Why purchase pre-construction condos at inflated price?

[simuls]

I'd look at places like Regina, Saskatoon, Winnipeg, Halifax or go outside to places like Argentina. Here's an interesting link that will outline various ROI's for rentals around the world and clearly illustrates why many expensive markets are actually the worst to invest in.

http://www.globalpropertyguide.com/press-relations/Most-expensive-real-estate-markets-in-2009

It's also interesting to note that, considering most real estate in the world lost value vs. Toronto's gaining, a conservative estimate would move Toronto from 42nd most expensive in the world to 16. That's a HUGE jump in 1 year and unsustainable.

 

[MadMax]

I'd look at places like Regina, Saskatoon, Winnipeg, Halifax or go outside to places like Argentina. Here's an interesting link that will outline various ROI's for rentals around the world and clearly illustrates why many expensive markets are actually the worst to invest in.

http://www.globalpropertyguide.com/press-relations/Most-expensive-real-estate-markets-in-2009

It's also interesting to note that, considering most real estate in the world lost value vs. Toronto's gaining, a conservative estimate would move Toronto from 42nd most expensive in the world to 16. That's a HUGE jump in 1 year and unsustainable.

Why do you say it's unsustainable? Do you know how people in New York afford to live in such an expensive and world class city? They work two jobs and grind out a living so they can squeeze into the 400 square foot studios if they are lucky. We should stop feeling sorry for ourselves and underestimating ourselves which is the typical "Canadian" conservative way of thinking. We need to realize that this city is changing dramatically before our very eyes, and the world is paying attention that's for sure!

 

[daveto]

Why do you say it's unsustainable? Do you know how people in New York afford to live in such an expensive and world class city? They work two jobs and grind out a living so they can squeeze into the 400 square foot studios if they are lucky. We should stop feeling sorry for ourselves and underestimating ourselves which is the typical "Canadian" conservative way of thinking. We need to realize that this city is changing dramatically before our very eyes, and the world is paying attention that's for sure!

Speaking of NYC, I'm being recruited for a position there. Although I don't know if I'll go, even if it's offered.

I've been looking at NYC apartments and condos on the net. Two things have struck me. First, there are loads of rental units for under $2k in Manhattan. Second, the absence of any undeveloped land in Manhattan. Quite simply, it's all taken. This contrasts greatly with downtown Toronto, where there are loads of parking lots within a 10 minute walks of the city core.

 

[altcontrol]

Something else to note is that there are many foreign investors that want exposure to real Canadian assets. The Cdn dollar is strong is anticipated to continue to remain strong. ROI's on condos are in the 3-5% range (including the principal reduction on mortgage) which is actually quite attractive compared to other hard assets. Buying Canadian real estate serves this purpose. When foreignors buy Canadian real estate for investment, it means buying either Vancouver or Toronto condos.

 

[cdr108]

Speaking of NYC, I'm being recruited for a position there. Although I don't know if I'll go, even if it's offered.

I've been looking at NYC apartments and condos on the net. Two things have struck me. First, there are loads of rental units for under $2k in Manhattan. Second, the absence of any undeveloped land in Manhattan. Quite simply, it's all taken. This contrasts greatly with downtown Toronto, where there are loads of parking lots within a 10 minute walks of the city core.

don't forget the countless low-rise (3s) buildings ripe for redevelopment and increased densities of 40+s based on current trends

 

[Johnzz]

Not to say that prices can’t fall, but three points to argue they might rise:

(1) Demographics - Higher income individuals continue migrating closer downtown while lower income individuals move out. http://www3.thestar.com/static/Flash/map_middleclass.html

(2) Likely to experience double digit inflation over next five years while the BoC target rate remains “relatively†low in an attempt to weaken a skyrocketing C$.

(3) As prices rise, affordability remains as we simply adjust to living in smaller spaces (i.e. Europe and Asia).

 

[dpylyp]

Betting on where the market is going

when buying;

• consider the price per square foot
• the amenities
• the builders reputation
• consider the hype and sizzle of the sales center and what you are actually moving into
• Give some serious consideration to where is that view streetview going to be? Are you facing the airport runway? or a brick /glass wall?
• very hard to sell a view of the Gardiner onramp (except in a hot market)
• Buy parking - You may not need it but when you sell, they might and you can rent it.
• Buy with some future consideration and planning - What circumstances will you be in - 4 years from now?

Sometimes the older, larger, with fewer amenities, build sites are ok and near major transit hubs.

A prime example of this in the west end is The Kingsway on the Park (Aberfoyle at Islington and Bloor) directly beside /above the Clarica Center at Bloor and Islington or the twin towers of Barclay Terrace at 1300 and 1320 Islington a short brisk stride to the subway.

Both have a high demand and very few for sale. (Low turnover)

 

[avatarreb]

I'd look at places like Regina, Saskatoon, Winnipeg, Halifax or go outside to places like Argentina. Here's an interesting link that will outline various ROI's for rentals around the world and clearly illustrates why many expensive markets are actually the worst to invest in.

http://www.globalpropertyguide.com/press-relations/Most-expensive-real-estate-markets-in-2009

It's also interesting to note that, considering most real estate in the world lost value vs. Toronto's gaining, a conservative estimate would move Toronto from 42nd most expensive in the world to 16. That's a HUGE jump in 1 year and unsustainable.

That's one weird list, don't think the cities sampled are comprehensive... Vancouver isn't even on there, and they are way more expensive compared to Toronto.

 

[X2 Buyer]

That's one weird list, don't think the cities sampled are comprehensive... Vancouver isn't even on there, and they are way more expensive compared to Toronto.

Good findings.

