New Condo Incentives?

[borisp]

2% is nothing... that's like $6k on a $300K unit...
like someone said above builders are just playing with us... they inflate the price and than 'offer some incentives'...
i haven't seen any drastic incentives so far...

 

[cdr108]

If someone wants to buy, play hardball.
It's a buyers market ... you have the option to either buy now or wait and chances are prices will go down.

IMO though, it's better to go re-sale if one truly wants to purchase now since most newer projects are selling around $500+ psf while already built are going for less ranging from $400-$450 psf.

 

[kennyx]

yeah, -it's only a buyers market for resales. Dont really see why new build projects would be in any need to offer true incentives... especially if they're over the 70% sold mark (or whatever the magic number is).

The only reason (or at least the only reason I can think of) to buy a new build right now versus resale is if you didnt actually need to move in right away, and wanted to purchase something that you couldnt afford today (and hence mark to market the price)... but could afford in 1 or 2 years due to heavy savings for a down payment (and potential income increases).

 

[daveto]

From the front lines

I've been living in a great furnished sublet for the past year, which is now ending. Originally I was planning buying this fall, but after more research on the markets (housing and otherwise) have since decided to wait another year (or maybe two).

As such, I'm making the rounds looking at various rental/lease units. Most of the ones I'm looking at are broker represented MLS listings.

I'm finding a lot of newly built units listed for sale, but now coming on the market for rent. Whenever I meet a new agent, they consistently give me the same patter:
"a beautiful unit in a great building ",
"Had someone look it yesterday...we're just finalizing the offer",
"won't last".

At the same time, I'm getting lots of anxious follow up calls a couple of days after asking if I've made a decision, or telling me that their client might be willing to move on the price.

Whenever they hear that I had been thinking about buying, they seemlessly transition into "Let me help you buy a place" mode.

When I tell them my thoughts on the T.O. market (down a further 15%+ by the end of next year), then without skipping a beat they transition to the same soundbites:
"no one can predict the market",
"now is exactly the best time to buy",
"we're not like the US",
"things are going great for me and I'm seeing lots of activity in the market".
"don't think in investment terms, think about owning your own home"

They run out of patter when I push back with my detailed understanding of the market (earning to price ratios, 14 yr real estate cycles, TREB market watch reports, consumer debt to earnings ratios, Toronto historical peaks/valleys 1978-2008, Canada tracking the US 2 yrs behind, etc).

But I must admit, these cats are smooth. They are charming, personable, and have useful facts/soundbites at their disposal. If I wasn't pre-prepared, I'd be easy pickings.

Anyway, my plan is to eventually lease the space that meets my needs, but is also willing to accept an offer 15%+ below listing.

In relation to the topic thread, what I'm saying is don't listen to what they tell you. Don't listen to the offer they make/advertise. Offer/ask for what you want, and let them think you are going to walk, and then see what they are willing to offer you. My 2 cents.

 

[lowesthangingfruit]

yeah, -it's only a buyers market for resales. Dont really see why new build projects would be in any need to offer true incentives... especially if they're over the 70% sold mark (or whatever the magic number is).

The only reason (or at least the only reason I can think of) to buy a new build right now versus resale is if you didnt actually need to move in right away, and wanted to purchase something that you couldnt afford today (and hence mark to market the price)... but could afford in 1 or 2 years due to heavy savings for a down payment (and potential income increases).

What does 70% sold mean ?? It just means the potential buyers signed a piece of paper saying they'll pony up the money at some point in the future ?? If so, in my opinion, nothing has sold yet. That's like saying I got a piece of paper that says I'm getting $42.75 for BCE. Maybe,....or maybe not, but until you see the money in your account, nothing is a done deal.

And isn't part of the problem of how we got here today is cuz a bunch of ppl started buying stuff they couldn't afford today but assumed they can at some point ??

