Baby, we got a bubble!?

[CN Tower]

Are Japanese ready for higher rates?

5 YEAR 0.247%

I recognize the markets are distinct of course but where's the proof that interest rates are going to rise? The recovery is more fragile than the Liberal-NDP Coalition. There's no certainty of a prolonged recovery.

 

[daveto]

CN, I agree with you. The US 10 yr yield is back in the dumpster at below 1.9%, and there are rumblings of QE3. I don't think we will see rates back up for some time. I think the "recovery" was bought and paid for with borrowed Gov't money and QE 1/2 and that we'll be feeling the effect of 2008/09 for a long time.

However, while I agree that increases in rates would place a lot of strain on the Canadian RE market, I don't think that the absence of an increase in rates would mean that our market will continue on its merry way.

Ultimately, prices are determined by supply-demand, and while rates affect demand they are not the only variable. Case in point the US and other markets who have seen RE prices in the dumpster, even as rates have dropped to historic lows.

For Canada, we'll have to wait and see what is the effect of the tightened mortgage availability rules, and the shrinking capacity of the CMHC.

Similarly, as the pool of new buyers shrinks with home ownership at all time highs, that will affect demand. And if prices plateau, that will affect supply if possible pent up supply from the sidelines finally enters the market.

Just brainstorming on the above. But I agree that rate increases will probably not the catalyst for the correction in Canadian RE.

 

[ILuvTO]

Toronto vs Vancouver: Which will have the highest house prices in a decade?

http://www.thestar.com/business/art...ave-the-highest-house-prices-in-a-decade?bn=1

Toronto could see house prices hit the stratospheric levels of Vancouver’s within a decade unless ways are found to cool demand or boost the supply of single-family homes, says one of the city’s leading housing experts.

Too much concern has focused on Toronto’s condo boom and fears it’s about to go bust when the bigger issue for the city is the “dramatic” escalation in prices for single-family homes and demand that continues to far outstrip supply, says veteran housing consultant Barry Lyon.

There is a growing realization that the GTA housing market, and Toronto in particular, has become very much a tale of two markets — houses and high-rise condos.

And while everyone is focused on all those glass-and-steel highrises pushing up into the sky, not enough attention is on the ground where construction of new single-family homes has dropped like a rock.

Demographics, demand and the unrelenting desire to live in a house like our parents did are conspiring to drive up competition for a dwindling resource — houses — while much of what’s being built across the GTA is ever-shrinking condos.

The effects are especially being felt in older Toronto neighbourhoods close to transit.

The average price of a house in the City of Toronto hit $568,436 in April while the Holy Grail of housing — a detached single-family home — averaged $831,214, a virtual doubling in just a decade, according to Toronto Real Estate Board figures.

The typical detached home in Vancouver runs over $1 million, although the market is showing signs of softening.

Price growth in the GTA, however, of close to 10 per cent year over year is showing no signs of letting up. The market remains so tight — with sales far outstripping active listings for much of the last four years — that bidding wars and bully bids are now occurring even in 905 neighbourhoods.

In fact, the GTA housing market has undergone such profound change over the last decade due to restrictive greenbelt policies, strong immigration, a resurgence in urban living and unrelenting demand driven by the lowest interest rates in history, that even housing experts are struggling to understand the long-term implications.

“We’re now starting to see a stabilization of high-rise (condo) pricing that is overdue and very healthy, but we don’t see any such thing coming in the single-family home market,” says Lyon.

“There just aren’t enough homes,” to satisfy demand. “It’s not out of line to believe that without government intervention in some form or another, we could see Vancouver house prices here within the decade.”

BMO Deputy chief economist Doug Porter considers the GTA the “hottest” market in the country right now. Friday the bank warned that the softening in Vancouver could see foreign investors, who helped fuel the upward push in Vancouver prices, start looking to Toronto.

While spring is traditionally the busiest period in the real estate market, the GTA buying frenzy actually started in January this year, realtors say, because of warm weather and bank mortgage-rate wars.

Last year some 17,460 new detached, semis, row and link houses sold across the GTA, a 60 per cent decline from the 38,414 sold just a decade ago, reflecting the dramatic shift from home to condo building, says George Carras of RealNet Canada who monitors the new home and condo markets for the Building Industry and Land Development Assoc. (BILD.)

Condo sales, on the other hand, almost doubled in a decade from 15,263 sales in 2002 to 28,466 last year because of the record levels of condo construction.

While all those condos have brought new life to downtown streets and office towers desperate for young talent looking to live close to work, the growing concern is their shrinking size makes them poor long-term housing prospects.

“The road ahead in all of this is taller and smaller,” says Carras, noting that the average GTA condo shrank by 52 square feet, down to 820 square feet, by the end of 2011 and lost another 30 square feet just in the first three months of this year.

While most agree provincial greenbelt policies were needed to curb sprawl and push intensification, the concern is they seem to be working with unexpected vigour, especially in pushing up already high house prices.

At the same time, more homeowners seem to be opting to stay put rather than fork over tens of thousands in real estate, land transfer taxes, legal and other fees, which is further tying up supply and driving up competition for what relatively few homes are out there, housing experts say.

While the number of resale homes traded via MLS were up 17.9 per cent in April over a year ago, active listings rose by less than four per cent, says Jason Mercer, senior analyst with the Toronto Real Estate Board.

“If we continue to see the market conditions as tight as they are that would suggest we’re going to continue to see very strong price growth.”

Lyons’ bigger fear is what’s coming down the road unless Ottawa starts raising interest rates, even just a percentage point or so to cool the market, or builders don’t start getting more creative in catering to a full range of buyers.

“My concern is looking five and 10 years ahead when all these young people living in these downtown condos partner up and have children. They are going to be looking for houses.

“That’s a major concern that we all should have.”

 

[interested]

^^^

I think the above article points out why it is so difficult to predict with so many moving parts in an equation.

For example, when talking of TO they talk of 2 markets. Houses will keep rising potentially. Condos will stagnate or go in the other direction.....except if one thinks of this logically, as the differential in price between the 2 groups gets larger, unless there are huge wage increases or the greenbelt policies are changed, people will have no choice but to accept condos. Supply in this market is presumably unlimited or at least there is a lot of potential whereas the SFH is much more restricted. People won't want these 300 sq.ft. units....probably true. But will there still be young people....yes. Will they want to live downtown....probably. Will there be less young people...probably. But if a single FH hits $1 mill, without the equity to trade up, who is going to buy "besides the rich foreigners". We are seeing a slowdown in Vancouver so presumably there are limits to even this.

 

[ILuvTO]

^^^

I think the above article points out why it is so difficult to predict with so many moving parts in an equation.

For example, when talking of TO they talk of 2 markets. Houses will keep rising potentially. Condos will stagnate or go in the other direction.....except if one thinks of this logically, as the differential in price between the 2 groups gets larger, unless there are huge wage increases or the greenbelt policies are changed, people will have no choice but to accept condos. Supply in this market is presumably unlimited or at least there is a lot of potential whereas the SFH is much more restricted. People won't want these 300 sq.ft. units....probably true. But will there still be young people....yes. Will they want to live downtown....probably. Will there be less young people...probably. But if a single FH hits $1 mill, without the equity to trade up, who is going to buy "besides the rich foreigners". We are seeing a slowdown in Vancouver so presumably there are limits to even this.

All good points interested. I personally believe the condo and SFH markets are linked. This idea that they can live independent of one another does not make sense to me. Today's condo owners are tomorrow's SFH owners. If the condo market tanks those people won't have the $$ to buy these single family homes... unless the prices of those SFH also come down. Foreign investors can only buy so much property. Eventually the sine will wear off Toronto and these people will start parking their money elsewhere.

 

[interested]

^^
My personal view is the markets may decouple for a short period of time(say 1-3 years) with SFH stable or rising as condos flatten or fall. That said, I agree with you ILuvTo that in the end they are linked and even if they diverge in the short term, in the long run they will start to parallel each other.

This does not mean there might not be a painful correction in condos in the near term without a significant correction for SFH in the same time frame.

Another interesting article today in the Financial Post Print Edition. They are talking about investments of high net worth individuals. What I find interesting is they say it is about 15% in equity vs. the 60% usually quoted. Bonds are decreasing (as they expect yields to go up and hence adversely affect bond prices). Real estate is 25% and hedge fund investments around 15%. I find it interesting that the single largest asset group is real estate.
In the end, I can only conclude that this money is looking to make a return, and clearly they have decided over the long term that real estate is a good investment despite what the financial industry seems to say to the contrary. I appreciate this may not be specific to the TO or Vancouver markets, or the condo market in TO specifically....but interesting in my view none the less.