From this price list Toronto is at US$4007/sq. m so it is around $370/sq. ft. therefore I assume this is the average price for GTA not downtown Toronto. So here is why all other foreign investors will come to buy downtown Condo here.

Shanghai (city wide equivalent to GTA here) is at US$2918/sq. m around $270/sq. ft.

Downtown Toronto highest price is around $800/sq. ft such as Bloor one;
Downtown Shanghai highest price is around $3100/sq. ft (200K RMB per sq. mhttp://www.021fang.com/sub_paper/22977.htm - if you understand Chinese).

Btw, the income level is 15.5:91.6 for Shanghai:Toronto if the New York City is at 100

 

[daveto]

The survey is for apartments at 120sq meters. As such, it doesn't reflect the cost of all apartments, just those at 120 sq meters. Some markets will have more or less of those units, and that will be reflected in the prices.

 

[TorontoMike$$]

I'd look at places like Regina, Saskatoon, Winnipeg, Halifax or go outside to places like Argentina. Here's an interesting link that will outline various ROI's for rentals around the world and clearly illustrates why many expensive markets are actually the worst to invest in.

http://www.globalpropertyguide.com/press-relations/Most-expensive-real-estate-markets-in-2009

It's also interesting to note that, considering most real estate in the world lost value vs. Toronto's gaining, a conservative estimate would move Toronto from 42nd most expensive in the world to 16. That's a HUGE jump in 1 year and unsustainable.

Small town investing you will always get a higher cap with minimal appreciation. I still think you will miss out on a couple years of above average gains.

 

[TorontoMike$$]

And small town investing the quality of renters are not like downtown. You will spend lots of time chasing rents

 

[CN Tower]

Good findings.

From this price list Toronto is at US$4007/sq. m so it is around $370/sq. ft. therefore I assume this is the average price for GTA not downtown Toronto. So here is why all other foreign investors will come to buy downtown Condo here.

Shanghai (city wide equivalent to GTA here) is at US$2918/sq. m around $270/sq. ft.

Downtown Toronto highest price is around $800/sq. ft such as Bloor one;
Downtown Shanghai highest price is around $3100/sq. ft (200K RMB per sq. mhttp://www.021fang.com/sub_paper/22977.htm - if you understand Chinese).

Btw, the income level is 15.5:91.6 for Shanghai:Toronto if the New York City is at 100

This sounds exactly like what happened in Miami around 2005 except you can substitute South Americans with Chinese. They had big pre-sales there too trust me, and the city was growing fast. I met plenty of cab drivers who bought units during the boom. If you think the price of condos in Shanghai has any relevance to the price of condos in Toronto you don't understand how real estate works and you will probably lose all your money. When the unit finally gets into the hands of the guy who wants to live there and he can't afford the maintenance fees let alone the mortgage payment all hell will break loose.

This is not a classic pyramid scheme real estate bubble but a far more portentous one. If these foreign investors get spooked or decide to take their game ball and find a better playground the market will implode and the locals will be left to pick up the mess.

 

[daveto]

One of the common explanations for Toronto's prices is the familiar "It's different here" People talk about Toronto being a world class city, a preferred destination for immigrants (or their wealth), our role as a financial centre, etc, etc.

However Toronto housing price increases have been almost completely in sync with Canada nationwide housing price increases since 1996.

Figures in the following CMHC reports quote that since 2004, Toronto prices have increased 33%, and Canada wide prices have increased by 38%.

Note page 4 of the CMHC Toronto report showing prices at $300k in 2004 and $400k for 2009 Forecast.
http://www.cmhc-schl.gc.ca/odpub/es...5f18731d49139d45eaeba19a79ba&fr=1262963821328

And page 25 of the CMHC Canada report showing prices at $226k in 2004 and $313k for 2009 Forecast.
http://www.cmhc-schl.gc.ca/odpub/es...5f18731d49139d45eaeba19a79ba&fr=1262964249125

These reports were published Fall 2009.

I went to a lot of effort in searching the web to find creditable sources with equivalent methodologies for Canada/Toronto. Unfortunetly, I couldn't find reports I felt comfortable with for 1996-2004. However I think the 2004-2009 figures above make my point.

My point?

Either there is nothing special about Toronto's market vs the rest of Canada, or Toronto is special and the rest of Canada is in a bubble.

For those who point to Toronto's special qualities as support for our market, I welcome your counterarguments.

 

[Eug]

Either there is nothing special about Toronto's market vs the rest of Canada, or Toronto is special and the rest of Canada is in a bubble.

I should point out your own link says Canada overall has increased by 15% more than Toronto (ie. 38% vs 33%), and that's because there are other cities that are much more out of whack than Toronto.

If we take Teranet's home price index, and use June 2005 as a gauge, the numbers are rather telling. Their composite price increase to October 2009 is approximately 30%. However, here are their per city increases:

Calgary: 55.5%
Vancouver: 44.5%
Montreal: 26.4%
Halifax: 24.0%
Ottawa: 21.9%
Toronto: 17.4%

That Calgary number is quite sobering: Calgary's price increase percentage is greater than 3X that of Toronto's.

To put it another way, Toronto would only need to fall 15% to hit summer 2005 levels, and that's not even considering inflation. If you consider an average about 1.70% inflation per year, that's about 8.8% after 5 years. That means by summer 2010 (which is a reasonable estimate when prices might begin to drop), prices normalized to 2005 levels but considering inflation would be 8.8% higher than 2005, or only 7.3% less than they are now.

Truth be told, I do think Toronto has overshot the reasonable price curve (like the rest of Canada), but what is the definition of bubble? 10% overvalued? If so, then perhaps Canada is in a bubble, given my above calculations (give or take a few %). What about 25% overvalued? If so, I don't think that's representative of Toronto.