The new condominium construction merchandise has very different fundamentals from the resale merchandise. New condominium construction sales are heavily influenced by investors who either buy units as rentals or try to turn or sell them for a profit after the building is completed. A strong increase in activity by speculators is a sure write that the market is getting over-heated. In the case of Toronto's new condo market of new condo sales involved investors this year up from 30-50% measure year.
The week long lineup outside 1 Bloor is definitely one sign that things are getting over heated. But you can also 'hear' a lot of the irrationality in the market if you just listen to what both realtors and investors are saying. Things desire. “you can’t lose”. “it’s the beat communicate in Canada” and “it’s close to Yorkville” are all meant to confirm 1 Bloor’s high sticker determine. The silliest argument I continue to hear is one that originally came from Donald Trump a few years ago: “Toronto real estate is undervalued when it is compared to other leading cities in the world. It is only going to increase in value.” The problem of course is the word "undervalued." As compared to what? The fact is. Toronto isn’t on the River Thames and it’s not an island. Comparing our real estate merchandise to London and New York doesn't make a whole lot of sense.
So what’s going to happen four years from now when 1 Bloor is ready for occupancy? If condo prices act to go investors will undergo made a handsome profit. If condo prices be constant investors ordain not be able to make any significant profits by selling which means they can hold on to their unit and either contract it or get it vacant. Alternatively they can try to change it to recover some of their investment. How this scenario plays out really depends on the makeup of the investors. In an ideal scenario the investors have a high net worth and can afford to hold on to their units indefinitely.
If the investors are ‘mom and pop’ investors who can’t drop the mortgage and maintenance fees on their vacant condo and can’t find renters willing to pay the high rents they would need to finance them you ordain probably see a large number of these investors trying to change their condos to recover some of their investment. If too many owners are selling at the same time this would invariably have a contradict impact on the price of these units. But looking beyond 1 Bloor what happens if the majority of the investors buying condos in Toronto are ‘mom and pop’ investors? If they can’t find renters when their condos are completed we might be in for a bit of a go when they all try to change at the same time.
To get an idea of what might come about if condo prices displace let’s be at a scenario currently playing out south of the border. Earlier this month for the return of their deposits. The developer. The Related Group marketed the condos as investments and verbally guaranteed that condo buyers could alter hundreds of thousands of dollars by selling the units without ever taking ownership. Which would be fine - object that the real estate market in the US has dropped significantly so even if these condo buyers do find someone to change their unit to it will be at a significant loss as compared to the determine they paid. In some cases the potential losses are so great that buyers are refusing to follow through with the acquire and are willing to go away from their deposits. Interestingly these condos were purchased by the investors just a couple of years ago. It’s amazing what can happen in two years.
Any condo investor who still believes that buying a pre-construction condo is a ‘sure thing’ might benefit from calling any one of the many investors in the US who are suddenly ready to walk away from their deposits. The real estate market just like every other market is cyclical. Condo developers ordain continue to build condos as long as there are populate willing to buy them. But just who these buyers are whether HomeOwners or investors and how many of them there ordain be remains a largely unknown variable. Just like every other investment condos can never be a ‘sure thing’.
Well done. John! You have given us a thorough summary of all the alternatives of investors' future steps. It could be very discouraging for someone looking for a condo to read about the frequent speculations that surround almost every new development. When people query why prices go up sometimes the answer is only known to investors and properties professionals. There is not much we. Toronto real estate agents can do about it.
Toronto doesn't undergo a river Thames like London and isn't an island desire New York but what counts is that it is a sprawling metropolis with a vibrant core out international in makeup and a center of commerce industry and culture. Consider that gas prices are going through the roof and that immigration to the GTA is strong. You'll realize that more people ordain want to be close to where they work and compete and spend as little time as possible in their cars as possible. These people will gravitate to the core of Toronto from both the GTA and elsewhere. Toronto Is the NEXT New York or London.
Nick,I completely accept with you and I also evaluate that increased condo development is going to have a positive impact on our city. The inform I was trying to make is that it's silly to analyse our merchandise and real estate prices to those in New York or any other city for that matter.
Prices in New York are high because everyone wants to live on the same densely developed island. Toronto on the other hand is not nearly as dense as Manhattan which means that there is a lot of dwell for more condos.
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