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Simple answers to Complex Questions and Complex Answers to Simple Questions. In real life, I'm a Greater-Toronto (Canada) Realtor with RE/MAX Hallmark Realty Ltd, Brokerage. I first joined RE/MAX in 1983 and was first Registered to Trade in Real Estate in Ontario in 1974. Formerly known as "Two-Finger Ramblings of a Forensic Acuitant turned Community Synthesizer"

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Wednesday, October 24, 2012

Speculators bailing on Pre-Sale Condos


Investors on sidelines as Toronto condo market cools

Investors/Speculators on sidelines as Toronto condo market cools

October 23, 2012
Susan Pigg
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Toronto's condo boom shows signs of slowing down.
RICHARD LAUTENS/TORONTO STAR
 
Toronto condo developers are seeing a dramatic downturn in investor interest in new projects — more than 30 to 40 per cent in just the last few months — as the condo market cools.

“The golden era of highrise condos is turning to bronze,” says long-time real estate consultant Barry Lyon.

Some developers are quietly talking about a 50 per cent downturn as investors/speculators, who have fuelled much of Toronto’s condo boom over the last five years, head for the sidelines, where Lyon expects they could stay for at least six months.

“I think 2013 will be the year of incentives. The industry is going to be doing everything it can to persuade investors and speculators to come back,” he says.

Investors’ new wait-and-see attitude could be good for the city and focus more attention on “end users,” rather than folks looking to make money off a rental unit, Lyon believes  (added by editor AND SPECULATORS HOPING TO AVOID ALL TAXATION BY FLIPPING UNIT PRIOR TO CLOSING.)
He predicts this slowdown could steer developers away from building ever-shrinking shoeboxes in the sky, and point them toward midrise condo projects with bigger units outside the core, which are better suited to couples and families looking for an alternative to costly houses.

But these types of units take longer to build and community opposition will be fierce, as it has been in neighbourhoods such the Beach, where a number of midrise projects are under construction along Queen St. E.

The sudden drop in investor/speculator interest has sent shock waves through the industry because, just since 2007, investors have come to dominate the GTA condo market.

Last year, they accounted for an estimated 60 to 65 per cent of the 28,000 pre-construction condo purchases across the GTA, and some 75 to 95 per cent of pre-construction purchases in downtown Toronto, says Ben Myers, executive vice president of market research firm Urbanation.

Until five years ago, less than 30 per cent of Toronto’s new condos were bought by investors, he adds.

There are still lots of buyers interested in Toronto real estate, according to real estate “whales” — super-brokers who condo developers depend on heavily because they can rally dozens of deep-pocketed investors. That has enabled developers to sell 70 per cent of a project in just a few months, the threshold needed before most banks will provide construction financing.

But those diehard investors “want a deal and they want it in a Triple A location,” close to the downtown or transit lines, says Myers.

“Things have definitely slowed,” he adds. “I do anticipate that pricing is going to be fairly flat in both the new and resale condo market for six or seven months. After that, it becomes a little hard to predict what will happen.”

Currently, there are 196 projects and 52,695 units under construction across the GTA, 89 per cent of them pre-sold. “There’s little worry we’re going to end up with tons of vacant, unsold units,” says Myers.

But a staggering 240,000 more units have been proposed — the equivalent of all the condos built across the GTA since 1968, according to Urbanation.

The slowdown in sales since spring, and the rising inventory of unsold units, which is now up to about 18,000, have caused some developers to delay launches. Many of those 240,000 condos — 16 years’ worth of supply — will never go ahead.

While Myers believes the superheated condo market is simply cooling to more realistic levels, rather than heading for a U.S.-style meltdown, both he and Lyon agree it’s too soon to tell how long or deep the downturn will be.

That’s why all eyes are focused on three big, bellwether projects that launched sales in October: Tridel’s 65-storey, 695-unit Ten York project near Toronto’s waterfront; Empire Communities’ two-tower, 1,250-unit Eau du Soleil development on the Etobicoke waterfront; and the 44- and 48-storey King Blue project in the Entertainment District.

“The simple fact is there are no experts right now,” says Lyon. “The whole industry is on a learning curve as we find out whether investors will stay with the condominium phenomenon in Toronto.”

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