The Residences of the Ritz Carlton was the first of what I like to call the ‘Big Four’ (5-star condo-hotels, the others being Trump, Shangri-La and of course the Four Seasons) to finish. This was a monumental event in the Toronto condo industry as it represents the first truly 5-star hotel to come to our aspiring global powerhouse of a city. Having a 5-star hotel it seems, is a signal that you’ve arrived as a city and it’s an important step if you want to have a chance at becoming the next London, New York, or Hong Kong. Along with the arrival of these hotel condos was supposed to also be stratospheric real estate prices, the like of which Toronto had never seen. $1000 per square foot was the psychological price barrier that we were about to smash through. Well, it hasn’t happened. Not even close.

Some interesting stats on The Ritz Carlton:

• There have been 7 MLS sales in the building since it registered in July 2011. That’s an average of 1 sale per month.
• There are currently 30 units available on the MLS and likely many more that the developer has available that are not on the MLS. This means there is at least 2.5 years worth of inventory available in the building. This is the exact same as it was back in September 2011 when I wrote this.
• Average price per square foot of the first 4 sales in the building after registration: $902
• Average price per square foot for the most recent 3 sales: $749
• Average days on the market for the first 4 sales in the building: 28
• Average days on the market for the most recent 3 sales: 142
• Average sale price:original asking price for first 4 sales in the building: 92%
• Average sale price: original asking price for the last 3 sales in the building: 82%
• Average sale price for all 7 units sold: $1,384,254
• Highest sale price $1,673,775

Rental Statistics:

• Average rental rates: about $3.84 per square foot.
• Highest lease rate achieved: $19,000/month
• Lowest lease rate achieved: $4500/month
• Average Days on Market for a rental listing: 64
• Average Sale:List Price for a rental: 93%

Other non-Yorkville buildings that have recently achieved greater than $750 per square foot AND sale price over $1M:

• 770 Bay Street, Lumiere, Penthouse sold recently for $958 PSF
• 80 John Street, Festival Tower, High floor unit sold recently for $824PSF
• 224 King West, Theatre Park (pre-construction), high floor unit sold for $814PSF
• 65 Harbour Square, 30-year old building, High floor unit sold recently for $773PSF

What we know for sure:

• The Ritz has under-performed compared to the market. Anyone who bought at the Ritz during pre-construction and sold today is making a decent profit. Many early buyers got units for around $650 PSF, selling right now at around $750 PSF which represents approximately a 15% increase in 6 years. However, according to Urbanation, index pricing in the downtown west sub-market that the Ritz belongs to has increased at approximately 10% per year since 2005.
• Prices at The Ritz are not going up any time soon. I’ve already mentioned that there is at least 2.5 years worth of inventory currently at the Ritz. The situation is compounded by the fact that Trump is almost finished, and Shangri-La and Four Seasons will both be complete in about a year. The supply levels for 5-star condo hotels is about to go through the roof. I don’t see how prices at the Ritz could possibly go up anytime soon.
• Right now the Ritz is either a great buy or a terrible buy depending on your perspective. The Ritz is truly a beautiful building and the suites are finished with very high quality materials. When you compare what you can get in this building for $750 PSF versus other ordinary buildings selling for more than that, it’s a no-brainer where you should buy. However, from an investment perspective it’s ‘buyer beware’ when buying into any building with 2.5+ years worth of inventory.

Questions we still don’t have answers to

• Why are sales so slow? Why are buyers in the $1M+ range staying away from the Ritz? I posted a few popular theories previously here.
• What will happen when Trump comes online? Will the same story play out at Trump? Will the two buildings compete with each other directly for buyers or not? Will the situation get worse?
• How much unsold inventory is the developer sitting on? There are rumors out there that the developer still has A LOT of units to sell, and these units are for the most part NOT on MLS. Can they afford to continue to carry them for another year or two while they wait for the dust to settle or will they be forced at some point to flood the market? Could they rent out these suites to ride out the storm?

What do you think? If you have something to contribute to the topic, leave me a comment or contact me directly. Also, the stats in this post is begging to be put into “infographic” form. If someone out there reading wants to help me with that, let me know.

