Condo Market Correction
Overview
Last week a report was released by the Toronto-Dominion Bank indicating that they expect a price correction of at least 15% over the next 2 or 3 years. This report is just one of a continuing trend in the media to predict either a bubble, or a balloon, or some other similar calamity to describe the current condominium market in Toronto and Vancouver.
A substantial increase in interest rates would certainly have a negative impact on the carrying costs of condominiums and their sales. However, that is not expected to occur for at least 9 months to a year and in this world, there are relatively few places to park one’s money in a safer investment than in Canadian real estate.
It is also true that condominium prices in both cities have escalated and are probably reaching affordability ceilings even for investors who are looking primarily for appreciation and not strictly a reasonable ROI. However, there continues to be a total lack of supply on the low-rise side and a growing trend in both cities, particularly Toronto, for young people and others to be seeking accommodation within downtown Toronto and the suburbs where condominiums are more affordable.
There is no question that condominium units in the luxury levels are having difficulty selling such as The Ritz-Carlton and the Trump Tower, Toronto, but more modestly priced condominium units are still selling well.
It is also true that a number of recently launched projects in the downtown area have not sold as quickly as in the past. However, the recent past has seen unrealistic sales achievements in projects of 50% in the first month of sales and 70% in 3 months. The fact that it is now taking longer to sell units only means that we are going back to a more normal market, such as the ones we had 5-10 years ago when it could take 8-18 months to reach 70% pre-sale level, or longer. It may mean that there are fewer investors in the market, necessitating demand by owner occupiers, which is not necessarily a bad thing.
It would appear that Toronto’s market is changing somewhat and that a reduction in investors will slow down sales. But the need for housing continues unabated. What it also means is that merely finding a site and putting a sign “Condominiums For Sale” will not do it. The right site, the right pricing, the right marketing and the right product will be required to sell units in this marketplace. Is that such a bad thing? If there is a bit of a slowdown, that would only be normal after such a huge run-up over the last couple of years.
The media should focus on the needs that the Toronto condominium market is fulfilling for housing, both downtown and the Greater GTA, as opposed to looking for ways to end it. Unfortunately, perceptions, if repeated too often, can become realities.
