High expectation for condo craze

Toronto’s ultra rich are not like the rest of us – plush condos built for them are still cheap, in global sense

Toronto Condos cheap in global sense

Tony Wong, Business Reporter Toronto Star dated Aug 23, 08

In Toronto, $25 million will get you the priciest condominium in the city. In New York, that’s a down payment. In London, forget about it.

If there’s a global financial crisis happening, someone forgot to tell the crazy rich people. While there is a grinding slowdown in real estate in many markets, at the top end, records are still being broken. At least for now.

In India, they’re building a condo worth more than $1 billion. Last week, a house was reportedly sold in France for 500 million euros, or about $775 million.

The most expensive condo in Canada is the $25 million penthouse at the still-to-be-built One Bloor in Toronto, sold to a Hong Kong buyer. In second place is Toronto billionaire Alex Shnaider’s future $20 million penthouse at the top of the Trump Tower.

While local real estate is slowing in many areas, the good news for Toronto is that prices did not get as carried away as in many other big cities during the boom. That’s likely to cushion the blow as the economy continues to sag.

In Toronto there are also far more luxury projects than ever before, including a Ritz Carlton, a Four Seasons, a Trump and Shangri-La – these brands are all competing for the same well-heeled buyers globally who might look at Toronto as a second or third home.

“Toronto’s luxury condominium market is a bargain compared to other international cities, even though the quality of the product is comparable,” says Jeanhy Shim, president of ThinkBUILD Consulting Inc., a real estate consulting firm.

“Toronto is more affordable to more people than any other international city, which is what makes it so unique. Look at any other city on the (world) list and there is no way young professionals who have bought condos in downtown Toronto could afford to own something comparable in any other city.”

At One Bloor East, your $25 million buys 7,500 square feet on the 80th floor. The buyer was sold on the five outdoor terraces and the 12-by-20-foot indoor infinity pool that seems to vanish into the skyline as it runs up to a floor-to-ceiling glass plated wall.

Shnaider’s pad at the Trump building in the city’s financial district, meanwhile, could be as large as 14,000 square feet with soaring, nine metre ceilings in some parts, tall enough that he might “put an observatory up there,” he has joked.

Toronto is considered the most active condominium market in North America, with 290 projects tracked in the second quarter of 2008, according to research firm Urbanation. That compares with 247 projects last year, which was a record year for sales.

But as real estate activity slows in many places globally, “it seems unlikely that Canada will come out of it totally unscathed,” says Adam Challis, associate director of residential research for CB Richard Ellis in London.

The sheer number of units on the market has more than one analyst concerned about overbuilding.

“The new-build market typically takes a hit first in a bad economy,” says Challis. “One reason is because they’re built in blocks, with developers going to market with hundreds of units. When you have this large a volume, basic economics says prices must come down, so whether you’re super rich or not, it’s a riskier proposition.”

To be sure, past predictions of condo-market saturation and weakening prices have proved off base as buyers continue to flock to central locations near workplaces and amenities. Surging gas prices provide another reason to live in high-density city settings rather than in the suburbs.

Average prices for new condos in the Toronto area in the second quarter of the year were $396 per square foot. That’s about half the price of what is considered a “prime” luxury condo by CB Richard Ellis.

Only a very few buildings break the $1,000 barrier – and that has just happened in recent years. But step on a plane and the price perspective changes quickly.

“Toronto doesn’t really have a super high end when you compare us to other countries – we don’t cut it,” argues Israel Schwartz, a wealthy investor with homes in Toronto and Miami Beach’s posh Bal Harbor neighbourhood. “What we consider the top end is the starting point for other countries.”

He may have a point. In Toronto, prime buildings start at $800 per square foot (meaning 1,000 square foot premises will cost you $800,000) and run to $1,400 per square foot and up for the best buildings – which may include projects such as the Four Seasons residences in Yorkville, according to research by CB Richard Ellis for the Star.

