Urban Toronto - Powered by vBulletin
UrbanToronto News - the latest headlines
Condominium Tower Proposed at Church and Charles
ALSO
Page 1 of 3 123 LastLast
Results 1 to 15 of 34

Thread: Hey Investors, Stop Buying Pre-construction! (you're shooting yourselves in the foot)

  1. #1

    Default Pre-construction runaway train

    At some point this frenzy of buying and building will lead to market saturation, if it isn't there already. Once this happens, your investment will depreciate even before it's built, if it's built.

    Once market saturation occurs there are three scenarios:

    1/ Best - the project in which you invested is cancelled due to poor sales before construction has commenced, and your deposit is returned.
    2/ Painful - You close on an investment that is worth less than you paid, but you can afford to absorb the loss and hold.
    3/ Tragic - you lose your deposit, get sued for damages and are forced to declare bankruptcy on a negative equity investment.

    There are many projects presently under construction that still have unsold inventory. These units are priced better than those in many of the newly launched projects. If you must buy now, buy into projects already under construction, or buy resale.

    In the pre-construction condo market environment, the construction industry has little exposure. Developers are immune to all but the most severe market corrections. Your 20% deposit is the developer's insurance policy. The builder will not be on the hook when investors lose their shirts. They will keep your 20% deposits and resell at the adjusted price. And maybe sue you as well.

    Collectively buyers are fueling a runaway train.
    Last edited by neubilder; 2012-Mar-10 at 12:52.


  2. #2

    Default

    It's too late. The damage has already been done. A lot of people will lose money.

  3. #3

    Default

    Prior to 2007 was a good time to buy pre-construction, so was the end of 2008 (right after the adjustment). But after 2010? I'm not so sure. If things calm down for awhile and inflation absorbs past market increases perhaps the pre-construction market will be favourable again in a couple of years. For the time being however, I would argue that at >$650 PSF + closing costs in a market where interest rates are set to rise and there is an impending glut in the market, now is not the time to support the proliferation of newly launching projects.

  4. #4

    Default

    I agree, this is not the time to buy as an investment.

    A while ago buying preconstruction meant you were paying favorable prices, compariable to resales, simply because you are assuming the risk of buying something that hasn't been built yet and waiting a while for it to be built. Buying preconstruction has become commonplace and people are comfortable buying off of floorplans. Today preconstruction pricing are set at speculative future values, which may or may not be the true worth of the property 4 or 5 years down the road, which is why they are much more expensive than resales. With all of the recent sales frenzy and hype along with the amount of effort going into marketing pricing has gotten very ambitious.

    As the saying goes, buy low and sell high. Prices, especially in preconstruction, has gone up considerably and I think buying in a hot market is not a wise more if you are buying as an investment, or even as your primary residence if you are moving from a rental.

    There is also the issue of supply and demand, condo developments are getting larger with 50- and 60-storey towers with 500-800 units being the norm. These units are cookie-cutter in design with little or no opportunity for customization. Unless you are buying into a small boutique or unique condo development, which are a rarity these days, a similar preconstruction condo unit you have bought into has also been bought by hundreds of other investors doing the same thing which makes your investment harder to stand out. These units are treated more as a commodity.

    Five years down the road when many of these developments are built, will tenants be accepting of renting a unit that is 300-500 sq.ft., or 3 bedroom units squeezed into 800 sq.ft. which seem to be trend for developers today? Or will there be a backlash towards these units and older condos with larger, more comfortable living spaces be more desired and demand higher prices?

    From what I heard in the industry, this red hot market will cool down and many developers are concerned about this and rushing their projects to market and cutting corners to maximize their profits while they still can. With the fast pace of sales and construction these condos are not built as well as they should even with some of the more reputable developers (M5V and 650 King, to name a few).
    In the 80's boom, many of Vancouver's condo buildings were not properly constructed which resulted in major moisture and leaking problems which didn't surface 10 years later. Will Toronto be next with the amount of all-glass towers being constructed?
    Last edited by metroTO; 2012-Feb-27 at 22:14.

  5. Default

    I personally am very concerned about these smaller units especially now that they are some being offered closer to 300sf., of course it will be an unfounded concern if the GTA’s residents start treating TO as though it was the next New York. But we are not an island.

    I cannot prove this but I do believe that condos under 500sf are mostly used by first time buyers and renters with no families. They will eventually need more room and will be directly competing with the retiring baby boomers within 5-15 years. This is where I see the problem unfolding especially if it is to be believed that the Canadian birth rate is diminishing.

    I envision that either the1000sf plus condos and smaller homes will be the most demanded which means they will command the premium prices (back pocket note to purchasers). In that regard I see smaller condos being the least desirable, the most difficult to dispose of and the category most likely to deliver the lowest appreciation in value

    Quote Originally Posted by metroTO View Post
    I agree, this is not the time to buy as an investment...

    There is also the issue of supply and demand, condo developments are getting larger with 50- and 60-storey towers with 500-800 units being the norm. These units are cookie-cutter in design with little or no opportunity for customization. Unless you are buying into a small boutique or unique condo development, which are a rarity these days, a similar preconstruction condo unit you have bought into has also been bought by hundreds of other investors doing the same thing which makes your investment harder to stand out. These units are treated more as a commodity.

    Five years down the road when many of these developments are built, will tenants be accepting of renting a unit that is 300-500 sq.ft., or 3 bedroom units squeezed into 800 sq.ft. which seem to be trend for developers today? Or will there be a backlash towards these units and older condos with larger, more comfortable living spaces be more desired and demand higher prices?

