Correct me If I'm wrong but if the banks require a significant amount of pre-sales before they lend the construction companies any money to do the construction, why would anybody break ground if the project wasn't a viable one and wasn't going to be completed.
Most often (almost always) ground is not broken nor construction commenced until pre-sales (or pre-leasing in the case of office buildings) have reached a level that allows for a bank/lender to commit to the project. There are rare cases (the Bow in Calgary for example) where a developer goes ahead without construction financing. It is, always, the developer's cash/equity that goes into a project first so the digging is usually done without lender money (even if there is a loan committed to).
Digging and building are a sign that
someone believes the project is viable.
Also a project like Shangri-la is mainly being purchased by foreign investors who are not exactly strapped for cash. The projects I would be more worried about grinding to a halt if any would be projects like cityplace, a project consisting of lower end condos with average finishes purchased by average people who can't afford to over spend in the current economy.
As a lender, I can assure you that I worry way (repeat that a few times before moving to the next word) more when the project is totally/significantly/substantially sold to investors rather than owner occupiers and that concern is magnified even further when said investors are off shore folks.
Some reasons:
1. Deposit as a percentage of wealth......if I am a gazillionaire living in some far off land who thought it would be a good idea to have a pied-Ã -terre in Toronto and put down, say, a $100,000 deposit on a $500,000 unit but, somewhere between purchase and completion, the world's/toronto's financial situation changes.....I have lost a few millions here or there and my unit in Toronto is now worth, say, $400,000, I may decide that is an investment going the wrong way and putting more money in is "good money after bad" and my resources are better off fixing the businesses/investments that are core to me and have cost me to lose a few millions.....so I do not close on the condo in Toronto and I forfeit my deposit....probably no big deal.
Compare/contrast that to the couple/person who bought a $200,000 unit to live in.....srimped and saved to pay $30,000 deposit.....now owe $170,000 which they can get on a mortgage and afford on their salary......losing that $30,000 would be catastrophic....would probably represent, either, years and years of saving or all of the money their families could muster to give them to get off on good start......those people, typically, find a way to close!
2. Everybody has to live somewhere....using the example above...gazillionaire still has a roof over his head wether or not he closes on his purchase in Toronto.....the other purchaser is faced with a "close on the condo purchase or continue to rent" decision.....even if the condo has lost value they close because the mortgage payment goes towards building equity for them rather than a landlord and the occupancy cost to them is not much different!
3. Unit liquidity....in the event unit purchasers do not close....there is a much deeper market for the $200k unit than the $500k (and up) units...always has been always will be....so it is easier for my borrower client to find new purchasers for those unts.
Now this is not to suggest that you should jump over to the "Shangri-la will not happen camp"....it will. It has its pre-sales, it has solid owner/developer sponsorship and it has a construction loan in place. In any market, however, these sort of condos are harder to finance than the bread-and-butter home-ownership projects...for good reason.
