Baby, we got a bubble!?

[cdr108]

Absent some major change in legislation, a lower vacancy rate for purpose-built apartment buildings means a couple things:

1. There is additional demand for purpose-built rental housing
2. There is a reduction in supply for purpose-built rental housing

i would say #2 is also a factor as purpose-built rentals haven't been constructed for over a decade since rent controls were enacted, hence a contributing boom to condo sales/rentals.

also, some but not alot of rental stock have been demolished for the purpose of building condos.
a few examples i can think of are Don Mills/Sheppard, High Park, Beaches.

i would also add that the stock of purpose-built rentals d/t will be increasing in the near future with a few along Bay Street at Dundas (Concert and Teacher's Pension Plan) and Wellesley (Morguard), and a few more that i can't think of exactly right now.

 

[interested]

I can chime in a bit about the comment on rental units (as opposed to condos being rented).

Would it not make sense perhaps that since rental unit construction (apart from a few projects in the past few years and mostly higher end) has been largely absent due to the fact that developers can guarantee revenue from condos and with rent controls have not been building and adding to the rental stock. As the population increases (there is some increase yearly in Toronto) people will have to live somewhere. That means they either buy or rent. If the rental unit supply has not materially increased, unless people are doing well enough that they are prepared to pay the premium to a condo over the older rental units, I would expect the rental unit supply to stay constant or decrease. I think that rental rates increased a few years ago because the economy was doing well, people felt good, and spent more to live. I would think in the past couple of years, with all the uncertainty, people are perhaps trying to hold on to more of their money in areas that they can control; meaning they would rent a cheaper apartment rather than a more expensive condo.

Other than that, I tend to agree with CN Tower's conclusions. None the less, his conclusions are negative for the market, just not as negative as "bubble bust".

Anectdotally, I was able to increase the rent on a 600 sq.ft. condo with a lease just starting by 3% over previous rent of a year ago and it rented within 2 weeks of minimal advertising.

 

[KA1]

Other than that, I tend to agree with CN Tower's conclusions. None the less, his conclusions are negative for the market, just not as negative as "bubble bust".

That's exactly I have been saying all along.

 

[ILuvTO]

Interest rate commentary from a local real estate agent.

What's next? Predictions on the price of oil from the CTV weatherman?

Btw, in case anyone is interested, the Chinese real estate bubble is about to pop:

The Great Property Bubble of China May Be Popping

http://online.wsj.com/article/SB10001424052702304906004576367121835831168.html

Here is a link to the full article for the folks that do not have a WSJ account.

http://finance.yahoo.com/real-estat...-china-wsj?sec=topStories&pos=4&asset=&ccode=

 

[redfirm]

On the contrary, if there is a 'tight' low vacncy in the rental stock, then, individuals will have to look for privately owned condos to rent. You need a place to live. Further, have you considered 'net' migration into GTA and its impact on the privately held rental stock -- that is condos?

Strangely, Interested has not made usual thoughtful posts on this topic. Redfirm owns a few 'private' rental units. He is absent from this discussions also. Something is not right somewhere.

I was absent because I was in the office. You've probably noticed by now that I mostly reply later in the evening.
I started typing my comment but realized that I'd be revealing too much about my personal situation. So I deleted what I wrote. I'll just stick to my general comment: r/e prices are out of whack compared to income levels and rental rates. % of population borrowed way to much and our per capita debt is at record high. Our bubble will burst fairly soon and it will start with those marginal / leveraged buyers. All this other stuff (daily articles of either bullish or bearish flavor) won't change my opinion. The very fact that "r/e bubble" is a daily topic these days is a signal that something is wrong in this story...
Oh, and just for KA1: I am not happy with my ROI; hence my interest in r/e outside of Canada. No details.

 

[hotaceline5]

Hi Everyone
I'm new to This forum
it is great to join this Forum, hope i'm welcome in

 

[CN Tower]

i would say #2 is also a factor as purpose-built rentals haven't been constructed for over a decade since rent controls were enacted, hence a contributing boom to condo sales/rentals.

also, some but not alot of rental stock have been demolished for the purpose of building condos.
a few examples i can think of are Don Mills/Sheppard, High Park, Beaches.

With rare exception any rental unit that have been demolished is required to be replaced with a new rental unit at the same CMHC defined affordable rate. So theoretically the supply has not been reduced by a single unit (I've never counted myself but this is the impenetrable ideological policy of the historically left-wing leaning Toronto City Council) regardless of demolition although I'm sure the removal of Regent Park from the rental pool tightened things up slightly until its completion.

In my opinion the majority of the new condos that are being rented are not close to luxury, they are simply newer. True they present themselves well initially and often feature modern amenities but generally speaking they are located in inferior locations and tend to cluster over time into lower end communities, ie Cityplace. The enormous amount of new condo construction gets converted into a quasi-rental pool and hence absorbs a huge proportion of the new rental demand. There is no better evidence of this than the extremely low rate of rental price growth since the early part of last decade. Rents have nowhere near kept up with inflation while condo prices have skyrocketed.