  6. Default

    You people make me laugh so hard lol lol lol... There still is a great demand for condos in our city, even the recession couldnt cool down this hot market. People please dont listen to these crazy fear tactics these people are using. Buy Buy Buy... its a great time to invest.

    Im never too busy for your referals...

  7. #7
    gabe Guest

    Default

    Keep drinking the Koolaid!! The real value right now is in re-sale condos, not pre-construction.

  8. #8

    Default

    What does it matter? Just buy or don't buy as you see fit. Celebrate those who prosper from their decisions and empathize with those who do not.

  9. Default hey

    so many people talk like they have magic crystal balls in their closets....some are not even factoring demand/supply in the city, # of immigrants, population etc...people just like to speculate.
    Nobody knows the future...if we all knew apple stocks would be where they are today, we would all be rich.No?
    I believe people should buy based on careful analysis of what they intend to invest in.Everything has a risk factor...everything.
    It is inevitable for us all to win. Some will win in the real estate pre-con thing and some will loose. All depends on careful analysis, and how risk averse one is.

  10. Default

    Quote Originally Posted by cityplaceguy View Post
    You people make me laugh so hard lol lol lol... There still is a great demand for condos in our city, even the recession couldnt cool down this hot market. People please dont listen to these crazy fear tactics these people are using. Buy Buy Buy... its a great time to invest.

    Im never too busy for your referals...
    Perhaps that why... Buyers are being courted with: $3,000 discount on a one-bedroom unit; $5,000 discount on a one-bedroom-plus-den; and $10,000 off on a two-bedroom or two-bedroom plus den for the units at CARLAW in Leslieville.

    Everyday in the past, present and future is a great day to buy from a realtor perspective when he/she depends on commissions for his/her livelihood.

  11. Default

    Quote Originally Posted by neubilder View Post
    At some point this frenzy of buying and building will lead to market saturation, if it isn't there already. Once this happens, your investment will depreciate even before it's built, if it's built.

    Once market saturation occurs there are three scenarios:

    1/ Best - the project in which you invested is cancelled due to poor sales before construction has commenced, and your deposit is returned.
    2/ Painful - You close on an investment that is worth less than you paid, but you can afford to absorb the loss and hold.
    3/ Tragic - you lose your deposit, get sued for damages and are forced to declare bankruptcy on a negative equity investment.

    There are many projects presently under construction that still have unsold inventory. These units are priced better than those in many of the newly launched projects. If you must buy now, buy into projects already under construction, or buy resale.

    In the pre-construction condo market environment, the construction industry has little exposure. Developers are immune to all but the most severe market corrections. Your 20% deposit is the developer's insurance policy. The builder will not be on the hook when investors lose their shirts. They will keep your 20% deposits and resell at the adjusted price. And maybe sue you as well.

    Collectively people, smarten up! The herds are walking towards the edge of the cliff.
    Thank you for the insight. I just joined looking for reviews of some places I was interested, but I am glad to read this insightful & helpful information. As a young professional who has been educated in the last few weeks in looking for a place, I've actually become quite depressed due to the outrageous prices, and/or other concerns I have with the real estate market here in T.O.

    I thank you for relaying the dangers of potentially purchasing a not-yet-built condominium. I've decided to avoid buying one, and I will look for a resale instead, or possibly move out of Toronto. Thank you.

  12. #12

    Default

    http://www.thestar.com/business/arti...nt-in-february

    It's unclear from this article what the real decline in pre-construction sales is, but at least it's pointing in the right direction.

  13. Default

    do most pre-con investors transfer their signitures before closing or after closing? My understanding is pre-con investors don't wanna deal with mortgage issues so they should cash out before closing. However, I think if they selling before closing is not profitbale since so many people wanna get out at that time. My realtor friend told me if they can sell after closing, it would be much more profitable. also, there are lots of paper working with pre-con transfer.

    any ideas folks?

  14. Default

    Quote Originally Posted by Chris_Hull View Post
    do most pre-con investors transfer their signitures before closing or after closing? My understanding is pre-con investors don't wanna deal with mortgage issues so they should cash out before closing. However, I think if they selling before closing is not profitbale since so many people wanna get out at that time. My realtor friend told me if they can sell after closing, it would be much more profitable. also, there are lots of paper working with pre-con transfer.

    any ideas folks?
    Chris,

    I would still say most investors close their transaction. Only about 20% go the route of assignment. Yes they want to avoid taking out a mortgage, but then you have to discount the closing fees (2 land transfer taxes, development levies, lawyer fees, etc.) from the selling price. You also have to discount the unit to make it attractive for purchaser to want to go the assignment route since it usually means coming up with a bigger deposit.

    I think one of the main disadvantages of selling before closing (assigning), is that most builders even though they will allow you to assign, will put a restriction on you advertising the unit for sale on MLS or other public domain. Without this exposure, ur pool of potential buyer is greatly reduced and thus lower profit for seller.

  15. Default

    Quote Originally Posted by Ric View Post
    Chris,

    I would still say most investors close their transaction. Only about 20% go the route of assignment. Yes they want to avoid taking out a mortgage, but then you have to discount the closing fees (2 land transfer taxes, development levies, lawyer fees, etc.) from the selling price. You also have to discount the unit to make it attractive for purchaser to want to go the assignment route since it usually means coming up with a bigger deposit.

    I think one of the main disadvantages of selling before closing (assigning), is that most builders even though they will allow you to assign, will put a restriction on you advertising the unit for sale on MLS or other public domain. Without this exposure, ur pool of potential buyer is greatly reduced and thus lower profit for seller.
    Hi Ric, thank you very much for your info : )

Page 1 of 3 123 LastLast

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •