Overactive condo development?

[RateHub.ca]

There are a couple concerns I have with the rate at which condos are going up in this city. One, I question the current state and the future of condo resale values. With so many new and 'better' units available on the market, why would anyone look at older ones, let alone pay more for them? For instance, whereas typical real estate will appreciate in value within even just a couple years, can the same be said for 3-5 year-old condos?

Second, the actual rate at which condos are being built leaves some cause for concern as to quality deliverance. I have experienced first-hand living in a development where corners were obviously cut. Sure, it looks sleek on the surface, but there have been multiple issues with common amenities, appliances, utility breaks, and even daily elevator break-downs - and the building is less than a year old! In case you were wondering, no, I do not live south of Spadina and Front. Maybe I'm just not informed as to credible developers in this city, but when you're paying at least $50,000 per 100 square feet across the board, should there not be some quality control?

Finally, as it seems like there are dozens of projects going up at any given time, will there be sufficient demand to fill them? I am curious to see the future of vacancy rates in Toronto. Recently, the CMHC confirmed the surge in Canadian housing starts could largely be attributed to Toronto condo development. Does that not lead us to believe condo development is outpacing general market conditions? Is there a surge in citywide population growth to which I am unaware?

For the first two reasons, I am wary to buy a condo to actually live in, and for the last one, I am wary to buy for the purpose of renting one out.

However, separating myself from a general market perspective, I personally, much like many other young professionals in Toronto, cannot afford to invest in anything but a condo for the time being. It's quite a predicament to which opinions/advice is welcome!

 

[AKS]

Like you said, young professionals can't afford a house. Condo is their only viable choice if they want to live near the city. As for over building. Maybe, maybe not. Like you, there are young professionals who have graduated and working or are already working who want to live closer to work. Or even want a place of their own rather than living with their parents. There is only two solutions. You either buy or rent. How many families are in the GTA with adult children (young graduates)? How many are living with their parents and want to move out? How many want to live downtown? The immigrants unless they have money for downtown will probably choose the suburbs or if they have relatives and friends living in the suburbs.

Regarding new construction vs 3-5 yr old. It depends how much the building was sold for. If it was bought before 2007 or so and nearing completion the owner would have gotten a deal. If it's resold by investors, it would be at market price and not pre-2007 prices unless they can't close. It won't be cheaper than 3-5 yr old buildings. If it was bought after 2007-2008 or so, the pre-construction prices are very high. Especially downtown where 3-5 yr old condos resales are selling for around $450-530 psf (incl parking and locker). Pre-construction since 2008 has been selling for over $525 psf (excluding parking and locker).

As for quality of construction for new buildings. I think it would depend on the sub contractors. As an example, when I first moved into my building, I got Telus to activate internet for me. The rep that came had to fix all the wall sockets (internet and cable) for me because it wasn't done properly. My cousin recently had to get someone to fix the wall socket connection that controls the living room light. Because it wasn't done properly. The living room had a capped pot hole since ceiling lights didn't come with the unit. So it wasn't tested. You won't notice these things at PDI. Then there are subcontractors who may be careless like when working on the amenities and filling the pool, they don't remember to turn off the water. Over flowing it will cause water damage to the building too. This is especially bad if it happens on a pool located at the higher floor of a building instead of downstairs where water can cause damage all the way down below them.

Elevators are prone to breaking down as well. I don't know the reason behind it. I doubt the elevators were made cheaply. My building uses Fujitec which breaks down often. I googled and it is supposedly one of the top 10 elevator makers. Even subways in NYC and Tokyo use them.

 

[Catapult]

I suspect people who bought an older condo didn't spend the same price per square foot for it when they bought it years ago. So, even if they sell it now for below what a new condo would get they may still get a good return. I suspect most people will not pay more for a older condo over what you call a better new condo. People prefer older condos for a number of reasons - e.g., they may be better built, be in more established areas, have more character, etc. You also are concerned that the quick rate of condo building results in shodding quality. You should check out some of the housing developments in the burbs for detached and semis if you want to see shodding building. This has more to do with the developer/builder rather than whether it is a condo.

In some respects you answered your own question. Many people purchase a condo because it is affordable. Also, new construction is necessary to keep up with demand by new people moving into the city. Canada gets about 250k immigrants a year and many of them move to Toronto. Toronto condo's are also a popular choice for foreign and domestic investment. The latest stats I have seen shows vacancy rate for residential rentals dropping. As a result, the demand for rental units will go up and so might rents. So as you can see there are lots of reasons why people will buy a condo. I don't believe the condo market in Toronto is overactive as you say. You should have a look at the thread call "Baby we got a Bubble" to get more info and other people's perspectives.

 

[Hawk]

Why buy in older buildings?

The apartments may be a lot larger. The newer buildings have smaller units. Also a condo with lots of expensive amenities have very expensive maintenance bills when things break down.

Also, there is a large shakedown in the first five years in a condo's life. By then the large turnover in resales slows down and any major defects in the building should have come to light. If it is going to be a "troubled building" it will start to show by then.

My building, the Westmount at Keele and 401 is five years old now as a condo, it use to be a hotel, and all of its many problems are coming to light. Many owners took a long time seeing this but now most see the light.

Good quality buildings, well run and maintained, will always be in demand. Why? There are not that many of them.

I have a full section on what to look for if you plan to buy a condo at:
http://www.westmountcondoslife.com/contents-buying-condo.html

 

[Bogtrotter]

I wonder what the average age of tenant is for Cityplace? Seems to me that most of these buildings would be prime for investors and speculators.

Don't most new condos have a limit on how many units can be rented out, even after five years?

 

[RateHub.ca]

Vacancy rates

I don't believe current vacancy rates account for condos in construction, in pre-construction, or even those just launched on the market. And there are A LOT of condos in these three stages at the moment. I am just curious to see how vacancy rates will be affected in the coming months.

 

[HDLtd]

To my knowledge, CMHC stats on residential vacancy do not take into account condo rentals AT ALL.

 

[Catapult]

Last I heard vacancy rates in Toronto were very low.