January always brings us a lot of reviews of that past year, and forecasts for the year to come. Though numbers don’t lie, how you look at respective numbers can skew the conclusions you can make based on them. I took excerpts from a great article published in the Toronto Star, and inserted my comments – my opinions come from having been directly in the market as a buyer, seller, landlord, investor, and realtor.
“The best year ever, right?” developer Peter Freed asked upon hearing the 2011 sales totals for Toronto’s condo market.
Was a good year – mostly attributed to people realizing that you can make money in real estate – and developers realizing that they can make even more money in real estate! Personally, I found that the mind state of buyers in the downtown core shifted from buying a home to live in, to buying an investment to live in.
Indeed it was the best year on record for highrise sales. According to RealNet Canada, 27,224 condos were sold between January and November. The previous sales record from 2007 was surpassed at the end of October. Meanwhile, GTA home prices in November hit a record average of $481,305, almost 10 per cent more than the average home was worth a year ago, according to the Canadian Real Estate Association. How do you think this climb has affected buying?
Some people feel that it’s a temporary spike because interest rates are low and there is a lack of inventory – classic supply and demand. There are still deals to be had, but what we have to understand when we look at this high average is that the established areas are already developed – these areas are affecting the pricing. The spike is more dominant in specific areas, and is leaving other areas seemingly unaffected. It’s a matter of forecasting the up and coming areas that are currently unaffected, but will end up going up in price – and that’s where the goose lay it’s golden egg. The up and coming areas are long term investments that are smart to sit on with a long term effect. When talking about the GTA, there are different regions that increase more than others, you have to look at trends as well as developing infrastructure.
Earlier this month Freed, president of Freed Developments, joined with half a dozen of the city’s other key real estate players for a Toronto Star-sponsored roundtable. The discussion — moderated by Brandon Communications president Danny Roth — reflected on the year that was in real estate and looked ahead to 2012. “How do you explain it?” Roth asked the roundtable, referring to Toronto’s bustling condo market.
“We have an immigration policy that drives the need for housing,” noted Andrew Hoffman, president of CentreCourt Developments. Immigrants moving to Toronto often have liquid assets – we’re multicultural and welcoming. There is also an influx in foreign investors, as we’re viewed as a safe investment. There are foreigners who come to live and foreigners who come to invest. CMHC has a lot of guidelines that welcome immigrants with open arms.
“And you think back over the last 30 years there’s been no purpose-built rentals in this market. So that’s a huge driver for demand, plus low interest rates and the affordability of condos. All those factors drive the continued growth.”
Bad news bears
So why do economists and analysts continue to predict the imminent collapse of the Toronto condo market?
“Bad news sells papers better than good news,” suggested Mimi Ng, vice president of sales and marketing for Menkes Developments. “We can all agree there’s a disconnect between our industry and these pundits who try and predict how this thing goes forward,” added Jim Ritchie, Tridel’s vice president of sales and marketing. “They don’t know the nuances of this industry.” I agree with Jim – When economists look at the industry, they’re not looking at it from a hands on point of view. They’re not handling multiple offers and receiving offers above asking. They don’t know the average person’s yearn to live in the city and in the GTA. The GTA is the land of opportunity for Canada.
“The fact is, there are tangible real differences between that and what’s taking place in the GTA market,” he said, citing Canada’s tighter lending rules as one. “There’s an array of differences that aren’t talked about often enough.”
Size matters
One thing that is talked about a lot — the shrinking size of downtown condo suites.
“Our average unit size has fallen considerably from four or five years ago,” noted Riz Dhanji, vice president of sales and marketing for Canderel Residential. Real estate gets pricier – that’s the double-ended sword. As sellers, we love it, as buyers, we hate it. What we really need to examine is the price per square foot. Look at it as a stock price – 700 sq ft = 700 stocks – a blue chip stock may be more expensive, and a penny stock is respectively cheaper. Square footage determines price and maintenance fees. At the moment, a lot of the smaller units are renting at a higher dollar per square foot – what this means, is that smaller units can be a very lucrative thing for a buyer, whether you’re buying to live in, or buying to rent. This is what the industry is supplying, and the demand has stayed level to that. In terms of diminishing sizes, there is more profit to be made by the developer and investors. In terms of desirability to live there, the location compensates for the smaller space, and the need for the larger 1000 plus square feet unit will become more in demand for those who can afford it. We’re one of the last metropolis’s to introduce the smaller square footage – new york, London, Tokyo and Hong Kong have been offering these sizes for years – under 400 sq ft. There is a coffee shop at the foot of almost every high rise in the city – if you don’t have the space to work from home, it’s a simple elevator ride to somewhere you can. Our economy is working in a healthy circular motion where what isn’t convenient at home, is convenient close to home. A lot of building offer top notch amenities – your unit isn’t big enough to host a party, there’s a beautiful top level terrace that will wow your guests; you don’t have the space for an elliptical, there’s a state of the art gym just downstairs. We have to look at what this indicates about our economy. Our population is growing, and keeping our economy healthy – this is what we have to do to accommodate it.
“The concern is we’re all building the smaller units to hit a price point, but at some point there’s that move-up buyer that doesn’t want to live in 500 square feet. So we need to have some larger product.”
Hoffman argued that downtown buyers don’t mind living in smaller condos. “They’re living active lives, they’re spending time at work, they’re out at restaurants and sporting events, and if they do entertain they’re usually not doing it in their home; they’re doing it at other venues or in the amenity space provided by the condo.”
The way units are designed these days makes it easier to live comfortably in smaller spaces, he added. “The functionality of design has improved tremendously in recent years.”