 

[Eug]

I don't know if rental units have stayed constant, but if they have, that means effectively the proportion of such apt. based rental units has decreased significantly, as the population and the density has increased. Much of that increase has come from condos.

When I was a renter, I did not rent private condos. They were often more expensive, NOT because they're inherently more expensive, but because in the downtown core the condos were simply newer on average, and better maintained.

 

[cdr108]

With rare exception any rental unit that have been demolished is required to be replaced with a new rental unit at the same CMHC defined affordable rate. So theoretically the supply has not been reduced by a single unit (I've never counted myself but this is the impenetrable ideological policy of the historically left-wing leaning Toronto City Council) regardless of demolition although I'm sure the removal of Regent Park from the rental pool tightened things up slightly until its completion.

In my opinion the majority of the new condos that are being rented are not close to luxury, they are simply newer. True they present themselves well initially and often feature modern amenities but generally speaking they are located in inferior locations and tend to cluster over time into lower end communities, ie Cityplace. The enormous amount of new condo construction gets converted into a quasi-rental pool and hence absorbs a huge proportion of the new rental demand. There is no better evidence of this than the extremely low rate of rental price growth since the early part of last decade. Rents have nowhere near kept up with inflation while condo prices have skyrocketed.

i'm not sure if you're referring to TCHC units, but private rental stock units don't necessarily have to be replaced and if they do, i don't believe it's 1:1 ratio.

 

[CN Tower]

i'm not sure if you're referring to TCHC units, but private rental stock units don't necessarily have to be replaced and if they do, i don't believe it's 1:1 ratio.

Incorrect.

http://www.toronto.ca/planning/housing.htm#protects

 

[cdr108]

Incorrect.

http://www.toronto.ca/planning/housing.htm#protects

thanks for the link ... i thought that was policy; however, in real life i don't think it's happening.
there were several applications in the past few years in the above locations noted that demolished private housing stock for condos that did not need to be replaced 1:1.

the high park and beaches locations come to might ... IIRC, the applicant was able to demo the buildings and apply to build condos b/c supposedly the numbers were 'insignificant' and considered 'market rent' even though the rents seemed quite low for the location.

for the Don Mills/Sheppard location, El-Ad was required to rebuild new rentals but the numbers of units AFAIK are much less than the number that will be demo'd - the new buildings are fewer and shorter.

 

[KA1]

Whatever the reason, the lack of supply is unprecedented.

A few comments on Daveto's earlier post # 3523.

Earlier today, I was speaking to a R/E client of mine in Markham.

His explanation for lack of supply is that his clients are not willing to 'move up' in this environment of high prices. Hence, no listings.

That being the case, then, purchasers, especially of pre-con condos, seem to be a mix of individuals who need a place to live, foreign buyers and/or flippers/speculators.

My client's income is down quite a bit. He knows a few other agents in the same boat and some who have already left the business.

This does not bode well for the prices in the future.

For whatever it is worth.

 

[cdr108]

A few comments on Daveto's earlier post # 3523.

Earlier today, I was speaking to a R/E client of mine in Markham.

His explanation for lack of supply is that his clients are not willing to 'move up' in this environment of high prices. Hence, no listings.

That being the case, then, purchasers, especially of pre-con condos, seem to be a mix of individuals who need a place to live, foreign buyers and/or flippers/speculators.

My client's income is down quite a bit. He knows a few other agents in the same boat and some who have already left the business.

This does not bode well for the prices in the future.

For whatever it is worth.

thanks for the update KA1 ...

i believe the high prices will ultimately lead to demand destruction from local end-users and whether one wants to believe it or not, WE are the ones that sustain a healthy market, not foreign buyers.

also, even with the lowest interest rates in history, it is more expensive now as a % of income to pay for a condo/TH/SFH in the GTA.
that results in less disposable income for the rest of the economy to chug along for other expenses, etc.

 

[KA1]

A piece of gossip.

I was just surfing MLS listings for Bay Street. 21 units are for sale in Luminere. Investors seem to be anxious to bail out.

 

[cdr108]

A piece of gossip.

I was just surfing MLS listings for Bay Street. 21 units are for sale in Luminere. Investors seem to be anxious to bail out.

out of curiosity, i went on MLS and noticed 12 units at Casa, 11 at X, 5 at JCM, 12 at 500 Sherbourne, 11 at Crystal Blu, 8 at Uptown, 15 at 1 BEDFORD RD, 11 at Festival Tower, 16 at M5V, 10 at Element, 23 at Victory Condos, 10 at 75 PORTLAND ST, 8 at 55 Stewart, for sale ... those are only the ones one can see on the public MLS as sometimes listings can't be viewed on the site :-(