 

[cdr108]

from what i've learned and heard, in a downturn everything goes down.
SFH retain their values better than condos b/c of actual land value and by not having the sheer volumes of units available.
(ie. in the area of a typical block, one could pack in at least 20x GFA with condos vs SFH;
and with newer condos, there can be as many as 30 identical units in the same building, maybe 2x as much if there are 2 towers to a project since they sometimes just construct a mirror image)

re:Financial Post Print Edition
was there any more info regarding that article b/c i only totalled 55% of assets ... is the rest in cash?
what is the definition of high net worth? millionaire, billionaire?
sometimes when you're so well off, they have multilple residences areound the world, so it adds up.
25% doesn't seem that high to me all things considered.

what worries me are those average joes who've got more or less everything in one asset, and that is their primary residence and those who've decided that r/e always goes up and leveraged to the max with an 'investment' property

 

[interested]

^^^
cdr, the article is on page FP8 of the Financial post. "stenner fishes where the fish are".

Sorry, I did not see it on line.

"thane recently shared with me how these investors deal with the opportunities of investing in those uncertain times (relating to High net worth investing) I am guessing that they are talking about either 1 million of investible assets other than principal residence though it is equally possible they are talking about $5 or 10 million or even $30 Million being the uber wealthy). The article does not specify other than that they talk about Tiger 21 being a peer to peer learning network of hi net worth individuals who collectively manage almost $20billion.

The asset allocations report for Q1 2012:


http://business.financialpost.com/2012/05/11/unleashing-the-investment-tiger-for-enhanced-results/

The logical place for any money manager to start with prospective clients is with a portfolio analysis: a study of their existing investments with the aim of determining whether, as a whole, it is well designed to meet their financial objectives financial objectives in the short, medium and long term. After all, the direction of a manager’s research is determined by what their clients need. And what they need is largely dictated by what they already have.

Since we live in a relative world, one way to approach this analysis is to compare the portfolio against that which a similarly situated, best-in-class investor would have for themselves.

Data regarding optimal portfolio allocation are relatively easy to gather and apply for institutional investors, such as pension funds, endowments and foundations. Canada is home to two of the world’s most respected institutional investors, Canada Pension Plan and Ontario Teachers’ Pension Plan, and many other institutional investors follow their lead when it comes to developing plans for the long term.

TIGER 21 is a peer-to-peer learning network for a group of high-net-worth investors

What these institutions have in common are infinite time horizons and perpetual inflows from contributors.

In other words, they don’t have a lot in common with high-net-worth individuals, who often have finite time horizons and don’t have new cash coming in on a regular basis. Where, then, should these investors look to see how the best in class do it? Enter TIGER 21, or The Investment Group for Enhanced Results in the 21st Century.

Established in 1999, TIGER 21 is a peer-to-peer learning network for a group of high-net-worth investors who collectively manage almost $20-billion in assets. Relying on their diverse backgrounds yet common goals, TIGER 21 members differentiate themselves from other high-net-worth groups (such as YPO) by exchanging detailed information about each other’s investments with the hope of achieving a more optimal investing approach for the whole.
Advertisement

At home, TIGER 21 Canada is led by managing director and founding member, Thane Stenner, one of Canada’s best-connected and highly respected experts on high-net-worth investing. Stenner, a Fellow of the Canadian Securities Institute, and his multi-family office team manage the investments of some of Canada’s wealthiest families through Stenner Investment Partners, part of Richardson GMP Ltd.

Stenner recently shared with me how these investors deal with the challenges and opportunities of investing in these uncertain times. In addition to sharing a significant amount of anecdotal evidence, Stenner was kind enough to provide me with the exclusive TIGER 21 Asset Allocation Report for Q1, 2012, part of the group’s Collective Intelligence program. Here are some of the highlights:

TIGER 21 members have “long only” public equity exposure of 22% — far below the 60% long only default metric used by most advisors;
Most are actively reducing their fixed-income allocations, which currently stand at 15%. This is not surprising given low yields and a promise of depreciation resulting from increasing interest rates.
With such low allocations to stocks and bonds, members are seeking growth and yield in the private markets, primarily through higher allocations to real estate (24%) and private equity (14%).
Finally, hedge fund allocations have gradually increased to about 9% of their portfolios. There’s an old saying that you should “fish where the fish are.” This appears to be exactly what North America’s elite investors are doing, and something Canadian investors of all types should consider: Follow the yield, follow the growth, follow those who have an idea of what they’re doing.

