MORE CHANGES IN THE CONDO MARKET

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!!!

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