"Silent" Money Pours In

[casaguy]

Foreign funds snap up deluxe condos
LORI MCLEOD
REAL ESTATE REPORTER
Globe and Mail
October 20, 2007

A flood of foreign investment in luxury condo developments is vaulting Toronto to the status of a world-class destination and financial centre, but also runs the risk of creating "concrete caverns" that push low-income residents well out of the downtown core.

"Silent" money is pouring in from places including Russia, Dubai and South Korea, spurring an explosion of condo developments with suites selling for a staggering $1,000 per square foot or more, said Sherry Cooper, chief economist at BMO Nesbitt Burns.

These ritzy developments will boost the city's revenue base and vault Toronto into the big leagues alongside London and New York, Ms. Cooper said. They'll also create new jobs, gentrify some neighbourhoods such as Yonge Street south of Bloor Street, and stimulate economic growth, she added.

However, with the benefits come challenges, including the erosion of affordable housing downtown and strain on public services, Ms. Cooper said.

"While net-net I believe this is a positive, there's also the clear risk of displacement of low-income residents who will no longer be able to afford anything near the downtown core," Ms. Cooper said in an interview.

High prices are spilling over from the posh Yorkville and waterfront districts into surrounding areas, where anything other than a "shoebox" is becoming out of reach for many buyers, including young families, Ms. Cooper said.

More people commuting to downtown from satellite communities will put additional strain on already-jammed public transportation, roads and highways. As developers snap up everything from parking lots to low-rises, downtown Toronto is also in danger of losing its character and views.

"We run the risk of creating concrete caverns that block the sun and increase gridlock on already-busy city streets," Ms. Cooper said.

This inflow of funds is escaping notice because it is difficult to follow and is not tracked by Statistics Canada, said Ms. Cooper, who has compiled much of her data anecdotally and through visits to the sales centres for high-end developments.

As of Aug. 31, Toronto had 13 luxury high-rise projects on the go, including the Four Seasons, Trump International Hotel & Tower, and Residences at the Ritz-Carlton, according to data from RealNet Canada Inc.

Many foreigners aren't buying solely for investment reasons, but also plan to use their condos when they visit Toronto and as a home base for travels in North America, Ms. Cooper said.

In addition to traditional condos, some high-end developments are offering hotel rooms that owners can use when they are in Toronto, then receive revenue when the units are let out to hotel guests.

Billionaire Donald Trump, who broke ground on his 57-storey project at Bay and Adelaide streets last week, said despite its world-class status, Toronto is still a real-estate bargain by international standards.

His project, which is 70-per-cent sold, has attracted buyers from the United States, Hong Kong and Europe, Mr. Trump said. More units will be released for sale this fall starting at $1.6-million.

 

[wyliepoon]

Post

Link to article

Foreign money changing city

Dr. Sherry Cooper
Special to the National Post

Saturday, October 20, 2007

There is a stealth influx of foreign capital changing the face of downtown Toronto from the waterfront to Yorkville, and no one's measuring it.

Statistics Canada reports a decline in net foreign direct investment and portfolio investment in Canada; however, there is an enormous volume of "silent" foreign capital inflow to Toronto that escapes the purview of StatsCan's data collection. This money is coming via the reportedly large numbers of foreign purchases of the ultra-luxe new condos in Toronto -- those selling for more than $1,000-per-square foot.

This demand is helping to spur the explosion in five-star-hotel residences and other ultra-deluxe condos downtown. With limited land, developers are building upwards and soon there will be no remaining outdoor parking lots on Toronto's busy thoroughfares. Even two-storey buildings could be headed for extinction.

Some of these foreign purchasers are investors, but apparently many more are nonresidents who will use these condos only occasionally for business or pleasure trips to Toronto or as jumping-off points to the rest of North America. Statistics Canada does not track these inflows, but anecdotal industry data suggest the phenomenon is meaningful.

In my view, Toronto is becoming a world-class financial and commercial centre in the order of New York and London.

While these condos are going for $1,300-to-$1,800-a-square-foot, they are cheap by international standards. Donald Trump -- at the Toronto groundbreaking of Trump Tower Toronto at Adelaide and Bay -- recently declared that comparable property would sell for $5,000-a-square-foot in New York and even more in London.

