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.

[Renters are lining up to pay $2700/month for a view like this.]

Landlords and would-be landlords take note: the sky is not falling and it is not a bad time to be a landlord in this city. I’ve been watching the rental market more closely than ever these past few months and I’ve noticed some very surprising trends. Rents are going up, and going up much faster than anyone in the mainstream media (those who are trumpeting an impending market crash) would like to admit.

Here are two recent case studies that illustrate the current rental market environment:

1. Some clients of mine who are currently living and working in the U.K. but want to move back to Toronto in a year bought a 2 bedroom semi in Cabbagetown for around $600K. Their plan is to keep their foot in the Toronto real estate market and when they move back, renovate and move into the property. When they took possession of the property, they inherited the tenants who were paying $1900/month. The tenants are set to move out next month. They advertised the property for rent and after the first two showings they had two offers to rent from highly qualified and professional tenants. They ended up taking slightly less than they could have in order to get the tenants they wanted. The property will be rented at $2450/month with the tenant paying the gas and hydro bills. That’s an increase of 28% in rent from the previous tenant! The owners are enjoying break even cash flow with just 20% down.
2. New condo buildings are especially interesting. They are commanding rents never imagined just a year ago. For example, at M5V (375 King), you can get a great example of how rents have been creeping up significantly over just the last few months! If you take the example of a 852 sq ft 2 bedroom unit with parking, they were renting out for $2500 in October, $2600 in November, and $2700 in December! An astonishing increase of 8% in less than 3 months. $2700/month works out to $3.16 per square foot. The $3PSF barrier was until recently usually reserved for Yorkville properties and a few other select buildings downtown only. A studio just rented out at M5V for $1500/month and it was only on the market for 2 days! Prime downtown studios were fetching a max of about $1300/month just a year ago.

The point of this post is to illustrate anecdotally that rents are going up and going up fast for downtown properties, especially condos in brand new buildings on high floors. This is food for thought to the crowd that says the prices like $650-$700 per square foot for pre-construction condos are completely unsustainable because they will never carry themselves with 20-25% down. Three or four years from now do you think rents will be higher or lower than they are today?

If you are ready to take the plunge and become a landlord, or if you are a landlord but would like to learn about how you can maximize your returns in the current market, please contact me.

I would like to specifically break down this quote from Benjamin Tal, Deputy Chief Economist for CIBC and resident MSM go-to guy for quotes on the real estate market in Canada. Tal is quoted as saying, “Prices are already softening, housing starts aren’t in the sky, MLS [multiple listing service] activity is starting to soften, so it suggests the market is already starting to level off”.

1. Prices are already softening. Really? Where exactly is this occurring? All I see are prices going up in the resale and pre-construction segments. There are far more buyers than sellers and average DOM (days on market) is still less than 30. Definite sellers market territory.
2. Housing starts aren’t in the sky. I’ve never understood why anyone bothers to look at housing starts as an indicator, other than on a year over year macro level. Housing starts go up and down with great volatility every month. Two new condo developments start selling today, one might break ground in 9 months, another in 19 months. One might take 18 months to build, another might be 26 months. Starting and selling and completing are three very different things. If someone can enlighten me on this metric I’d be much obliged.
3. MLS activity is starting to soften. I’m looking for a resale buyer who thinks this is true. Please contact me immediately if you feel that you have more than enough choices of quality, well priced listings fitting your search criteria! All I see when I’m on the ground every day with buyers is a shortage of listings and anything that hits the market with any sort of quality will sell over asking in multiple offers.

I would love to take Tal along with me as I search for properties (both condos and freeholds, pre-construction and resale, investors and end-users) for my buyer clients. I’m quite sure that after a day or two his opinion on the Toronto real estate market would change dramatically.

Please don’t get me wrong though-a slow down in our market would probably be a good thing after the run we’ve been on since March 2008. It would breathe some much needed life into the entire industry, however, I just don’t see it happening any time soon unless there is some dramatic shift in the market. I still stand by my comments I made in July 2011 on the market. Unless there is a rapid change in interest rates and/or a major economic catastrophe, the Toronto real estate market and the condo market in particular will continue on its current path which is presently appreciating at about 8% per year.

Those are my thoughts. What about you? Contact me or leave a comment.

June’s sales figures were just released and wow, what a difference from the last two months! When comparing June 2011 with June 2010, sales are up BIG downtown and prices are up too. Remember that June 2010 was the last month before the HST kicked in, and many buyers and sellers were still scrambling to get in under the wire of July 1, 2010.

My commentary:

• The market is still a seller’s market. There are those who want to tell you that the market has been softening of late, but anyone who is ‘on the ground’ working the market will tell you it is not. 60% sale: list ratio on the east side (C08) is discouraging if you are a buyer.
• Inventory is still a problem. Downtown east had a big drop from last year in terms of units available for sale, just like the month of May showed. Why is no one selling in this town?
• Interesting the the median and average prices in downtown east (C08) and west (C01) are very similar. Is the gap between the east and west narrowing?