I wanted to dig a little deeper for today’s blog post and take a look at absorption rates in various condos. Looking at Festival Tower got me thinking about this subject. Festival Tower has a plethora of units available for sale, but hardly anything is actually selling. The building is stunning. The amenities are amazing, and the film festival that just finished put this tower in the international spotlight for a full 2 weeks. The building has been fully registered and finished for a few months now. I am at a loss as to why units are not moving here. There was so much hype about this building for the last 5 years, and now that it is finally finished, no one is buying?

Let’s compare Festival Tower with other buildings downtown. I took a random sample of various buildings, all completed in the last 12 months. I tried to pick a few buildings to somewhat represent the whole spectrum of the downtown market from the lowest end to the highest end. Take a look at what I found:

Only 3 units have sold in the last 60 days at Festival Tower, and there are currently 42 units available for sale. At this rate, it would take 28 months to sell all available units! Similar story at The Ritz Carlton, where only 2 units have sold in the last 60 days and there are 30 units on the market (actually more since the developer has a few unsold that are not on MLS).

Compare this to a building like Parade in Cityplace, a known area for heavily investor-owned buildings. While there are a lot of units on the market in the building (36 currently), they are moving fast (18 sold in last 60 days)!

Obviously price point has a lot to do with this. There are far more buyers looking for condos in the $300K range than the $800K range. However, I am really starting to rethink the high-end of the market and wondering if there really is a market in this town for condos in the $800 per square foot and above price point.

You could possibly point to a building like Crystal Blu where the absorption rate is quite good and say there is a market but only in one area: Yorkville. One theory I have is people with money to burn on a condo will live in Yorkville, but anywhere else it’s not worth the premium to get a high-end unit.

The point of this blog post is really not to say I have an answer to this question about where are all the high-end buyers, but rather I would like to start a conversation with my readers and clients on the matter. So let me know your thoughts. Contact me or leave a comment.

Readers of this blog will know that the resale market peaked back in late March/early April. And they will also know that I’ve been preaching that the new development market would do the same, but it would just take a few more months to do so. So things are playing out in a predictable fashion so far this year but we need to know how to understand this changing market and where it is going next.

There are basically two ways of interpreting this data. One is that sales were so incredibly (and unusually) high in the first quarter of this year that we had no where to go but down. The other is that this has never happened once in the last 15 years in our market – 15 years of a nearly continuous bull market – and so this must represent a fundamental change in our market. The truth is probably somewhere in between these two extremes.

I don’t see any cause for concern that the pre-build market is about to ‘crash’ or face any significant price reductions, however, I do see and hear more caution and less optimism in developer’s voices when I speak to them and they are no longer assuming anything they throw at the market will be absorbed. My personal opinion is that given the ongoing fluctuations in the global economy and the Bank of Canada’s bi-monthly statements which assure us they have no idea what is going on either, we are entering into what could be a prolonged season of uncertainty in our real estate market. Continue to invest smart and with a long-term outlook. Buying to flip is sooo 2007.

Want to discuss your investment options in this market? Contact me today.

Are we different? This recent piece from MSNBC on the differences between the U.S. and Canadian housing markets once again hits on the big question of why did we not experience the housing market crash that the rest of the world (especially the U.S.) did. Are we fundamentally different and insulated from the U.S. housing market? Even more important – moving forward is the Toronto Condo Market at risk of collapse?

Doomsayers like Garth Turner would say that we are exactly the same as the U.S. in that we have lax lending requirements and our own versions of sub prime lenders, and that we are living way beyond our means. Of course, Garth has been saying this for about 3 years now, and written two books about it, and still we are awaiting the big crash that he says is imminent.

Most bankers and economists would tell you that Canada is different because we are more conservative or something like that.

Both sides of the argument to me sound like a whole lot of cliché and not much analysis of the numbers or reasoning behind their statements. Predicting the real estate market beyond the next quarter or so is always a fools’ game. Look at every long-term prediction that has been made by bankers, Realtor associations (like TREB or CREA), economists, and pundits over the past 5 years. One thing they all have in common is that they were all wrong! The best these so called ‘experts’ can do it seems, is tell you that things will be slightly different next year than they were this year.

