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And now to the bones:
Ok, so we’ve discussed the past 10 years, and I’ve explained why it’s a strong market, has no subprime risk and told you that Condos are here to stay: it’s the only viable living accommodation for downtown Toronto.
But besides all the data, there is knowledge: what we learn from the raw numbers and our interpretation to this data we collect, and that’s what this post is all about.
If 10 years ago the residential inventory was at today – 150,00, today it has 150,000 additional residential units (many of which are condos), with downtown at 90% condo living. has anyone looked in to the resale market? no. I didn’t think so.
The resale market had also gone through leaps and bound, having changed from that crappy little semi I bought off Sorauren Ave. and fixed myself in 2000, into a market with designer-hot condos with amenities as pools, gyms, screening rooms, patios, rooftop gardens, whirlpools, bowling allies, you name it. if you are single, or a young couple, why would you buy a falling apart 1940’s decaying property that requires $60,000 in immediate renovations? you probably won’t unless you’re about to start a family. And that is the case for so many pocket neighborhoods.
And another thing happened: prices of new construction are now on par with existing, registered condos. remember in 2001 when you bought a place for $260 PSF and it was cheaper then existing areas because the location wasn’t great or you were afraid that the condo business will melt overnight? well now things are different. The condo market did not tank, people learned very quickly (if you call 10 years fast – I do) that “the next great area” is King West, then CityPlace, then Liberty Village, then King East and Queen and Carlaw.
So our friend Skilled Immigrant or Job Mover have fine choices they could not have had a few years back: they can go for a new property or search rom thousands of existing buildings and pick whatever they like, as prices will be more or less the same (with newer building actually becoming more expensive then existing – the reverse trend that we were used to).
“Hey Kaplan”, I’m asked, “people still want new condos! how can that be? and for how long?” well that depends on supply and demand: as long as we have buyers who deem it viable to purchase condos at prices offered we will see transactions.
Here is my detailed prediction:
(1) As the overall number of new registered condos increase, more buyers will consider existing condos
(2) As overall prices increase, bottom-end users are priced out of the market, creating pressure on builders to maintain entry-level prices at $200’s to $250’s.
(3) New buildings must out-do earlier ones, installing and featuring LEED, high-end designs, imported kitchens, and new technologies to allure new buyers to purchase new instead of re-sale
(4) Entry level for existing buildings at 5% with CHMC while new construction 20%, either eliminating new buyers or builders will have to get financially creative to allow new buyers to keep purchasing new stock
(5) A slow down in new construction sale is possible mainly at the low-end units (sub $250,000) as entire population segment does not qualify for mortgages unless they make over certain amount and/or have cash reserves for downpayment.
(6) Luxury buildings are few and should maintain a high pace of transactions, this is not an affected segment.
(7) Investors should look into buying quality-first buildings and consider larger units, 2-bed 2-bath being an example.
(8) Ontario Builders would prefer keeping their prices at current level and offering specials or discounts, rather then lowering prices, even if transaction pace slows down a bit.
(9) As less and less lots are remaining available for new builds, overall prices will continue to rise in the long run.
(10) The US subprime is far from over and it is a great unknown in the Canadian economy. Make smart purchases that you are confident about. Read entire series now in VIP>
Â© All Rights Reserved Yossi Kaplan 2008.
As always, looking forward to your calls and emails,
Yossi Kaplan, MBA
Sales Representative, Your Choice Realty Corp
885 Don Mills Rd suite 104