For decades, wealthy foreigners have seen Canada as a safe haven to educate their children. Hong Kong Chinese and other Asians took residence in Toronto and Vancouver in the '80s and '90s, driving up real estate and spurring the development of high-end stores, spas, restaurants, theatre--increasing the demand for luxury goods and services. This also raised the average house price in Vancouver, now at nearly $600,000, beyond the reach of average first-time buyers.

Foreigners are anxious to diversify their assets away from U.S.-dollar dominance.

Wealthy foreigners are diversifying their real estate holdings as money pours in from Russia, the Middle East, Asia and Europe. Arguably, Toronto is less at risk of terrorist attack or at least perceived so.

Nowhere is the new wave of foreign money more evident than on Bloor Street. New designer stores are opening and existing ones are expanding. Canada's own Holt Renfrew's flagship store has expanded, as well, such designer boutiques as Chanel, Gucci and Escada have expanded.

High-priced trendy restaurants are popping up citywide and the remodelling and expansion of the ROM, the Gardiner Museum and the Art Gallery of Ontario are enhancing this urban renewal.

We are observing the gentrification of Bloor Street west of Avenue Road and east of Yonge Street as downscale commercial properties are replaced by upscale residences and boutiques. For example, the 16-storey ultra-luxury Museum House condominium development will take the place of the Pizza Hut opposite the ROM's new Crystal.

Even the seamier side of Yonge south of Bloor will change with the coming 80-storey hotel/residential/retail tower of 1 Bloor, touted as the tallest residential tower in Canada by its Kazakhstan-based developer. This boutique hotel will join the other five larger five-star hotels opening in Toronto in the next few years, taking us from not a single five-star hotel in all of Canada to six in Toronto alone.

Bottom line: This is a fascinating and important economic development, bearing with it enormous portent.

On the positive side, it will be a boost to the revenue base of the beleaguered city government and certainly increase the economic growth of the city and no doubt encourage the rise of the dollar.

On the negative side, it will reduce the affordability of the city, potentially displacing low-income residents. It puts additional strain on public services and adds to the de-industrialization of the inner city.

We run the risk of creating concrete caverns that block the sun and increase gridlock. It is an opportunity and a challenge, and it is happening faster than most realize.

Dr. Sherry Cooper is executive vice-president, Global Economic Strategist, BMO Financial Group.

 

[unimaginative2]

The risk is that it will displace not only low-income residents, but middle income as well, so that the only people who can afford to live in the core are either multimillionaires or on social assistance. Already the Annex is completely out of the price range of professors and the like who made it the neighbourhood that it is today. As the ones who live their now move away, it will become a monocultural Bay Street neighbourhood just like Rosedale or Forest Hill.

 

[Hubotnik]

There are some worrisome side effects to this cash influx. I wonder what would be the best solution to handle it. More subsidized housing in the city core? Requiring developers to include units affordable to middle and lower income? Anyone know of a similar example in another city and how they coped with it?

 

[yyzer]

In my view, Toronto is becoming a world-class financial and commercial centre in the order of New York and London.

I like Sherry Cooper, and it is nice to hear a bit of hyperbole from someone such as her...but this goes a little too far, don't you think? We are a great town, absolutely, but we will never compete with the alpha cities of the world's power empires - London from Britain in the 19th century, and New York from the U.S. in the 20th. Canada holds no world empire, either military or economic, so we will not attain that status, imo.

Still, things are going well, aren't they?

I wouldn't worry too much about the squeezing out of the lower and middle class...there's lots of room for everybody at this point...

 

[ShonTron]

I wouldn't worry too much about the squeezing out of the lower and middle class...there's lots of room for everybody at this point...

...in Oshawa or Newmarket.

 

[ShonTron]

The risk is that it will displace not only low-income residents, but middle income as well, so that the only people who can afford to live in the core are either multimillionaires or on social assistance. Already the Annex is completely out of the price range of professors and the like who made it the neighbourhood that it is today. As the ones who live their now move away, it will become a monocultural Bay Street neighbourhood just like Rosedale or Forest Hill.

