Enthusiasm for condominiums created a bright spot in Toronto's real estate market last month, and this pattern may persist for a while."With an astonishing seven out of every ten new homes sold in October being a high-rise condominium suite, high-rise condo sales were up 27 per cent over October 2009, and are running 52.6 per cent ahead of the January-October 2009 period," reported Ontario's Building Industry & Land Development Association (BILD). "On a year-to-date basis, more than half (56 per cent) of the 30,914 housing units sold have been high-rise condos."
According to RealNet Canada Inc., BILD's official source of new home market data, the total of 4,535 new homes and condos sold in October-almost 70 per cent of the sales were condominiums-represented the best October result since 2000 and the second best month for high-rise sales since June 2007.
"Although the City of Toronto continues to account for the bulk of all condo sales (76 per cent in October), the biggest spikes in activity were in the Regions of Peel (particularly Mississauga) and York (particularly Markham and Vaughan), which were up 164 and 138 per cent respectively," said BILD President and CEO Stephen Dupuis. "The high-rise housing craze has started to spread to the suburbs and it's a trend which will continue to grow."
While the high-rise housing market surged in October, sales of new low-rise (single-detached, semi-detached and townhomes) product declined by 32 per cent compared with October 2009. Dupuis attributed the strength of the high-rise condominium market to the C$75,000 differential between the RealNet high-rise price index, which sits at C$424,327, and the low-rise price index which rose through the half million dollar price threshold for the first time ever, hitting C$500,532 in October.
"The high-cost of low-rise living is a reflection of the low levels of inventory available," said Dupuis.
- The top two reasons for condominium purchases remain the maintenance-free appeal and lower price tags.
If you don't want to spend time, thought and energy maintaining your own house and land, condominiums are a dream come true. Located in the best areas, they offer amenities galore, but no hands-on work.
- Where real estate values are highest and, therefore, single family homes most expensive, condominiums have great appeal. Buying a "piece of the pie" is an affordable alternative when you can't afford, or don't want to buy, the whole pie-a single-family home.
Condominium units, whether high rise or townhouse style, attract the interest of first-time buyers for the two reasons above. Shared responsibility for the real estate can also make condominiums less intimidating to first-time buyers. The number of women buying solo as first-time and first-time-alone purchasers has increased. Their preferred real estate has become the condominium for similar reasons.
Many condominium buyers spend more time thinking about decor than their rights and responsibilities as unit owners. Common condo misconceptions include the following:
- Maintenance replaced by governance. You may move to a condominium to escape lawn mowing and snow shovelling, but maintaining property value is still the work that must be done. Instead of hands-on sweating, you should take an active interest in the Condominium Board since this is the group mandated to maintain real estate value of the facility and its units. Its decisions determine what happens to the monthly fees you pay to preserve and increase the value of your investment.
- Purchase price is the beginning, not the whole bill. Misjudgements by the Condo Board and/or poor construction may show up as special assessments for repairs totalling thousands that you have to pay. The condominium must be managed astutely to preserve value and keep costs in check. If that's not your strength and you're not interested in learning, whose going to take on this job?
- Living by committee. Want to hang wild drapes, renovate your kitchen or enclose your balcony? You may own your space, but you must live within the bylaws. Check to see what you can and cannot do before you sign on the dotted.
Investment option. If you want to live in a building inhabited by owners of their units, you may not be able to rent your unit out in the future if you want or need to. If renting is allowed, you may be living with tenants who can have different standards than property owners. Again, find out about renting policies before you buy.
When condominium owners discover that their reasons for buying were not entirely justified, some adapt and remain committed to this style of ownership. Others move on to buy single family homes, detached or otherwise.
Emerging Trends in 2011
According to the Emerging Trends in Real Estate® 2011 report, released recently by PwC (PricewaterhouseCoopers LLP) and the Urban Land Institute (ULI): "2011 promises slowing, steady growth and decent prospects for Canadian real estate investors as long as the U.S. economy does not drag them down."
The report reflects interviews with and surveys of more than 875 of the industry's leading real estate experts, including investors, developers, lenders, brokers and consultants in both Canada and the U.S.
The following summaries from the report present an overview of 2011 projections, described generally as "major Canadian real estate markets settle in a fair to good investment range, with only modest investment prospects and constrained development potential." Condominium sales are expected to maintain momentum in Toronto and Vancouver:
- Toronto bumps Vancouver from the top ranking city to invest and develop [in] in the Emerging Trends survey, while Calgary must hope to recuperate from cooled demand and a touch of development binging. Population continues to concentrate in and around a handful of major 24-hour cores scattered from coast to coast, leaving extremely limited investment opportunities in small cities and rural areas in between. Shut out of primary cores, some investors scrounge for product in select secondary and suburban markets.
- Some softness creeps into the [Toronto] office market as major tenants "play musical chairs" and move into new Class AAA development projects. Market vacancy will not increase materially above the current mid-single digits, and any near-term additional office development will be small and niche. New condo projects pop up in all directions. Some respondents worry about flattening apartment rents as condo investor's lease out units. High housing prices and immigration flows help make apartments a good bet. Investors retain interest in buying and holding industrial properties, which should recover from higher-than-average vacancies and rent declines once the U.S. gets untracked.
- Vancouver office and condo markets almost defy logic and stay "red hot." Many wealthy Asian investors park money with plans for eventual citizenship. Institutional investors control the relatively small office market, which enjoys minuscule vacancies. Vancouver's natural barriers control development and attract investors-a powerful combination. But some respondents are uneasy: "The market is artificially inflated; it's been too hot for too long." The HST raises costs and temporarily cools demand for mid-tier housing in some areas outside the core.
- Ottawa — Nothing much will change.
- Edmonton avoids the level of oversupply that deflates Calgary. The oil services business thrives and locals expect positive impacts to filter through the economy, including employment growth. Sprawl and overbuilding "temporarily" subdue Calgary outlooks, but "absorption will come." Developers retreat in the face of high vacancies and show no appetite for new office projects. Locals put faith in robust commodities markets and U.S. consumption of oil from tar sands. Expect spreading hot growth to resume in coming years.
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