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:
- 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.
- 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).
- 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.
- If you bought a condo at $1000+ per square foot and it is not located in Yorkville, you should be worried.Ãƒâ€šÃ‚Â If you bought a condo at $1500+ per square foot I honestly think you are in serious trouble.
- It’s still better to buy 3 condos at $300K each forÃƒâ€šÃ‚Â investmentÃƒâ€šÃ‚Â than it is to buy 1 at $1M.
- 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.
- 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 inÃƒâ€šÃ‚Â TorontoÃƒâ€šÃ‚Â 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.