There is no debate now that the Toronto condo market is losing steam. Listings are up, sales are slowing, prices are weakening. The inevitable questions are now are will it crash? How long will this ‘down market’ last? Isn’t it our inalienable right as Torontonians to always have an upward moving condo market?? But the biggest question is, where do I put my money as an investor? There are good opportunities in every market, including down markets, in which to invest. I’m investing now, and you should too. Contact me if you’d like to discuss.

On the pre-construction side however, it’s a different story. Buyers and agents are still lining up for the latest and greatest pre-construction launches all over downtown (seems to be one just about every week). Demand is still far outstripping supply with projects like FIVE condos supposedly receiving several hundred worksheets in the first few hours post-launch, and other projects like The Berczy and King Edward Hotel practically selling out overnight.

This is all eerily similar to the pattern we saw the last time the market slowed down. The resale market started to show signs of cracking around June/July 2008, but the pre-construction market kept humming along until the fall of ’08 when it too was affected. But prices if you recall, did not come down in pre-construction until around the spring of ’09 when everyone was ‘relaunching’ their projects with reduced pricing and finally the momentum came back.

The resale market is much more sensitive to changes in the overall housing market than the pre-construction side. Individual sellers are much more inclined to reduce prices compared to slow moving developers who don’t do anything without talking about it for at least a month or two. The pre-construction market will slow this year, but developers will probably not notice it until the Fall.

Does this mean it is a bad time to buy pre-construction? Not necessarily. I believe there are good opportunities to buy in any market, you just have to know how to evaluate the opportunities and make smart buying decisions. One project that is a still a great buy for me remains DNA3. Questions or comments? Contact me.

When the market dipped in late 2008-early 2009, prices fell, interest rates fell, and rental rates stayed the same. It was a perfect storm whereby positive cash flow with 25% down reappeared on the Toronto scene, and a few savvy investors noticed this and began to buy once again. The market heated up in mid 2009 and has stayed hot ever since.  Prices rose, and so did interest rates. Today, it’s safe to say that buying a resale condo downtown for more than about $500 per square foot will result in a negative cash flow situation (assuming 25% down). Nobody likes negative cash flow!

The obvious question is how sustainable is a market like this where investors are buying condos by the thousands priced at $600-$800 per square foot that they know for a fact will not generate positive cash flow? So many investors are counting on their properties to appreciate so that they will make a profit. This could very well happen, but by definition this is speculation rather than investing.

I’d like to know what cash flow rates in the larger cities like New York or London are like. Any of my readers with experience in these markets, feel free to comment on how investors approach this issue in one of these cities that Toronto is being compared to more and more often these days.

Questions or comments? I always welcome my readers’ feedback!

For Buyers:

It’s already much better now than it was just 2 months ago. Inventory is up, some sellers are starting to get a grip on reality, and you actually have multiple properties to choose from. Things will continue to get better as inventory continues to rise along with interest rates which will increase supply and decrease demand at the same time. Don’t rush into anything. Now is not the time to pay higher for a property than the last guy did. Buy smart, buy for the long term.

For Sellers:

Understand that the market has changed. Price your property for what it is worth and don’t follow the “price it low for multiple offers” strategy. Remember that if you want to command top dollar in terms of selling price, your property must show better than all the other properties on the market – proper staging and marketing is vital. Better to list now than wait till Summer. There is still time to close before the HST kicks in July 1st. Want to talk about selling your condo? Contact me.

Investors:

Keep buying if the property makes sense and the neighbourhood has good long-term upside potential. Stop buying if you are hoping to flip for a quick profit or if you are over extended.

Questions or comments? Thinking about buying, selling, or investing and want the advice of a professional who understands the market? Contact me

1. ‘Fake’ developer websites for new developments are at an all-time high. These are websites set up by Realtors looking to capture buyers when a new development launches. Many of these sites are designed to mimic the developer’s official websites / registration forms. We saw this trend emerge right before the market dipped in mid 2008.
2. Developers are starting to LOWER their commission offerings to agents. Lower commissions can only mean one thing: Developers believe it’s too easy to sell condos in Toronto right now.
3. Positive cash-flow is now a complete impossibility at just about every new development or resale condo downtown. Investors with a traditional investment mindset are heading for other markets.
4. One Bloor has about 700 units to sell, and the minimum up front investment is $100K. Demanding so much cash up front from buyers means the banks are restricting the cash flow to developers.
5. Developers have been practically encouraging ‘flippers’ by offering $0 assignments during the first 90 days of buying into a new development.
6. Resale sellers are holding off on offers, not getting an offers, then raising their asking prices in response. Buyers are moving on to other properties.
7. Listings for the GTA are up 48% for the first half of April compared to this time last year.
8. Listings are at an all time high for my company – Re/Max Condos Plus – one of the biggest players in the downtown condo market.
9. Interest rates have risen almost a full 1% over the past few months and (most likely) will continue to rise.
10. Government + the banking industry appear to be consorting to stifle demand for fear of creating a housing bubble.

