Condo Crisis?

COLUMBUS, OH

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CHRISTOPHER MOLDER

NewBee

Hey Guys

I know the media is sensational about real estate bubbles and crisis' but I found the following blog post from the Globe & Mail to be quite interesting. For those of you selling pre-con are the "vast majority" of your clients planning on renting or flipping their units?

Condo crisis?http://www.theglobeandmail.com/report-on-business/economy/economy-lab/daily-mix/merrill-classic-bubble-signs-in-canadian-housing-market/article2276241/

“What drives the housing cycle up, inevitably drives the market down as well. Builders in the multi-unit segment are currently responding to elevated home prices and robust pre-construction sales. Anecdotal evidence suggests the vast majority of pre-construction sales are to investors who intend to sell the units on completion or rent them out. As these condos in the construction pipeline are completed, this inventory of units will be dumped on to the rental and/or re-sale market just as sales momentum and housing demand ebbs. Our estimates indicate there will not be enough renters in Toronto to occupy these units as they are completed. As a result, some investors will be left holding vacant units. Since most investors are unlikely to hold onto negative-carry investments without a reasonable prospect of price appreciation; this will put downward pressure on home prices. We have already seen this dynamic play out in some smaller markets on Canada’s west coast where prices have corrected 15 per cent.”

Canada / Resale Discussions

KEVIN KILLACKEY

Buzzer

If Toronto and the rest of Canada were 2 different countries - kind of like European countries, it would be easier to understand how/why Toronto's real estate market is as healthy as it is: it's fundamentals and diversity of economies and peopleare strong and price growth has been relatively gradual and less bubble-like than many other regions.
Toronto is a different market than the average market in Canada.

CHRISTOPHER MOLDER

NewBee

I don't disagree with you Kevin but I'm interested in getting a sense from some of the real estate agents about whether the majority of their purchasers for pre-construction this year were investors?

MATTHEW SLUTSKY

Senior Buzzer

2299

171

There was an article in the Globe and Mail today, where Tridel had some interesting things to say.
Source: http://www.theglobeandmail.com/news/national/toronto/condo-investors-may-head-for-exits/article2277142/

Globe and Mail said:
Builders, however, maintain the market is robust and suggest many who issue dire warnings are underestimating demand. While some suggest up to 60 per cent of all city condos are bought by investors, Tridel Group of Companies senior vice-president Jim Ritchie said his numbers suggest no more than 15 per cent of buyers are looking for an investment.
“As an industry, we’re getting pretty accustomed to people telling us that things are out of control and unsustainable,” said Mr. Ritchie, whose company plans to build eight new condo towers next year. “If this market had sprung up overnight, then maybe I’d understand. But this has been a solid contributor since 1967, and has been doing well for the last 10 years. This is not a blip.”

Most interesting was the fact that Jim Ritchie says that he believes no more than 15% of condos are sold to investors. Tridel is one of the largest builders in the GTA, and as such has a pretty good source of information to pull from.

CHRISTOPHER MOLDER

NewBee

Matthew said:

Most interesting was the fact that Jim Ritchie says that he believes no more than 15% of condos are sold to investors. Tridel is one of the largest builders in the GTA, and as such has a pretty good source of information to pull from.

Agreed Matt. If its true that the "vast majority" of purchaser's are buying preconstruction condos as investors I think we have something to be concerned about but if its only 15% as Tridel suggests then its just a lot of hot air.

BRENT WILKER

Buzzer

126

Matthew said:

Most interesting was the fact that Jim Ritchie says that he believes no more than 15% of condos are sold to investors. Tridel is one of the largest builders in the GTA, and as such has a pretty good source of information to pull from.

That is very interesting, also contradicts a lot of what I've been reading (70-80%). I'd love to see their data.

ANDREW TAMBURELLO

NewBee

Chris,
I have many clients who are investors who buy pre-construction condos and then rent them out. That being said, their are many investors who buy pre-construct and assign the agreement of purchase and sale to the end user in the hopes that they can make a good return on their investment.
Another fascinating segment of the market which does not get publicized that often is overseas buyers who are entering the Canadian market as a safe haven for their money. I saw a program last year which showed condo developers going to home shows in China and trying to sell the units because dollar for dollar our prices are much better. I am not sure the exact amount of the market they make up, but it is definitely growing.
I do think that the condo market in the GTA will remain stable until we see mortgage rates rise which by the indication from the Bank of Canada will not be for some time.

Andrew Tamburello
Sales Representative
Brekland Realty Group