You might be right. With the price per square foot rising rapidly downtown, it will mean more low to mid income persons will end up in condos in the fringe downtown and 416 suburban areas. It won't be an entirely bad thing of course, as it might mean hipster-wannabes will discover the interesting inner suburban ring of suburbs, but it will also mean changing pressures on transit, and neighbourhood change in the new "places to be discovered" - will currently lower cost areas like Cliffside, New Toronto, Mount Dennis, Downsview be the new Junctions in 10-20 years time?

 

[CDL.TO]

The house in the Annex are big. They're beautiful. They're well-built. They're located on quiet residential streets with leafy mature tree canopy. And in good traffic they're located a 5-minute drive from the financial core. If they weren't out of the price range of most people in a city region of 5 million people then I would be concerned. The city's successful and gentrification marches on (yes, gentrification can include nabes of professionals).

In almost all of former York and parts of North York, East York, Scarborough, Etobicoke, even the former Toronto there are literally HUNDREDS of places that would benefit from some professionals to move in.

I think it's helping the whole city. I guess my challenge would for anyone to name a neighbourhood south of the 401 in Toronto that has gone downhill over the past 15 years.

 

[urbandreamer]

I think Sherry Cooper has just demonstrated what I always have noticed about overpaid investment banking types: they're fundamentally stupid! There is no shortage of parking lots in Toronto, no shortage of crap one story plazas to knock down, no shortage of affordable housing. Just another advertorial for her employer imho! The further removed from the lower and middle classes you get (aka Sherry Cooper) the further from reality!

There is no reason to panic: Toronto (at current immigration levels) has enough room for another 1000 years of growth. Even with just 4 story residential above retail on all major streets, Toronto could house another 10 million people.

Pure marketing drivel and further validates why I no longer read either the globe or the post.

 

[adma]

I think it's helping the whole city. I guess my challenge would for anyone to name a neighbourhood south of the 401 in Toronto that has gone downhill over the past 15 years.

...for some reason, I feel like appending "and west of Victoria Park" to that. (Ah, ever-damned Scarberia...)

 

[yin_yang]

they should definitely make a second city centre in North York, a real one...and another one in Scarborough. The ones that exist now are suburban and pathetic. Move some exclusive attractions and facilities to them, and they should absorb some density from downtown. I agree that New York is TOO dense, it's not healthy. In the long run, a nodal city centre plan is the most efficient.

 

[TrickyRicky]

Sensationalism. Toronto is probably one of the most affordable cities taking living standard and population size on earth. What we are seeing is a slow rise of prices to a level that promotes private sector investment and improvement in property that has been largely absent in this city for decades.

"The risk is that it will displace not only low-income residents, but middle income as well, so that the only people who can afford to live in the core are either multimillionaires or on social assistance. Already the Annex is completely out of the price range of professors and the like who made it the neighbourhood that it is today. As the ones who live their now move away, it will become a monocultural Bay Street neighbourhood just like Rosedale or Forest Hill."

I wanted to point out one omission I think is missing from this point of view. The annex IS an enclave of a wealthy monoculture. The professor types and renters that enjoy living there today are living off the investment capital and initiative that poured into the area a century ago by the original anglo-elite who built it. So in effect gentrification is re-gentrification, the reverting of the neigbhourhood to it's intended form with more and more housing dedicated to stable wealthy occupants. While the urban hip begrudge the wealthy for "gentrifying" their neighbourhoods that "they" created, they fail to acknowledge that in most cases it was the wealthy that created these neighbourhoods in the first place.

 

[Urban Shocker]

Though we shouldn't assume that now the increasingly gentrified Annex is reverting to type, and moving on from the days in the '60's and '70's when many of those clunky Queen Anne monster homes were rented out to students, it will retain that exact gentrified character forever. If many of those homes were converted to three or four condominiums, for instance, we would have an entirely different dynamic yet again - possibly just as upscale but more densely populated. We've seen office buildings and rental apartments converted to condos, and old factories converted to retail and residential uses, so who knows what the city may evolve into next? Increasing offshore investment is bound to be a factor.