Compare that to London, where prime buildings start at $6,200 per square foot (or $6.2 million for a 1,000 square foot apartment) and climb the ladder to an astounding $11,800 per square foot for the best buildings – what Challis calls “super prime” properties.

Challis, a Canadian who works right beside St. Paul’s Cathedral in what is by most measures the priciest neighbourhood in the world, says he suffered from real estate sticker shock when he first arrived in England.

“I guess it’s all relative. I grew up in London, Ontario, and then when I moved to Toronto I thought prices were high there, too. But you have this critical mass of extremely wealthy people who want to live in London because it is a financial and cultural capital.”

Toronto doesn’t meet CB Richard Ellis’ definition of a global financial centre. It is a “second tier” city more in league with a Los Angeles, Chicago or Vienna, says Challis – which is one reason why prices didn’t explode here as they did in other cities.

Toronto “is a very important second tier city, just below centres that are truly global, but it doesn’t have the size or scale of the other areas,” says Challis.

But we may be punching above our weight globally by some standards: Forbes magazine this month rated Toronto as the 10th most economically powerful city in the world, with London at the top followed by Hong Kong and New York.

Still, some of the merely rich, if not the super rich, are undoubtedly feeling the pinch. Lately, Wall Street has been laying off more than a few bankers, folks who make a comfortable living but who don’t necessarily have their own Gulfstream G550. Within this group, analysts say, sales of luxury living spaces are slowing, particularly in hard-hit areas of the United States and U.K.

As a result, this year may well go down as a watershed – the point when prices peaked before retreating to less ostentatious levels. This is particularly true of the market in luxury condos as a second or third home, say analysts.

Just five years ago, many of the buildings now catering to the super rich didn’t exist. But a need to be in the city core, close to financial districts in a secure high-rise, has turned condominiums into a lavish statement for the ultra wealthy.

The most expensive home in the world currently being built is a condo.

A 27-storey tower with parking for 168 cars and 600 full time staff, it is being built in India by Mukesh Ambani, the fifth-richest man in the world, according to Forbes, with a net worth of $43 billion (U.S.). His cost to live there is expected to exceed $1 billion.

The property explosion is thanks to the swelling ranks of billionaires from areas such as India, China and Russia.

Thus the reported sale last week of Villa Leopolda on the Cote d’Azur for $775 million (Canadian) to a Russian buyer – a record price for a house. It dwarfs the $95 million (U.S.) sale of Donald Trump’s 60,000 square foot Palm Beach property to another Russian billionaire earlier this year, a Florida real estate record.

Even so, the six-acre site with a 48-car garage sat on the market for a year before Trump dropped the price by $30 million. He had purchased it in 2004 for $41 million and spent $25 million on renovations.

With tightening credit markets globally, Challis says recent sellers like Trump may have caught the top of the cycle. He expects prices to soften at the top end by this time next year.

Already prices on the average U.K. home have declined by 8.1 per cent – the biggest drop there since the 1991 recession. The Canadian market has weathered the storm better, but is showing cracks. The new home price index increased by 3.5 per cent in June compared to a year earlier, the slowest rate of growth since 2002.

A Merrill Lynch report says existing house prices should be flat nationally in the medium term, with price deceleration occurring in western Canada and significantly in the “multiples (condo) market nationally.”

CB Richard Ellis also figures that while top-end condo pricing should decline globally, geography will dictate who is hit hardest.

Some markets, especially in Britain and the U.S., should see further declines, but other global centres such as Moscow should see further appreciation in top-end pricing, says CB Richard Ellis.

In New York, the 16-room penthouse atop the Pierre Hotel is still for sale, at $70 million, after three years, indicating that even the rich have a price.

The record sale price for a condo last year was $52 million for the penthouse at the Plaza Hotel, which makes New York seem like another planet at times.

More resources:
Toronto Condos for Sale
Global Condo Prices
Global Property Guide