This doesn’t mean you should simply be part of a herd, because that is exactly what creates and perpetuates a default-based allocation approach such as 60/40 equity/fixed-income split. Rather, determine what you have, what you need, and — with a little information about others who are achieving success — how to achieve your objectives.

David Kaufman is president of Westcourt Capital Corp., an exempt market dealer specializing in the sourcing and due diligence of conservative, alternative income-generating investments. drk@westcourtcapital.com

Posted in: Investing

Tiger 21 members have "long only" public equity exposure of 22%-far below the 60% long only default metric by most advisors (I think this may be that they have access to other investment opportunities that the public does not)
most are actively reduing their fixed income allocations which currently stand at 15%

With such low allocation to stocks and bonds, members are seeking growth and yield in the private markets, primarily through higher allocations to real estate (24%) and private equity 14%.
Finally hedge fund allocations have increased to about 9%.

This totals about 84%. I am guessing the last 16% is cash but possibly precious metals or art but who knows. Sorry, I was slightly off when I posted.

I have underlined what are my thoughts/comments vs. the rest which is directly from the article.

 

[kEiThZ]

All good points interested. I personally believe the condo and SFH markets are linked. This idea that they can live independent of one another does not make sense to me. Today's condo owners are tomorrow's SFH owners. If the condo market tanks those people won't have the $$ to buy these single family homes... unless the prices of those SFH also come down. Foreign investors can only buy so much property. Eventually the sine will wear off Toronto and these people will start parking their money elsewhere.

Exactly. This is called the property ladder. And like any ladder, to get to the top all the rungs must be functional. You can't cut out the bottom rungs and have the ladder remain stable. Condo prices are probably just leading indicators of the market as a whole. So they go down first and come up first.

 

[CN Tower]

Ultimately there's a strong correlation between condo and sf housing. It's shelter. And despite small sized units it doesn't took much effort to combine units if demand supports it. We've seen that in Manhattan in much of the pre-war stock.

 

[marsh]

Toronto vs Vancouver: Which will have the highest house prices in a decade?
Published On Fri May 11 2012
Toronto is set to rival Vancouver for high housing prices as family homes become more scarce.
TORONTO STAR

