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Baby, we got a bubble!?

New condo prices are higher because new construction costs are forever rising. Land, materials, development charges, etc.

I have no interest in the 'new condo market analysis' of a broker who only sells existing condos. His agenda is obvious.

My biggest concern remains China. If they stop 'importing' Canadian condos the prices here will fall just as the price of potash will fall in they stop importing that commodity. And with prices in Shanghai falling that doesnt bode well for the near term.
 
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New condo prices are actually exceeding new construction costs I believe. Though I can't provide data, I am in a position to comment about a project that I invested in 2007 under construction now. Our costs have actually come in less than what was budgeted for in 2007 assuming construction over 6 years to 2013. Part of this was due to cancellation of projects in 2008 due to the "mini correction" that lasted to summer of 2009. Selling prices have increased beyond what was projected and exceed the proformas by10-15%. So granted more recently perhaps land material and development charges have increased more recently but I do not believe to the extent that new prices are up.

Also, as others have pointed out elsewhere; construction of finer materials is likely adding perhaps $50- $100/sq.ft. top the cost but prices are up more like $200/sq.ft. The reason is that by offering finer materials, people are being asked to pay multiples of the cost thereby resulting in fattened profits for the developers.

In fairness to Jamie Johnson, and while he has a vested interest, he only recently I believe started saying the price differential has swung to resale. He would have "VIP" status to get into new projects and make commissions on these as well as resale. I still think there is some merit (despite the source) for the prediction and hypothesis that there may be price resistance at $700/sq.ft.

I'd be interested in your thoughts further CN Tower; omitting the source for a moment and commenting on the merit of lack thereof regarding the assumption of price resistance in new condos and whether it will result in some cancellations. To me, at least on the surface, it seems to make some sense.

Regarding your comment about China. I agree wholeheartedly. I believe this represents a huge risk not only to Vancouver and Toronto but also Australia who the Economist described as just about the most overvalued market bar none (at least in some areas of the country). To believe that conditions will always be favourable for raw resource exporting nations is a big assumption and historically we have seen the C$ and the Australian $ vary tremendously based on the fortunes of resources and the demand/supply of these resources. Certainly past history has told us that resources, in other words commodities, fall in and out of favour. And if it does, are either of these 2 countries the bastions of stability put forth but the protagonists for never ending increased prices in Canada. I don't know but it is not a bet I would take. In other words, I am old enough to have heard enough times "it is different this time or different here" to have a healthy degree of skepticism.
 
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I'd really like to know what's the % of Chinese purchasers in GTA. Seems many people who believe in the bubble also believe that Chinese buyers are the culprit. While I do agree that the photos of young Chinese people standing in front of sales offices do add certain assurance to the local buyers that the prices will not go down ("See, there's no bubble because Chinese people are parking soo much money in Canadian r/e and will continue to do so" would be a general sentiment here), I still think the main reason is cheap money and lax borrowing rules over the last number of years (i.e. behaviour of local buyers).
Chinese investors do play a role, but not as big in $ terms as people may think.
Prices of r/e went up not only in downtown, but Brampton and Milton and all other suburbs too. Not to mention Oakville and parts of Mississuga. Are Chinese investors buying there in numbers too? When we had that sharp (albeit" temporary) correction in 2009 what was the cause? Chinese investors stopped buying for 6-7 months? Or was it the locals who got their feet cold? All the bidding wars on houses in, say, the Beaches area - local or Chinese? Etc...
As I said, I'd like to know % and $ contribution of these Chinese investors....
 
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I wouldn't say they are the sole culprit, but they have a large influence I believe. In one of the articles I read awhile back, it was regarding Vancouver. They said the builder sold out their units within a few weeks. There were huge line ups. If they had advertised to Chinese investors, they could have sold out within a few days.
Also on the Toronto Chinese radio every weekend, they are advertising condo sales all day long. (That and ipads.) On week days they sometimes have advertisements here and there during the day. There's some Chinese magazines filled with condo ads as well.

The new immigrants tend to congregate with their relatives. So Markham has become mostly populated with Asians. Because their aunt, uncle, in-laws or whatever is located there. New immigrants who move tend to find a place close to their relatives.

It would be interesting to see the break down of ethnic groups who make purchases.
 
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The article from CIBC is very reassuring and gives some degree of comfort. None the less, I would not expect a report by a bank (in the mortgage lending business) to say big crash; cash out now either. I would like to see as realist 123 would numbers from Toronto. The article does parse out some facts but leaves us to draw conclusions.
It suggests the luxury market is more foreign driven in Vancouver and presumably in TO's high end markets and high end condos. Is this more or less subject to market shocks than the general market? I would venture to say these are more healed investors so maybe somewhat more but by the same token, these investors will be more influenced by stock market price decreases and have less ties to Canada and hence are more free to "unload" these properties. The article eludes to the fact that locals can't afford "en masse" the high end properties given local wages so this is potentially an area where the correction could be more marked. On the other hand, less than 20% down and over 40% debt servicing people are already closer to the margin and if there is some correction, it would be more pronounced. Again the question would be whether investors would step in to pick up these more "rentable properties". As well, one would imagine that the new build condo market would be hit hardest and most quickly if such an environment presented itself.
 