Questions? Comments? Got your own anecdotes or stats to add to this list? Think I’ve totally lost my mind?  Contact me.

IN REVIEW
Most Forecasters never look back – that’s because they don’t want you to look at their ‘near’ misses. Our 2009 Forecast called for more sales than in 2008 (and we told you that would happen in the second half of the year)! Everyone else predicted sales at 2001 levels (a big time recession). Who was right? We also recommend that you review our ten year forecast made in 2007 whereby we said condo prices would double and the long term trend would be upwards with some pauses but not corrections along the way!

WHAT TO LOOK FOR IN 2010
1) NO real estate ‘bubble’ this year! Some doomsayers are falling back on this tact after the failed sales crash of 2009 forecast. For anyone who has studied real estate trends, it usually takes three years of double digit price increases to produce the effect. And in the condo market we have had about 8 months so far!

2) NO interest rate spikes this year. The Bank of Canada and Finance Minister are left with nothing but ‘moral suasion’ in an attempt to slow down this market. Our bank rates (variable) are not going higher until the U.S. raises theirs, and that wont’ be in 2010. Fixed rates could move slightly higher if Governments start heavy borrowing in Canadian markets to cover their deficits.

3) DON’T get sidetracked by Canadian real estate markets. Focus on the condo market – particularly downtown. The bad news about the U.S. market is really centered on 4 states and 21 counties. I was recently in South Florida. Miami condos are a disaster (as everyone knows) but 5 miles across the causeway in South Beach, the market is still going strong – no foreclosures and rising prices! Why? There was no SPEC construction and there is a limited supply of product. So what happens in Vegas stays in Vegas! And that too is real estate.

4) HST (JULY 1ST) will impact the real estate market. First it will bring sales forward from the second half of the year and secondly, a new tax always causes consumers to stop spending on everything for a period of time. Remember the City Land Transfer tax and the introduction of the GST? After several months of complaining, Canadians will just get on with life, accept more taxes, and resume their spending habits.

5) Watch the average price per sq.ft. differential between the resale market and the new condo market. That will tell you where the investors are going. Seven years ago the differential was only $25 and investors poured into new projects. Over time the gap rose to about $150 per sq.ft. and investors moved back to the resale market. Investors returned to the new project market in the fall of 2009, when the differential had dropped to under $75. Today the average price for resale condos is about $500 and for new projects it is $600 per sq.ft.

WHAT TO DO IN 2010
1) What are driving prices in this market are NOT cheap mortgage rates but rather a lack of listings and a race by buyers to purchase before the HST! Again this year will be made up of two markets. The first half of the year will be a sellers’ market. SELLERS should list NOW or be prepared to wait until 2011.

2) In the condo market over the past five years there have been very few buying opportunities. One presented itself in the first half of 2009. (We reported in our April Report of ’09 that the market had bottomed in the first week of February).The second opportunity for BUYERS will be this fall. Don’t expect prices to drop but do expect prices to stabilize and ‘multiple offer’ scenarios to drop significantly. Besides the HST, a significant number of new condo projects will be registering in the second half of the year and we expect an additional 2,000 units will come on the market from investors (that is about a 3-4 months’ supply) which will significantly reduce the listing shortage in the back end of the year.

3) BE A PLAYER IN THE ASSIGNMENT MARKET (buying and selling properties before they are registered) an often overlooked area by buyers and sellers. Sellers can bring their property to market earlier (and beat the slowdown in the latter half of the year) and buyers can escape from the ‘multiple offer’ frenzy and move in earlier. To be a PLAYER you need a knowledgeable realtor who knows how to structure the deal and you need a skilled lawyer who knows how to close the deal!