With no end in sight to the cheap money (i.e. low interest rates) in this country due to the still anemic U.S. economy and our strong Canadian dollar, I see little chance of a slow down in the market over the next 6 months. Agree? Disagree? I’d love to hear your thoughts. Please contact me or leave a comment.

The sales statistics for the month of May are in from the Toronto Real Estate Board for the resale market. As usual, I am only concerned with looking at the downtown condo sales as the stats for a metro area of 5 million people tells us nothing really about the downtown condo market.

My observations for this month’s stats:

• Most interesting to me as always is the inventory level. There were 183 fewer condos available for sale downtown in May versus last year, or about 11% less inventory. Low levels of inventory is a constant problem in this city. Those who keep harping on about ‘they are building too many condos!’…obviously don’t read my blog.
• Prices are up marginally versus last year (both average and median prices)
• Sales:Active ratio is about 38% for downtown total, which statistically indicates a ‘balanced’ market (as usually defined by about 25-40% Sales:Active ratio). This may explain partially why some listings sell with multiple offers while others sit for 3 weeks or more without an offer.

Takeaways:

Buyers - You still need to act quickly and be ready to engage in a bidding war for the best listings. I don’t see this changing much over the next 3 months.

Sellers - If you price your property right and prepare your property for sale correctly, you can still acheive great results, but it’s no longer a market where you can just throw anything out there and expect it to sell for top dollar in a week or less.

Investors - Watch for those properties that have ‘slipped through the cracks’ with DOM (days on market) over 20. These sellers may start to believe their Realtors who tell them ‘the market must be changing!’ and you may be able to get some leeway with sellers.

Questions or comments? Contact me.

This is the second installment in this new series whereby I am attempting to give my readers a street-level, in the trenches sort of perspective of what the condo market is actually like. “Temperature Check” will help show what it’s like to be a seller in the current market and what you can expect if you sell your property now. I’m sharing with my readers some stats that no one else in the market is sharing.

Last week I listed a unit at one of the well-known buildings located at Bathurst and Lake Shore. It was a 1+den with parking and locker on a medium-height floor facing north/north-west. Here is the activity the listing received:

• On the market for 2 days
• Approximately 20 Realtor showings booked
• 2 email inquiries from buyers who saw the listing on the internet
• 1 bully offer received, which started a bidding war with 4 offers total
• End result: Sold for 5% above the asking price

Interpretation:

The results of this were better than I was expecting, buildings in this area typically are not known for their ability to attract bidding wars, and the sheer volume of activity on the listing in just 48 hours was indicative of a very hot market. We were planning on holding off on offers until about a week after the property was on the market, but we received a bully offer after just 2 days on the market so I had to jump into action, calling and emailing every agent who had booked a showing on the property to let them know the situation. 3 other agents responded and also brought offers to the table, which was surprising to some degree but great news for my seller. It needs to be noted that we did not price the property low to attract a bidding war.

My key takeaway from this is that finding a 1 bedroom and den with parking and locker for around $300K downtown these days is very rare, and buyers that have been priced out of ‘downtown proper’ are now looking to areas like Bathurst and Lakeshore, Liberty Village etc. as the next best thing. Of course it goes without saying that a prerequisite for success like this is understanding how to prepare your condo for sale, and to position it properly in all your marketing efforts to generate maximum activity and results.

If you are thinking about selling in 2011, I don’t see things getting any better for sellers than they are right now. Questions or comments? Please contact me.

Listings are a great way to check the temperature of the market. In a perpetual seller’s market like we have in Toronto, tracking the amount of ‘activity’ on a listing can be a powerful tool to get an overall ‘temperature’ of the market. In a red hot market you will get a lot of activity on a listing in the first 2 weeks. In a cold market, the amount of activity can drop of substantially.

“Temperature Check” is a new feature on the blog where I will share with my readers (most of whom are buyers and investors) what it’s like on the other side of the fence. That is, what it’s like to be a seller in the current market and what you can expect if you sell your property now.

I recently listed and sold a 2 bedroom condo townhouse at a popular complex located near Yonge and Eglinton. Here’s what activity the listing received:

• On the market for 7 days
• Approximately 22 Realtor showings booked
• Approximately 24 visitors to the one-day only open house
• Approximately 8 email inquiries from buyers who saw the listing on the Internet
• 2 offers
• End Result: property sold for 1.4% over the asking price

Interpretation:

I would say that the numbers were in line with what I was expecting for a listing like this in the current market. The property was priced for a quick sale, but not necessarily for a bidding war, therefore I was not surprised that it sold within 1% of asking price. I would say that based on this listing there is still a lot of heat in the market, with very low inventory for buyers to choose from (especially quality inventory). However, I would not say that things are at a boiling point.

Another interesting comment I received from more than one Realtor who had showed the property was that their clients were interested in the property but they were not interested in getting into a bidding war. Buyer fatigue is high this time of year as those who have been shopping since February or March have likely been in multiple bidding wars and are highly reluctant to enter into more.

I hope you enjoy this new blog feature. I plan on including more of these in the future. Questions or comments? Contact me.