By Susan Pigg Business Reporter
Toronto could see house prices hit the stratospheric levels of Vancouver’s within a decade unless ways are found to cool demand or boost the supply of single-family homes, says one of the city’s leading housing experts.
Too much concern has focused on Toronto’s condo boom and fears it’s about to go bust when the bigger issue for the city is the “dramatic” escalation in prices for single-family homes and demand that continues to far outstrip supply, says veteran housing consultant Barry Lyon.
There is a growing realization that the GTA housing market, and Toronto in particular, has become very much a tale of two markets — houses and high-rise condos.
And while everyone is focused on all those glass-and-steel highrises pushing up into the sky, not enough attention is on the ground where construction of new single-family homes has dropped like a rock.
Demographics, demand and the unrelenting desire to live in a house like our parents did are conspiring to drive up competition for a dwindling resource — houses — while much of what’s being built across the GTA is ever-shrinking condos.
The effects are especially being felt in older Toronto neighbourhoods close to transit.
The average price of a house in the City of Toronto hit $568,436 in April while the Holy Grail of housing — a detached single-family home — averaged $831,214, a virtual doubling in just a decade, according to Toronto Real Estate Board figures.
The typical detached home in Vancouver runs over $1 million, although the market is showing signs of softening.
Price growth in the GTA, however, of close to 10 per cent year over year is showing no signs of letting up. The market remains so tight — with sales far outstripping active listings for much of the last four years — that bidding wars and bully bids are now occurring even in 905 neighbourhoods.
In fact, the GTA housing market has undergone such profound change over the last decade due to restrictive greenbelt policies, strong immigration, a resurgence in urban living and unrelenting demand driven by the lowest interest rates in history, that even housing experts are struggling to understand the long-term implications.
“We’re now starting to see a stabilization of high-rise (condo) pricing that is overdue and very healthy, but we don’t see any such thing coming in the single-family home market,” says Lyon.
“There just aren’t enough homes,” to satisfy demand. “It’s not out of line to believe that without government intervention in some form or another, we could see Vancouver house prices here within the decade.”
BMO Deputy chief economist Doug Porter considers the GTA the “hottest” market in the country right now. Friday the bank warned that the softening in Vancouver could see foreign investors, who helped fuel the upward push in Vancouver prices, start looking to Toronto.
While spring is traditionally the busiest period in the real estate market, the GTA buying frenzy actually started in January this year, realtors say, because of warm weather and bank mortgage-rate wars.
Last year some 17,460 new detached, semis, row and link houses sold across the GTA, a 60 per cent decline from the 38,414 sold just a decade ago, reflecting the dramatic shift from home to condo building, says George Carras of RealNet Canada who monitors the new home and condo markets for the Building Industry and Land Development Assoc. (BILD.)
Condo sales, on the other hand, almost doubled in a decade from 15,263 sales in 2002 to 28,466 last year because of the record levels of condo construction.
While all those condos have brought new life to downtown streets and office towers desperate for young talent looking to live close to work, the growing concern is their shrinking size makes them poor long-term housing prospects.
“The road ahead in all of this is taller and smaller,” says Carras, noting that the average GTA condo shrank by 52 square feet, down to 820 square feet, by the end of 2011 and lost another 30 square feet just in the first three months of this year.
While most agree provincial greenbelt policies were needed to curb sprawl and push intensification, the concern is they seem to be working with unexpected vigour, especially in pushing up already high house prices.
At the same time, more homeowners seem to be opting to stay put rather than fork over tens of thousands in real estate, land transfer taxes, legal and other fees, which is further tying up supply and driving up competition for what relatively few homes are out there, housing experts say.
While the number of resale homes traded via MLS were up 17.9 per cent in April over a year ago, active listings rose by less than four per cent, says Jason Mercer, senior analyst with the Toronto Real Estate Board.
“If we continue to see the market conditions as tight as they are that would suggest we’re going to continue to see very strong price growth.”
Lyons’ bigger fear is what’s coming down the road unless Ottawa starts raising interest rates, even just a percentage point or so to cool the market, or builders don’t start getting more creative in catering to a full range of buyers.
“My concern is looking five and 10 years ahead when all these young people living in these downtown condos partner up and have children. They are going to be looking for houses.
“That’s a major concern that we all should have.”

 

[interested]

Finally in the open: From todays National Post:

http://business.financialpost.com/2...o-glut-about-to-flood-toronto-housing-market/

Luxury condo glut about to flood Toronto housing market

Andrea Hopkins, Reuters May 14, 2012 – 7:55 AM ET | Last Updated: May 15, 2012 12:19 AM ET
Mike Cassesse/Reuters

Mike Cassesse/Reuters

Toronto, a relatively small city with no five-star hotel condominiums a year ago, is coming to the game late but with a vengeance.

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TORONTO – Five months after buying one of Toronto’s new luxury hotel condominiums, Oliver Baumeister is girding for a glut of suites like his to hit the market as the biggest names in the hotel business open hundreds of units in Canada’s largest city.

Baumeister, himself a real estate agent, is in no rush to sell. When Toronto’s untested market for five-star condo living absorbs the surplus — say by 2016 — he intends to offload his sky-high unit for a tidy 20% profit, and look for his next Canadian real estate investment.

“A bunch of it will sit for a while and it will take time to sell,” said Baumeister, who has been buying Toronto condominiums with his brother for the past four years.

“But we bought it with the belief that the Toronto hotel condo market definitely has a future. When we sell, hopefully … we’ll see about a 20% profit.”

The model of ultra-fine condos attached to luxury hotels isn’t new — cities like Hong Kong and New York are full of them.

But Toronto, a relatively small city with no five-star hotel condominiums a year ago, is coming to the game late but with a vengeance.

By the end of this summer Toronto will have four such projects, as Four Seasons, Ritz Carlton, Trump and Shangri-La open massive towers in a city where a red-hot market for all types of housing has brought rising concern about a real estate bubble.

