Condo Market Downturn Fears are Unfounded

Saturday December 17, 2011, must have been a slow news day.  The Toronto Star (Susan Pigg – Jittery Trump Buyers May Spell Trouble http://bit.ly/vS213V ) reported that a number of condominium purchasers in the Trump Tower were looking to back out of their agreements signed many years ago.  It also referenced a recent Court of Appeal case, Schneeberg v. Talon International Development Inc. involving an unhappy Trump Tower buyer, as an example of the potential pitfalls for condominium developers and the precarious position of the condominium market.   Rather than deal with speculation and innuendo, lets deal with the facts.  First of all, in the Schneeberg case, the purchaser signed an agreement of purchase and sale in August 2004 which provided for an occupancy date of March 20, 2009.  Normally, condominium agreements that were entered into before July 1, 2009 provide for the right of the vendor to extend the occupancy date for a maximum period of time usually somewhere between 24 and 30 months.  Since July 1, 2009, under the new Tarion delayed occupancy rules, there are fixed extensions allowed and a fixed outside date which must be inserted in the purchase agreement.   Unfortunately, the vendor did not provide for any extensions beyond the originally targeted occupancy date of March 20, 2009.  It argued, however, that it had rights to extend to any such date as was required to meet occupancy, but both the trial judge and the Court of Appeal were not buying this argument.  They both held that the purchaser had a right to terminate at any time after March 20, 2009 and gets its deposit back.  Case closed.   The Trump Tower has taken an exceptionally long time to get built and achieve occupancy, which is now targeted for some time in 2012.  The fact that one or more purchasers may be seeking to get out of their transaction for deals that were signed almost 8 years ago is not unusual and certainly not indicative of a precarious condominium market.   Secondly, it should be noted that the Trump Tower is substantially a condominium hotel with units that are going to be created as part of a hotel condominium, sold to investors and then rented out to hotel guests.  This is a far different type of condominium from residential projects with year round rentals and are much more susceptible to business cycles.  The hotel market is a discretionary one and investors in that marketplace would have greater concerns over the economy than investors leasing the residential units, which is a very strong and stable market in the GTA right now..   Thirdly, the current sales numbers for the GTA condominium market militate against these warning bells.  For the period of January 1^st through November 30^th, 2011, high-rise sales surpassed the 2007 record of 23,324, for a total year-to-date sales of 27,224 units.  There were 3,137 condominium units sold in November 2011 alone, breaking the 2010 record for November by 21%.  And the year is not done yet.   So if investors and purchasers are getting worried about the condominium market, why are they still buying in such record numbers?  The reality is there is substantial confidence in the Toronto high-rise for both owner occupiers and investors.  Toronto is seen as a safe haven for investment and real estate with continuing growth in the economy and the population.  With interest rates remaining low and the lack of alternative investment opportunities elsewhere, Toronto promises to continue its healthy activity in condominium sales for the near to mid term at the very least.