The above chart shows the latest data on downtown Toronto condo sales from the Toronto Real Estate board for March 2011 as it compares to March 2010. C01 is considered ‘downtown west’ and C08 is considered downtown east.

A few observations:

• Downtown west is always the most relevant data to look at when gauging the downtown condo market. The vast majority of sales downtown are in downtown west (C01). Downtown East (C08) is not great to look at on a month-to-month basis as sample sizes are quite small. It is quite common to see very different trends in downtown east versus downtown west (as is the case this month)
• Active listings are up, but so are sales and prices in Downtown west
• On average, prices have gone up about 6.6% since last year at this time in Downtown west
• The downtown west market once again outperforms the overall Toronto Real Estate market (where are you planning on investing this year?). Sales for GTA are DOWN 11%, and prices up 5%
• It’s still basically a seller’s market in both downtown east and west with the sales: listings ratio still hovering around 50%. Anecdotally, the number of ‘quality listings’ remains incredibly thin, while “investor” buildings have plenty of units available for sale.

I hope you find this information useful. Questions or comments on the market? Contact me or leave a comment below.

2010 IN REVIEW:

At the start of 2010, we predicted that the year would be made up of two parts: a strong first half with no real estate bubble and a drop off from July onwards. Other forecasters picked up on our theme and started to sing the same song by May and June. As the fall market continued to rack up monthly year over year decreases of 20%, we told you that the market had already bottomed in August but the experts were still predicting a serious decline. With that as a background, we are more bullish for 2011 than most of the experts who believe that Toronto sales will decline by 5% in 2011, which means back to 2004 levels! We also don’t believe that prices are overvalued by 10-25% as international experts keep claiming. Our pet peeve is that most experts keep talking about national markets, where real estate is localized, and prices can vary significantly between neighbourhoods and condo buildings.

WHAT TO LOOK FOR IN 2011:

First we believe that Toronto real estate in 2011 will be ‘steady’ and decidedly unexciting for those who want wild swings in prices and sales volumes. Mortgage rates will fluctuate in a narrow band. Governments heading into elections are unlikely to announce more taxes for consumers, and the economy will slowly gain strength in the Toronto Region which will mean both reported ( and the growing unreported) incomes will be higher. Power of Sale or Foreclosure sales will be minimal (unlike the U.S.) hence there will be no downward pressure on prices.

What makes the downtown condo market unique is that there are really two components: the resale market and the pre-construction market. The resale market is dominated by end users. The pre-construction market is almost entirely investor driven. Over the past year, the investor mix has switched to mainly ‘all cash’ buyers from Asia and the Middle East.

Downtown condo prices are still relatively cheap versus other areas of Canada and other major cities in the world. On the other hand, condo rentals rates are currently too low to attract certain investor types to the pre-construction market. This will lead to a levelling off on pre-construction prices and a spill over into the resale market which historically is $50-100 per sqft lower than pre-construction.

WHAT TO EXPECT IN 2011:

1. Toronto resale volumes will be the same as in 2010. Prices will increase by 5%. The best time for buyers will be in the first quarter of this year. Most experts will not recognize the strength of the real estate market until the third quarter.
2. The downtown condo market will see sales increasing by 10% and prices up by 3-5%. Condo rental rates will increase by $100 per month on average. The current vacancy rate for rental condos is under 1% and for apartments it is about 2%. Condos are renting in 10-15 days on average. Expect that trend to continue.
3. Bigger condo units are now selling at the same price per sqft as smaller ones. Going forward, two bedroom plus units will sell for more per sqft than one bedroom units.
4. More and more units will be sold by Assignment rather than resale as investors of pre-construction units opt to sell rather than to rent out their units.
5. Until rental rates increase, the price of pre-construction condos downtown will stall at $700 per sqft. The ceiling for resale units appears to be $600 per sqft. Both markets are very active in the $500-550 per sqft range.

In the past 3 months, I’ve personally been involved with 3 major new condo launches or relaunches: FLY, One Cole, and Liberty Market Lofts. All three saw sales in the hundreds of units in a just a matter of 2 or 3 days. This was the norm back in 2007-2008, where new condos were launching every week and if they weren’t quick to raise their prices after initial launch they would sell out faster than you can say ‘economic collapse’.

Now some developers are starting to do something I wouldn’t have predicted just 3 months ago: raise prices. Check out one of Brad Lamb’s recent ‘tweets‘. And all this is taking place concurrently with the resurgence of the resale market. It seems that the lack of inventory in the resale market and elevating prices have people once again looking at new developments as a viable alternative. More bodies in the new condo sales centres of late has developers thinking less about lowering prices and more about raising them.

The focus now for buyers is ‘where can I get the best price, the best value for my investment long term’. No longer are they swayed by frilly incentives like free maintenance fees or low interest rates. Buyers are returning to the price per square foot equation as the best predictor for long-term ROI.

Still, there are more shoes to drop. More condo projects will be axed or relaunched in the coming months. I expect an active fall for the new condo market and more opportunities for buyers and investors to come.