RealCapital Forum 2013 - Economic and Condominium Update
Overview
Another month, another real estate conference. February 26, 2013 saw the Annual RealCapital Conference attended by almost 500 delegates seeking to get some insight on the status of the Canadian world economies and various sectors of the Canadian real estate industry with a focus on financing trends.
Dr. Warren Justin, Senior Vice-President and Chief Economist, Scotiabank, gave a snapshot of the Canadian, U.S. and world economic picture. Echoing the sentiments of many other economists, Europe is looking like a no growth or slow growth situation for the next 3-5 years. The good news story is that the U.S. is starting to ramp up in a big way and will outperform Canada certainly over the next year or two, in a large part because it was so far behind Canada which did very well during the last few years whilst the U.S. was in a severe recession.
The Canadian economy is clearly slowing down and the slowdown unfortunately is fuelled by a slowdown in housing, whereas the U.S. economy is ramping up through manufacturing starts. Automobile manufacturing are in a significant uplift, as are new housing starts. As everyone knows or should know, housing is one of the major drivers of any economy and as housing goes, so goes the economy.
The good news for Ontario is that with the U.S. economy picking up, that should translate into more exports for Ontario, more jobs and ergo, more demand for housing. Unfortunately, that will not happen in 2013, given the lag in the economy but may happen later on.
One of the most startling statistics that Dr. Justin provided was that the average earnings and employment growth in Newfoundland far exceeds that of Ontario. My, how things have changed over the last 20 years.
Clearly, the real opportunities for development and acquisitions are in the U.S., for those companies that have the ability to finance their acquisitions or developments.
George Carras made an appearance at the condominium financing seminar and made some interesting comments to address the misinformation in the press, one of my favourite topics. The press has focussed on what they consider to be excessive inventory supply of condominium units at 20,000 units at the end of 2012. What the press failed to recognize is that there has been a tremendous shift in the sales of new homes as between low-rise and high-rise.
In the past, the ratio was 75:25 in favour of low-rise and that ratio has now been almost totally reversed. As a result of much greater sales and demand for condominium units, there is a greater inventory of those units. On the flip side, there is a significantly low inventory for low-rise units at 7,500 units at the end of 2012, which is a shockingly low number for Ontario. We all know the reason for that, the reason being such as the Places to Grow legislation which has limited the greenfield development and driven the average price of a 40 foot home to $723,000 in the GTA and a 50 foot home to over $1.4M.
Getting back to the misnomer on unsold inventory of condominium units, when you look at the total unsold number of low-rise and high-rise at just under 28,000, this number is in line with the historical average of somewhere between 25,000 and 30,000 units. Again, statistics can be manipulated and misrepresented without looking at all of the facts. Thank you George Carras!