 

[condoboy]

What does 70% sold mean ?? It just means the potential buyers signed a piece of paper saying they'll pony up the money at some point in the future ?? If so, in my opinion, nothing has sold yet. That's like saying I got a piece of paper that says I'm getting $42.75 for BCE. Maybe,....or maybe not, but until you see the money in your account, nothing is a done deal.

And isn't part of the problem of how we got here today is cuz a bunch of ppl started buying stuff they couldn't afford today but assumed they can at some point ??

It means that builders create staggered deposit structures that make it difficult for a purchaser to walk away from their hard earned money that they have put down! You are right, nothing is considered sold until final closing and your lawyer provides you with the keys to your digs...however I don't think anyone is foolish enough to walk away from 5, 10, 15, 20% of their hard earned money because of future potential losses in value. So in all reality...then yes these figures of units sold are pretty much good as gold, unless you are willing to take an immediate loss!

 

[TKTKTK]

however I don't think anyone is foolish enough to walk away from 5, 10, 15, 20% of their hard earned money because of future potential losses in value. So in all reality...then yes these figures of units sold are pretty much good as gold, unless you are willing to take an immediate loss!

That assumes you have a choice in the matter.

Is it possible, with tightening mortgage requirements, that some people who were originally eligible for a mortgage might find themselves no longer eligible? Can that happen, or is there something built into the mortgage contract to protect against it?

 

[daveto]

I would figure that anyone who wants to sacrifice their deposit, can walk away without further obligation. That's what my parents did years ago on a $5,000 deposit on an offer they made on a house.

Also, I figure that someone who has a mortgage lined up dependent upon their income/assets would be subject to having the mortgage revoked/adjusted if their circumstances change prior to close?

 

[lowesthangingfruit]

It means that builders create staggered deposit structures that make it difficult for a purchaser to walk away from their hard earned money that they have put down! You are right, nothing is considered sold until final closing and your lawyer provides you with the keys to your digs...however I don't think anyone is foolish enough to walk away from 5, 10, 15, 20% of their hard earned money because of future potential losses in value. So in all reality...then yes these figures of units sold are pretty much good as gold, unless you are willing to take an immediate loss!

First of all, good as gold doesn't mean anything nowadays cuz have you seen what gold's been doing lately ??

Second, as for "foolish" enough to drop their deposits, that's like saying no one will ever walk away from a losing position and cut their losses short. I have news for you, it happens all the time in, any type of market. I'll give you an analogy. The corporate M+A market where a co. will reneg on a buy out offer and pay the break up fee to get out of a deal that has turned sour. Is the co. foolish ?? Maybe, maybe not, not for me to judge. But jettisoning a losing or potentially losing position is simply a risk management tool used in every type of market.

 

[condoboy]

First of all, good as gold doesn't mean anything nowadays cuz have you seen what gold's been doing lately ??

Second, as for "foolish" enough to drop their deposits, that's like saying no one will ever walk away from a losing position and cut their losses short. I have news for you, it happens all the time in, any type of market. I'll give you an analogy. The corporate M+A market where a co. will reneg on a buy out offer and pay the break up fee to get out of a deal that has turned sour. Is the co. foolish ?? Maybe, maybe not, not for me to judge. But jettisoning a losing or potentially losing position is simply a risk management tool used in every type of market.

Maybe "good as gold" was the wrong analogy, considering the value of gold and almost all other commodities are dropping like hot cakes .

However as far as deposits go...most ordinary people such as myself and probably many others on this forum aren't in a position to start giving away their hard earned money to builders because of the declining markets. Five % of 300,000 is $15,000, and we all know how long it takes to save up that kind of dough. If you are planning on living in your pad for the next 5, 7, 10 years, then there's nothing to worry about anyways. If you have lots of cash, or are doubting your investment and are able to absorb the loss, then by all means it may be the right thing to do.

 

[cdr108]

However as far as deposits go...most ordinary people such as myself and probably many others on this forum aren't in a position to start giving away their hard earned money to builders because of the declining markets. Five % of 300,000 is $15,000, and we all know how long it takes to save up that kind of dough. If you are planning on living in your pad for the next 5, 7, 10 years, then there's nothing to worry about anyways. If you have lots of cash, or are doubting your investment and are able to absorb the loss, then by all means it may be the right thing to do.

