3 Shocking Facts About the $1M+ Condo Market

Recently, I had a client ask me if it’s better to buy 3 or 4 smaller units for investment or 1 larger high-end type of unit. I started crunching some numbers for this client and the results were quite shocking. The $1M+ segment of the condo market is facing some serious challenges right now. Take a look at what I’ve found based on the sales figures for the first 6 months of 2013.

Fact #1: There is currently a 20-month supply of $1M+ condos downtown

At the end of June, there were about 145 condos available on MLS for $1M or more. For the first 6 months of 2013, only 42 of these such condos actually sold. That is an average of 7 per month. Therefore it would take 20 months for all the $1M+ condos currently on the market downtown (C01 and C08) to sell. Compare this to the overall condo market downtown which for the first 6 months of 2013 has ranged from 3-5 months worth of supply (a relatively flat market).

Fact #2: There is currently a 25-month supply of $1M+ condos in Yorkville

I decided to extend the analysis to the undisputed king of Toronto’s poshest neighbourhoods: Yorkville (as defined by C02-Annex only). Here I found that the situation was actually a little worse. Only 27 sales so far this year for an average of 4.5/month and around 112 units available on the MLS which translates into a 25-month supply of $1M+ condos.

Fact #3: In reality the months of supply for both downtown and Yorkville are much higher.

The scariest part of the high-end condo market to me is all the inventory of $1M+ units that are NOT on the MLS but are still available for sale. All of the recently completed 5-star condo hotel buildings as well as many other ‘ordinary’ buildings with penthouse suites have unsold inventory of larger units that are not advertised on the MLS. It’s common practice that if a builder has say 20 units left to sell when a building finishes, they only put about 4 or 5 on the MLS. They put the most attractive or easiest to sell suites on MLS then use that as a way to draw in buyers and introduce them to their other units in inventory. No one knows for sure how many units are in the ‘shadow inventory’ of builders projects.

How do I interpret this data for my clients? I tell my investors that unless you are getting a $1M+ unit at a screaming good price, you are much better off buying 3 or 4 smaller units for investment than buying 1 larger high-end luxury unit.

I tell my end-user buyers that if you are looking for something in the $1M+ range, be aware of the current reality of the marketplace. It’s very crowded, I don’t see much upward pressure on pricing in the next 2 years, therefore negotiating hard is the only possible response. Make sure you get a very good price on whatever you buy. This is definitely not the time to overpay for a high-end condo in Toronto.