Jun 21, 2016
So You Think the Market is Hot in Toronto? Try London, England. (PART 1)
I have just returned from London, England with a group of Toronto builders and other members of the GTA real estate industry, on a housing tour of London. All of the talk of an overheated market and unaffordable housing prices for locals is magnified tenfold in London. Headlines constantly appear in the newspapers in London regarding massive price increases over the last few years, which are putting homes out of the reach of average citizens.
In London, in order to slow the marketplace and raise revenues, an additional 3% "stamp duty charge", equivalent to Land Transfer Tax was imposed effective April 1, 2016, on all residential purchases of second homes or rental properties. Existing rates on residential, are on a sliding scale based on the price, from 2% at £250,000 to 12% on prices in excess of £1,500,000. The April 1, 2016 tax is in addition to those already very high residential stamp duty rates. This triggered even more activity up to April 1, 2016 resulting in price increases of 4.2% in the first quarter, the highest in 12 years. Not dissimilar from Toronto, the highest demand has been for homes under £1M (equivalent $1.9M CDN). However, since April 2016, sales growth has slowed in part over the uncertainty of Britain's potential exit from the EU.
Our group toured a number of interesting sites, on the South Bank of London where condos are sprouting regularly, the burgeoning Canary Wharf district and in the new King's Cross regeneration area. This is a massive industrial area of formerly train yards and warehouses in Central London that remained seedy and derelict for decades until a new housing initiative was created. It comprises a very extensive regeneration area of office buildings, community facilities and significant mid-rise and low-rise residential developments.
Minimum housing prices in new condominiums are around the £900 ($1,700 CDN.) a square foot but generally, most projects are in the £1,500-£1,800 range ($3,000-$3,600 CDN.) and generally sold to foreign investors. A new project known as Keybridge, on the South Bank for instance, will contain 1,200 units. All marketing was first done in the Middle East and Far East to generate sales of over 70%. The remaining units were then remarketed in fancy sales offices in London to locals and others. Clearly, the marketplace for all this new housing in London is not local people, other than the 30-50% of "affordable housing" which is mandatory in all developments. And quite frankly, with London costs at double or triple the prices compared to Toronto condominiums, and the quality and finish of condominiums at best equal to Toronto standards, GTA condo developers should be proud of the quality of product they produce for the prices they charge.
Affordable housing can result in prices of homes being sold at 30-50% below market to eligible purchasers with an income of no greater than £70,000 per year and generally in professions that are considered desirable such as nurses, doctors, firemen, etc. On resale, they must again be sold that the same percentage discount to the then fair market value so that they remain affordable and to people who qualify. Of course, the loss of revenue and cost that is absorbed by the developer must be passed on to the purchasers of the non-affordable units which further drives up housing prices to levels that ensure that average citizens are not able to buy these units. So only the very rich or lower income people can actually buy these new condominiums.
In the London area, the growth of high-rises has expanded new homes from when I was last there with BILD in 2007 from 6,000 annually to 20,000 annually, but this is for a population that is double or triple the size of Toronto and is again, far falling short from meeting the demand requirements.
More on the London market and the Ontario government efforts to make housing less affordable in future blogs.
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