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Warning Signs in the Ultra-Luxury Market

There are some signs of cracks forming in the foundation of the ultra-luxury condo market in Toronto.

Two months ago I wrote a blog post about the Absorption Rates at some downtown condos, and how units at brand new, high-end buildings are not selling. At that time, there was a 30 month supply of inventory on the MLS for the Ritz Carlton. Today, the situation at the Ritz is actually slightly worse. There have been 2 sales in the last 60 days and there are 33 units available for sale meaning there is 33-months’ worth of inventory.

This statistic alone would not be comforting for anyone watching the luxury condo market closely, however, it gets worse. There have been 5 sales at the Ritz Carlton registered on the MLS since the building registered in the summer. The first 3 sales were in the summer and they averaged around $914 per square foot. Then a unit sold in September for $865PSF. Now just last week a unit sold for…wait for it…$728PSF! An incredible number when you consider the developer was marketing units there at $1200+PSF just 1 year ago. Also incredible when you consider ordinary buildings that do not have a 5-star International Hotel chain in them are selling for close to the same price per square foot.

Why is this happening? A few theories I have heard:

  1. Toronto is fundamentally not a high-rise city, at least not yet. Those with $5M+ in assets still prefer good old Rosedale or Forest Hill over downtown. Eventually this may change, but right now it looks like it has not.
  2. There is just not enough money in Toronto. All these suites at the Big-4 (Ritz, Trump, Shangri-La, Four Seasons) were sold to speculators thinking they could flip them to local buyers after completion, but there just aren’t enough buyers to go around for all 4 of these projects finishing around the same time (2o11-2012).
  3. Toronto is not New York or Hong Kong. Brands like Ritz, Trump, Shangri-La have no cachet here (what about the made-in-Canada Four Seasons brand?). Hat tip to @BrianPersaud for this point.

Implications:

  1. If you bought a condo at $1000+ per square foot and it is not located in Yorkville, you should be worried. If you bought a condo at $1500+ per square foot I honestly think you are in serious trouble.
  2. It’s still better to buy 3 condos at $300K each for investment than it is to buy 1 at $1M.
  3. If you are trying to sell a unit in one of the Big-4 this year or next year, be patient! You may be better off renting out your property for a few years until the dust settles and all 4 of the Big-4 are completed and registered. This will also allow time for the buildings to distinguish themselves from the average Toronto condo in the minds of condo buyers.
  4. If you are a buyer looking in the luxury market, especially an international buyer, you this is a great time. You can pick up one of the nicest properties in Toronto for only slightly more per square foot than the average middle of the road stuff! Time to go shopping! (contact me :)

Questions or comments? What do you think is going on in the luxury market in Toronto? Please contact me or leave your thoughts in the comments section below.



3 Responses to “Warning Signs in the Ultra-Luxury Market”


  1. Reason #1 above.

    There are people who love condo living in the luxury market, and for them purchasing a luxury condo is everything they wished for.

    But, downtown Toronto still has many vibrant single family neighbourhoods, such as upper Annex, Forest Hill, and Rosedale. As such, there are options in Toronto for luxury, opposed to cities like New York or London where you must live in a multiple-family complex if you want the luxury lifestyle.

    Over and out with our 2-cents!

  2. Alan

    Condos at the big four hotel-residences are definitely geared towards international buyers due to their brand reputation, unfortunately the world economy is still on shakey ground — the U.S. market has a long road to recovery, the European market is on edge, and the hot Chinese economy is showing signs of slowing down. Eventhough price per square foot these ultra luxury condos are a relative bargain compared to other international big cities, they are far more expensive than other luxury condos in the city and out of reach to most people who live here, and don’t even talk about the sky-high maintenance fees.
    Those who are downsizing from thier homes in Forest Hill or Rosedale would rather stay in their own neighborhood (or one that is similar) than to move downtown where it is a definite change of lifestyle.

    The units at the Ritz lack balconies which at this price point outdoor space should be expected. Also the location lacks the prestige and activity of Yorkville, though the Shangri-La and Trump will be opening nearby so it will be interesting to see if/how this area changes with the introduction of these hotel/condos.

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