I would like to repeat it once again.

Whenever the much talked about and much anticipated bubble bursts, someone on this thread, please, wake me up.
 
Believe me Ka1; if it truly bursts, you won't need to woken up. Unless you honestly believe you could have slept through the US subprime. My personal believe is it will trend down but as others have said, it requires a major event (higher interest rates, global recession, dissolution of the Euro or other unforseen event) to have it happen as a bubble burst. Rather, I expect we will see stabilization followed by a slow leak if the major event scenario does not occur and most will watch the market correct down 10-15% in my view but perhaps 25% or more in the view of others slowly and not react at all. And if you are well capitalized, a long term investor as opposed to a speculator, or end user, it will just be numbers on paper... of interest but no action required.
However, if there is a burst, I shall be sure to call you ( probably just after the mortgage company will have called everyone to tell them they require more equity on renewal).
 
Seems rather timely. This just on the web page of the Globe and Mail.

http://www.theglobeandmail.com/repo...ns-condo-boom-could-be-ending/article2264763/

Bank of Canada warns condo boom could be ending
steve ladurantaye
Globe and Mail Update
Posted on Thursday, December 8, 2011 2:54PM EST

38 comments





The Bank of Canada has a warning for condo investors – the boom times may be over.

In its December economic review, the central bank said that "certain areas" of the housing market could see prices fall as the economy weakens.

"Certain areas of the national housing market may be more vulnerable to price declines, particularly the multiple-unit segment of the market, which is showing signs of disequilibrium," the bank warned. "The supply of completed but unoccupied condominiums is elevated, which suggests a heightened risk of a correction in this market."



The Toronto market has been of particular concern to market watchers, with prices continuing to rise at the same time as a record number of new units are set to flood the market.

It's also unclear who is buying the units – those in the industry often cite foreign demand, saying that investors from afar are racing to snap up units because the city is seen as a safe place to park money.

But there are no actual statistics. Canada doesn't track foreign investment in its real estate market, leaving anyone with an anecdote licence to talk up the market.

While there has been a flurry of construction in the GTA, where most of the country's condos are built, there are signs that the market is slowing. Data released Thursday by Canada Mortgage and Housing showed the number of multiple-unit housing starts dropped by a surprising 23 per cent in November.

Urbanation, which tracks Toronto condo sales, said that 20,964 new condo units were sold in the first nine months of the year, putting the city on track for a record year regardless of any recent slowdown.

The average resale unit, meanwhile, sold for $365,161 in November, according to the Toronto Real Estate Board, 8 per cent higher than they were last year.

National Bank Financial analyst Stefane Marion said that he disagres with the idea of oversupply in the city. He said the amount of inventory currently on hand would take 19.3 months to sell, below the historical average of 26 months and well below the four-year mark set in 1990, 2007 and 2010.

While it may be true that the residential market in Canada is vulnerable to price declines in the advent of an economic slowdown, the source of the problem is more likely to come from a credit-crunch induced global recession, not the Toronto new condo market," he said.

Those in the industry don’t expect to see things slow down much in the next year.

"As a result of delayed condo launches in 2011, and due to the number of new sites rumoured and under development in the GTA, we are expecting a busy 2012 in terms of new condo launches,” said Matthew Slutsky, president of BuzzBuzzHome. “We are expecting to see some epic and mind-blowing new condominium buildings and sites coming to market in 2012, specifically centred around Toronto's Yonge Street and the 905 region.”
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$100K price jump

Here is an example of a recent jump: A 1042 sq. ft. unit at the Thompson hotel has sold for $710K. The same unit was purchased in spring 2011 for $610K.
Perhaps buyers are justifying higher resale prices based on the high price of pre-construction?
 
Maybe it was sold "furnished" this time or perhaps there was a bidding war? $700/sq.ft. for the Thompson strikes me as high but then they are asking that for Ice (not yet built) and other buildings so....
 
Spread between pre con and resale is too wide, look for resale to play catch up this spring. Pre con market remains very strong, investors playing big role here, in some towers 80 percent. Rental market also very strong, important - rented unit, investor most likely to hold in strong market.
 
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Ritz psf resales not as strong as most thought, maybe a sign of weakness in lux market or top heavy at $1000 a ft for lux. Keep in mind large units 1240 sq ft and up.
 
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