Condominium Temperature Check

At a recent Hi-Rise Forum sponsored by BILD, a number of prominent individuals in the real estate development industry provided their insight as to the state of the condominium market.  Interesting enough, the most cautious of the speakers included Linda Mitchell of Baker Real Estate Incorporated and Riz Dhanji of Canderel Residential Inc.   Linda felt that the market was somewhat overheated and needed a bit of a "breather" as the pace of sales and openings was just breathtaking.   Riz, on the other hand, felt that although sales were going well for all of the Canderel projects, the market was bringing in more and more investors of multiple units that caused him some concern as to whether they really wanted to close, as opposed to seeking to flip their units.  This was an extremely interesting comment from a developer who has one of the largest projects in the City, the Aura Project at Gerrard and Yonge Street, Toronto, of almost 1,000 units, which in all likelihood, is 70% or 80% sold to investors.   The big concern in the marketplace is of course will investors hold their units or try to flip them and also, will they continue to enter into the marketplace at the current level of pricing, particularly in the downtown market.   George Carras, of RealNet Canada Inc., gave some startling statistics which should give all developers both cause for joy and for thought.  In 2005, the average monthly sales for a new projects was about 27% with sellout to 70% within 13 months.  In 2010, the first month average rose to 40% and the 70% sellout was reduced to 10 months.   For the first 8 months of 2011, an amazing 54% of units in a new project were sold in the first month and the 70% target was reached in a startling 3.5 months.  Inventory levels in both low-rise and hi-rise are amongst their lowest levels in recent years with the average amount of inventory of low-rise at 4.3 months and for hi-rise at 6.2 months.   On the cost side, land pricing continues to escalate and activity levels also escalated.  In 2011 Q2, $412M of residential land changed hands whereas in Q3, $580M based on 81 deals, charged unsold at an estimated buildable per square foot price of $56.  The site at King and Church Street was acquired by the Freed Developments at an average price of $77 of potential buildable per square foot with full rezoning risk in place.   The market is clearly "hot".  With interest rates staying low and world economies continuing to suffer, Canada's real estate is still an attractive investment.  Pricing may, however, start to cool the marketplace if land costs get translated into significantly higher condominium costs which are already at record levels.  Bank of American also feels there is a danger of overheating in our condo market.  Stay tuned.