Toronto’s slowing condo market will stabilize next year, but the risk
that prices will fall is greater in the longer term, Canada Mortgage
and Housing Corporation says.
Shaun Hildebrand, a senior market
analyst for the Greater Toronto Area at CMHC, presented his latest
thoughts on the market at a conference Wednesday morning.
The large quantity of cranes dotting the city’s skyline are part of
the reason why many observers have suggested that Toronto’s condo market
could be in a bubble, one that could precede a significant drop in
prices.
But Mr. Hildebrand said he’s far less worried than many.
“I’m not overly concerned, although there are risks,” he said in an
interview. Among those are the rising proportion of condos that are
owned by investors, and the large increase in new condominiums that will
be completed in the years ahead.
One risk that Mr. Hildebrand
doesn’t subscribe to is the much-discussed notion that foreign investors
are propping up the market.
“I don’t see that there will be any
sort of mass exodus of foreign money,” he said. While there are no
statistics on the proportion of new condos that are being bought by
foreigners, Mr. Hildebrand said that surveys by the Municipal Property
Assessment Corporation suggest that about four per cent of the condos in
Toronto are owned by people who don’t have Canadian citizenship.
Mr. Hildebrand also takes comfort from some lessons he’s learned by studying the condo bubble that occurred in the late 1980s.
“Even
though today we see that the number of units under construction is
about twice as high as it was back then, the share of units that are
unsold is relatively low,” he said. “When a project comes to completion
today it’s 95 per cent presold. In the late 1980s bubble it was at best
60 per cent sold.”
Buyers also generally put down larger deposits today, making it harder to walk away.
“Condo
prices from 1985 to 1989 rose by 170 per cent, so there was a lot of
speculative activity going on then,” he said. “And then you were
entering into a very significant recession that hit the labour market in
the early ‘90s, and interest rates went into the double digits. But
despite that perfect storm we only saw prices decline by about 25 per
cent over the course of the next seven years, a relatively small amount
in relation to the run up, so that tells us that prices are pretty
sticky on the way down.”
In addition, Mr. Hildebrand said that a
lot of investors who bought condos in the late ‘80s held onto them when
the market got tough.
Another statistic that gives him comfort: he
says that in the past decade condo prices have risen by about 55 per
cent, while the price of all other homes have risen by about 75 per
cent.
Moreover, he compared Toronto prices to those in other
cities around the world, and found that prices for prime condo space in
areas like London and Paris are twice as high as they are for prime
space in Toronto, and in New York and Tokyo they’re about 30 per cent
higher than here.
“So even though we’re seeing all of this supply,
all of this building taking place, it’s not necessarily a prescription
that prices have to decline,” he said. “In the short term we’re quite
confident that prices will hold up. They may decline slightly over the
next six to nine months, but in an environment where interest rates
remain low and the economy’s holding stable, any sort of reductions in
price are just going to help to improve affordability and set the stage
for a better level of sales towards the end of 2013.”
While he
doesn’t see sales rebounding to the levels they were at prior to the
moves Ottawa made in July to tighten up the mortgage market, he does
expect them to be “a little higher” than they are now.
“The longer
term comes with some greater risks,” he said. “There’s almost 50,000
units under construction right now, an increasing share of investors are
believed to own these units, so it’s going to be key to understand what
they choose to do with their units when they come to completion. Right
now a lot of them are holding on. But will they continue to do that in
the future? And the bigger question is what demand is going to look
like. It’s obviously more difficult to anticipate the economic
environment a few years out than it is say over the next year or so. So
that’s where the risks lie, I would say 2014, 2015.”
source: http://www.theglobeandmail.com
Thursday, November 15, 2012
Friday, November 9, 2012
Saturday, November 3, 2012
More Signs of Cooling in Toronto’s Red-Hot Condo Market
New condominium apartment sales in Toronto fell 30% in the third quarter from the second quarter, Urbanation Inc. said Thursday, another sign the condo market in Canada’s biggest city has topped out in the wake of the Canadian government’s efforts to guard against as U.S.-style, real-estate meltdown.
But at the same time developers are getting the message and slowing construction activity to meet the reduced demand, the Toronto-based condo market research company found.
Concerned in particular over the prospect of a potential housing bubble forming in Toronto and Vancouver amid a condo building boom in the two cities, Canada’s Finance Minister Jim Flaherty this summer tightened mortgage-lending rules to guard against an overheating market.
In a release Thursday, Urbanation’s findings suggest the government’s moves are working. New condo apartment sales fell 30% to 3,317 in the third quarter from the prior period, and unsold units were being offered at 573 Canadian dollars per square foot at the end of September, “an increase of just 2%” from the year-ago period, Urbanation said. The condo resale market also slowed in the third quarter, with sales down 32% from the second quarter, the group said.
Last month, Greater Toronto Area Realtors released figures supporting this trend. The group reported at 20.5% drop in condo and apartment sales in the third quarter and average condo selling prices that were largely in line with the year- ago period.
In another sign of cooling market conditions, those buying condos appear to be settling for smaller places as a result of belt tightening.
“The change in the mortgage insurance rules may have forced many buyers to settle for smaller units than they had previously desired,” Ben Myers, Urbanation executive vice president, said in a statement. “The number of resale transactions for units priced over $400,000 fell 40% compared to last quarter, while there was a 38% quarterly drop in units traded over 1,000 (square feet).”
Against this backdrop, the average condo project in which construction has been completed so far in 2012 took 3.85 years from “from sales launch to occupancy,” compared with 2.68 years in 2003, Urbanation notes.
“The share of unsold inventory in Toronto….remains below the 10-year average,” Urbanation said.
That said, the slowdown in new condo sales represents a potential boon for existing owners who want to rent out their places.
“The reduced level of project completions has contributed to a very tight condominium rental market,” Urbanation said.
Source:
Subscribe to:
Comments (Atom)