representing investors at all three sales offices. They waited hours to snap up the best units. By the time the public gets a chance to buy, these projects will either be sold out or only a few less desirable units at higher prices will be left.
Remember that investors in real estate look for two returns: yield and capital appreciation. With minimal yields left in the resale market, Investors have moved to the new project market, and are gambling that the prices they are paying today (higher than the resale market) will be much higher three years from now when these new projects are completed. Investors are going just for appreciation. And Investors are buying the bigger units because they feel that is where the most appreciation will happen. If they are right, they will earn handsome profits when the units are ready. If they are wrong, they will be in trouble. Trying to rent out big units is costly. Investors can expect negative cash flows of several thousand dollars a month. How long will investors sit on these units once they are completed? Only time will tell, and we won’t know the answers until the end of 2010!!!

Back home in Toronto and into the market real estate again. First week back and the office is crawling with buyers and agents. Two listings to deal with – one with 7 offers and the other with 12! People are standing everywhere, as they wait their turn to present. Shades of the house market – but this is condos! One of our listings at $345,000 went for $383,5000. That worked out to just over $500 per sq.ft. for a one bedroom! Yes it had a waterview but it was an older building and the unit needed some renovations too!

Moving to a new project – the Shang- gri La Condos and Hotel. Located at Adelaide and University, it was brought to market by a Vancouver developer who thought our prices were too low! He offered his units at $800-1,000 per square foot, and after 60 days of pre-sales he reported 202 sales out of 350 units available. Most of these are bigger units, so we are talking about sales over one million dollars. These are not the type of units that investors buy! So who are the buyers? And where do they get this type of money?

While downtown Toronto is the most active condo market outside of Manhattan, it has never been in the big leagues so far as prices are concerned, But what are we to make of these prices over the last month?

Stay tuned!

The London real estate or property market has been on fire this year with prices up by 15%. The Government is attempting to cool the market by raising short term interest rates and hence variable mortgage rates. The underlying problem is that there is just not enough product for sale. Walking downtown, all you see are ’sold’ signs and nothing ‘for sale’. So raising the rates may slow down the market but there will be no drop in prices here.
Unlike Toronto, there are only a few cranes on the skyline building new condos or ‘flats’ as they call it over here. Like Paris, most of the product is over 50 years old. If you find a renovated property, be prepared to pay!!
Freehold townhouses or row houses are easily over a million pounds (that’s $2.2 million even with our strong dollar)! In less desirable areas – you might find something for 600,000 pounds and if you want to be trendy, you can spend 2-3 million – and that is pounds! Trying to figure out a price on a per square foot basis is tricky. But 500 pounds or about $1200 is about average and that does not get you parking and multiple bathrooms are rare.
My earlier articles have talked about the Toronto experience in pricing. The resale market used to be $300+ per square foot. Now any offering under $400 should be looked at carefully. Toronto condo prices, although moving up by 10% this year, are still way below those of other major cities.
A final observation. The UK does not have an MLS system. Each brokerage company has their own exclusive listings and so a buyer has to visit every company in order to find out what is available. Sold information is difficult to get too. The end result is more of a ‘cowboy’ market with BUYER BEWARE a real staple. There is a real proliferation of real estate shows – at least four or five every day. That’s one of the few ways people know about prices. And with these shows, everyone thinks they can buy, renovate and flip properties for easy money. If only it were that easy.