The granite-and-glass towers, including two of Canada’s tallest residential buildings, are opening in quick succession, adding hundreds of hotel rooms and more than a thousand condominiums just as Canadian housing hype hits a fever pitch.

Signs of success are mixed. None of the four projects, whose condos cost from just under $1-million to $28-million, has sold out, and the push by developers to sell their remaining units before a resale market kicks in has the feel of a ticking time bomb.
Related

Too hot? Higher than expected home prices renew concerns of Canadian bubble

Toronto condo market ripe for a correction?

“I think any developer has concerns about that,” said Howard Tikka, director of marketing Talon International Development Inc, which is developing the Trump property.

“If you have units left to sell, and people are taking them to market to resell, there is just not a whole lot you can do about it.”
‘I think on the luxury side, the market has already peaked’

With the Ritz Carlton already open and the other three not-fully-sold projects due to hit the market this summer, the developers will compete with sellers of their own luxury condos as speculators and investors try to cash in.

While all four projects boast paper profits for early investors, the simultaneous sale of dozens — perhaps hundreds — of exquisite suites may prove too much of a good thing.

“I think on the luxury side, the market has already peaked,” said Don Campbell, president of the Real Estate Investment Network, an author who invests his own money and advises others about buying into Canada’s housing market.

Campbell said six groups identified the same hole in Toronto’s luxury market about 10 years ago. Four projects went ahead, and all of them are coming on line at the same time.

TROUBLES AT TRUMP

The Trump project, a 65-story paragon of glitz with a “champagne and caviar” theme, appears the most troubled. Plagued by bad press, construction delays, disgruntled buyers and a hybrid model of residences and pooled hotel condos, the project has the largest proportion of unsold units despite being the first to open its sales office, in 2004.

Talon said 80% of the tower’s 379 units have sold, powered by the hotel condos, currently priced from $967,000. But 40% of the residential condos, priced between $2.3-million and $6.3-million, remain unsold.

Aaron Lynett/National Post files

The Trump Tower in Toronto.

It said Trump has the most left to sell because it has twice the number of units as competitors at the Four Seasons and Ritz Carlton, and focused first on selling its hotel rooms.

The Ritz Carlton, Four Seasons and Shangri-La projects have kept their condo and hotel rooms separate. The condo owners have access to hotel amenities but no direct stake in its operation.
Trump, on the other hand, is trying to sell all its hotel rooms to private investors as condos. Owners can live in the suites, or put the rooms into a rental pool and take a cut of income from the hotel guests staying there.

The business structure means buyers of the pooled hotel condo units are subject to commercial tax rates rather than lower residential rates, and the bar for financing is higher.

“I called every major lender regarding Trump, and the only one I could find that was willing to finance was HSBC,” said Callum Ross mortgage consultant Jason Friesen.

“There were some units that had $20,000 (annual) property taxes for an $800,000, or 1,500 square foot, unit because it was zoned commercial. So lenders wouldn’t touch it.”

Real estate lawyer Bob Aaron, who represents “a handful” of disgruntled Trump buyers, said some are trying to get out of their contract or walking away from $250,000 down payments.

“The monthly costs are too high, or they realized too late that they had overpaid, or can’t finance it, or didn’t realize they were getting into a business venture superimposed on property ownership,” he said.

“They had very smooth sophisticated marketing, and I think buyers were dazzled by being partners with Donald Trump.”

The American property mogul has licensed the Trump name to the project but has no part in owning or operating the tower.

FLIPPERS AND FOREIGN BUYERS

The debate about who is buying them dogs Toronto’s condo boom. There are no figures for foreign buyers in Canada, which is seen as a financial safe haven amid global woes, but talk of affluent Asian, European and Middle Eastern investors abounds.

Janice Fox, director of sales at the Four Seasons, estimates 30 to 40% of buyers there have been foreign, but she said they intend to live in the units, at least part of the year.

Some 90% of the Four Seasons 210 condos have been sold, including one last year for $28-million, the highest price ever paid for a Canadian condominium. That buyer is foreign, but the family intends to move to Toronto, Fox said.

The resale market may be a gold mine for early buyers, as some prices have doubled since the first investors signed on in 2004 or 2007.

