Mini Manifesto: The State of the Toronto Condo Market
I'm going to give my thoughts on the current state of the condo market then I'd like to hear what everyone else thinks. Check it:
It's different now.
New condo sales are way down from last year, and even down from historical averages. There is no question that buyer activity has slowed significantly from the beginning of this year. We are in a new paradigm. Where is the market heading? Will prices fall? Are developers in denial? Is the media to blame for our problems?
I've been doing a lot of thinking an analysis on this subject as I am in the business of selling condos and my business has changed dramatically when I compare the first half of this year with the second half of this year (so far). I am not in denial: the market has slowed down, and slowed down quicker and more significantly than anyone in the industry expected.
So let's start with where we are today.
Developers generally agree that the market is still fundamentally strong. The fundamentals are good: low interest rates, high employment, population growth, affordability of condos compared to low rise homes. - but it doesn't matter if the fundamentals are 'good' if no one is buying.
Sales are down, recissions are up (buyers backing out of deals during the 10 day cooling off period). But buyer activity and interest level actually remains quite high. The same people that were condo shopping 8 months ago are still actively looking at condos,theyare just not buying them as much.
What are developers trying?
Developers have been busy, trying different things to boost sales. Most revolve around incentivizing agents. Increased commissions, offers of free trips and prizes, celebrity status and free lunches are being thrown around like it's condo Christmas these days. Unfortunately, there are little to no incentives being offered to buyers. They are in effect lowering prices without lowering prices if you get what I mean.
Developers are reluctant to lower their profits (increasing agent incentives), but they are loathe to actually lower prices (increasing buyer incentives). Lowering prices looks bad, pisses off previous buyers, and potentially devalues an entire building.In short, prices of new condos are very quick to go up, but incredibly slow to go down.
Other developers are pouring money into advertising it seems, taking out full page colour ads, tweeting like crazy and shouting at the world that they are the greatest. (side note: what's the only thing worse than singing the wrong note? Singing it louder)
Where are things heading?
In most industries, when sales drop significantly, prices soon follow. In the new condo market, these rules are a little different. Developers have the ability to reduce the supply of product in a market and they can actually do that very quickly.
Over the last several months, virtually no new condo projects have been released into the market. During the first 90 days of the year, we saw a new project launch at least once a week.
Many projects that were supposed to launch in 2012 will get pushed to spring 2013-many developers already have written this year off and are prepping for spring market.
Most every single project that started selling in the last 12 months will be delayed. If they said 3 years make it 4 (minimum). If they said 5, make it 6 (minimum)
I predict we will continue to see more incentives and sales promotions: leasebacks, cash-backs and kick backs.
But eventually, someone will drop their...prices! Expect a big line up for the first project that does this and does this right. Don't expect any huge drop in prices but something like 8-10% would really get the market's attention.
Price reductions need to be executed properly and with care. Back in 2009 when we started to come out of the recession a classic example of a relaunch done right was when Lifetime Developments rebranded Liberty Market Lofts as "17' ceiling lofts", lowered prices and pretty much sold out the building in a couple weeks. Great Gulf also did this with Charlie condos around the same time to much success. Empire did it with FLY too.
If I was a developer, what would I do?
First off, I would definitely not launch a new project in 2012. Why would you add more product to this market? It will not sell and it will also serve to water down the market and dilute your current offerings.
If I absolutely had to bring a project to the market, I would be very aggressive with prices. I would want to be the best priced project on the entire market. I would want every single condo buying eyeball in Toronto looking at me and forgetting about all my competition.
I would not pour money into print media and expensive media campaigns. The buyer you want is not reading the papers looking for who has the prettiest kitchen, or the coolest website. They are looking for one thing and one thing only: the best price. Now is the time to give it to them.
Now over to you. Agree? Disagree? Who cares?
Toronto / New Developments