Sometimes it's more than just the deposit. It's also about cashflow.
By Urbanation's assessment, ~35% of all condo purchases are by 'investors'.
The days of easy money in RE from flipping are gone for now.

In the above example, let's assume one buys $300K condo.
Based on current $ psf for new builds, that can get a unit ranging from 500-700 sf.

Costs

80% LTV mortgage
= $240K @ 7.2% 5 yr fixed / 25 yr amort = $1,711/m
Maintenance fees
= $250 - 350 /m (depending on size)
Property taxes$300/m
===========
Carrying Costs excluding insurance = $2261 - 2361 / m

Rental Income
ranges from $1200 - 1750 / m depending on size.

Cashflow
Negative $611-1061 / m = $7,332 - 12,732 / year

That's where risk management comes in beyond the initial deposit before the building is completely built.

 

[lowesthangingfruit]

maybe "good as gold" was the wrong analogy, considering the value of gold and almost all other commodities are dropping like hot cakes .

However as far as deposits go...most ordinary people such as myself and probably many others on this forum aren't in a position to start giving away their hard earned money to builders because of the declining markets. Five % of 300,000 is $15,000, and we all know how long it takes to save up that kind of dough. If you are planning on living in your pad for the next 5, 7, 10 years, then there's nothing to worry about anyways. If you have lots of cash, or are doubting your investment and are able to absorb the loss, then by all means it may be the right thing to do.

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[cabbagetowner]

Sometimes it's more than just the deposit. It's also about cashflow.
By Urbanation's assessment, ~35% of all condo purchases are by 'investors'.
The days of easy money in RE from flipping are gone for now.

In the above example, let's assume one buys $300K condo.
Based on current $ psf for new builds, that can get a unit ranging from 500-700 sf.

Costs

80% LTV mortgage
= $240K @ 7.2% 5 yr fixed / 25 yr amort = $1,711/m
Maintenance fees
= $250 - 350 /m (depending on size)
Property taxes$300/m
===========
Carrying Costs excluding insurance = $2261 - 2361 / m

Rental Income
ranges from $1200 - 1750 / m depending on size.

Cashflow
Negative $611-1061 / m = $7,332 - 12,732 / year

That's where risk management comes in beyond the initial deposit before the building is completely built.

7.2 % ...are you going to a loan shark?

 

[AKS]

must be a trust company. Their rates seem high judging by the dreamhomes magazine listing of 5yr mortgages. they seem to be around 6.85-7.15%

 

[carturo15]

Sometimes it's more than just the deposit. It's also about cashflow.
By Urbanation's assessment, ~35% of all condo purchases are by 'investors'.
The days of easy money in RE from flipping are gone for now.

In the above example, let's assume one buys $300K condo.
Based on current $ psf for new builds, that can get a unit ranging from 500-700 sf.

Costs

80% LTV mortgage
= $240K @ 7.2% 5 yr fixed / 25 yr amort = $1,711/m
Maintenance fees
= $250 - 350 /m (depending on size)
Property taxes$300/m
===========
Carrying Costs excluding insurance = $2261 - 2361 / m

Rental Income
ranges from $1200 - 1750 / m depending on size.

Cashflow
Negative $611-1061 / m = $7,332 - 12,732 / year

That's where risk management comes in beyond the initial deposit before the building is completely built.

FYI, when someone buy a place as an investment, they always choose longer amortization terms, like 35 years combined with variable rates, which is about 5% now, so instead of those $1.711/m that you are talking about, the mortgage will be $1.200. For a $300k unit the property tax in Toronto is $210 monthly, so including $300 maintenance fee, the total carrying costs would be $1.710. A $300k unit in downtown Toronto can be easily rented for $1.700, which would cover all the carrying costs.

The key is to choose the right building and location where you can get tenants willing to pay the premium for a good product