“There’s been a big gain in price. There’s probably a small group who bought in 2007 who has had a massive gain and want to cash out on that,” said Michael Braun, marketing manager for Shangri-La developer Westbank Corp.

With more than 50 of 393 units remaining to be sold before August, when contracts close and buyers can start re-selling, Braun says it could take until early 2014 before Shangri-La sells all of its units.

Realtors estimate between 10% and 20% of pre-construction sales are made by investors who intend to flip the units as soon as the deals close.

The Ritz Carlton, open since mid-2011, is a cautionary tale of the risk of resale. More than 90% of its 159 units have been sold — but nearly two dozen are back on the resale market, diluting the sales power of the developer.

“I think the values have been hurt at the Ritz, where you’ve had some powers of sale,” said real estate agent Brian Persaud, referring to forced sales due to mortgage default. “That’s going to harm the value, definitely.”
‘There has to be a correction — but hopefully not within a year …. it is scary’

As the summer openings of the three other projects approach, developers and investors seem to have one eye on the clock and one eye on historically low interest rates, desperate to sell before the talk of a bursting Toronto condo bubble comes true.

“There has to be a correction — but hopefully not within a year …. it is scary,” said a Toronto banker who bought one of the Shangri-La luxury units in 2007 and hopes to resell at a 15 percent profit as soon as he can.

“Obviously there is going to be a spiral-down effect (when all the units hit the market) but that is to be expected,” said the banker, who bought the unit with his parents and declined to be named to protect their privacy. “At worst we’ll break even.”

Real estate agent Persaud is more sanguine. He believes all the luxury condos will be sold, especially once resale values stabilize and buyers can get a first-hand look at the finished five-star product.

“I don’t think they’ll be vacant forever,” he said. “Eventually the market will catch up to it, but there is going to be blood in the streets for a while.”

© Thomson Reuters 2012:

So just imagine if this market falls and is selling at say $600-$1000 on resale.....what do you all think happens as all the $500-600/sq.ft. stuff comes on and worse, those buying at Massy/Indx at $700+/sq.ft. today.

The one difference....unit size. But at SL, those investors who have small units....800 sq.ft. vs. something comparable in another mid-high end.... that will get creamed I suspect too.

We should watch this closely because it is a dry run I suspect for next year the larger market when all the additional product hits the market.

 

[CN Tower]

Trump- lousy area to live at any price, good area for business hotel
Ritz- lousy area to live, good area for business hotel
SL- good area to live (borderline)
FS- great area to live (no dispute)

There's your article. Let the chips fall where they may.

I take issue with one point though- Toronto is not a 'reltaively small city' on any scale. I think it's consistently among the top 20 most significant cities in the world!

 

[ISYM]

The banker’s thoughts are worthy of reflection.

Interested, what’s your take on the health of the luxury suite market and the effect if any a builder’s offering of 5% commission plus a Mercedes and a 7% buyer's discount on the sale of any suite over $2 million might have on the investors hoping to cash in for big bucks as suggested by this article?

 

[interested]

The banker’s thoughts are worthy of reflection.

Interested, what’s your take on the health of the luxury suite market and the effect if any a builder’s offering of 5% commission plus a Mercedes and a 7% buyer's discount on the sale of any suite over $2 million might have on the investors hoping to cash in for big bucks as suggested by this article?

My take for what it is worth: Large luxury suite markets...those of 1800 sq.ft. and beyond that are in the $2 million range are no longer being bought by speculator or as investor units (unless they were bought very early). I believe the investors as a group in the luxury market are better healed (financially better off than in the $500-800 mid to mid luxury market) and apart from a few whose situation has changed or could never close and were shear speculators there will not be so much for sale and so I don't think you will see a fire sale. That said, I think we are in for a consolidation period of 2 years in the high end. Developers with left over product however will have to adjust prices

The high end I believe is stalled as the article suggests and hence everyone competing for a smaller pool of clients with more product means further incentives are coming. I think the incentives will just make an end user who was going to buy buy anyhow but no more "investment condos" at high end and these incentives won't do it to peak that demand. I think we will next be seeing price reductions or "New Price" or "price adjustments" as the industry likes to say rather than calling it truly what it is, a reduction.

I believe you would have to divide the luxury suite market by building as I believe there will be differences.