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Developers are quietly putting condo projects ‘on the shelf’

Ryan Starr
The Toronto Star
October 6, 2012

Cooling sales mean fewer fall launches, BILD forum hears

With condo sales having cooled in the second half of 2012, wary Toronto developers are putting off their projects until next spring.

“Earlier in the year we were talking about perhaps 40 or 45 launches this fall — I’m hard pressed to find four projects that will launch this fall,” Alan Vihant, Great Gulf Homes’ vice president of highrise development told a recent BILD forum.

There were 24,301 new home sales in the first eight months of 2012, down from 30,412 for the same period a year earlier, according to figures from RealNet Canada. And 13,591 highrise condos have been sold since the beginning of the year, compared with 18,055 by this point in 2011.

It’s evidence, market watchers say, that recently adjusted mortgage lending rules are having an impact.

“Investors are certainly taking a break,” said Vihant. “I guess they’re waiting for the big reset in pricing.”

While the fundamentals of Toronto’s condo market — high immigration, low interest rates, pro-intensification policies — remain strong, “a lot of people are waiting to see what happens later this year,” Vihant said.

“I think a lot of projects have been sort of quietly put on the shelf until early next year and into the spring.”

Too many sites

A slowdown in project launches wouldn’t be the worst thing, suggested market analyst Barry Lyon, who told the forum that his consulting firm is currently tracking 420 active sites across the GTA.

“That is way too many for this modestly down-sized market,” he said. “We need to get back down to 325, 350 sites.

“Absorptions are slowing; we’re averaging across the GTA a little over five sales a month per project right now.”

If investors are taking a breather, builders should turn their focus back to end users, Lyon stressed. “The industry has almost been disrespectful of the end user — the first-time buyers and others — in recent years,” he said. “By the time they got to the sales office, the sold board was full or they just couldn’t get in.

“The industry has got to get back in touch with that original core market.”

Normal is discouraging

Veteran broker Hunter Milborne, noting that he’s experienced his share of recessions through the years, assured “the younger faces in the audience” that the recent dip in condo sales is “not the end of the world” — just a return to a more normal market.

“Last year was a record year and when you come from a record year … normal can get a little bit discouraging,” he said. “But we’re not headed for disaster and the market is going to stay strong.”

Regarding the mortgage rule changes, however, Milborne wasn’t as positive. “The federal government is paranoid,” he said. “I think they wish they could have a municipal monetary policy for cities like Toronto and Vancouver, as opposed to a federal monetary policy.”

‘Buoyant and optimistic’

Fellow broker Barbara Lawlor challenged the notion of a condo market slowdown, noting that her firm, Baker Real Estate, has four projects launching this fall.

“We are actually ahead numbers-wise this year than we were last year at this time, which I’m sure surprises everybody in the room, but that’s a fact,” she said. “So we are buoyant and optimistic.”

Some of Baker’s clients have postponed projects, Lawlor acknowledged, but mainly due to bureaucratic red tape, not waning market confidence.

“The reason a very few of our developers have moved launches into the spring of 2013 has been far more to do with approvals being delayed than it has to do with their take on the marketplace.

“I think every one of them would come rushing in if they had their approvals lined up.”

Affordability an issue

The growing cost of condos remains an issue, the panel agreed.

“Affordability is on everyone’s minds,” said Lyon, noting the popularity of condo projects in the new more livable downtowns being developed in cities such as Markham, Richmond Hill and Vaughan, places where there aren’t the same price concerns for buyers.

“All costs have gone up,” Vihant said. “The cost of land . . . construction costs. And sites are becoming constrained so it’s harder to build economically and deliver (condos) at an affordable price.”

In downtown Toronto, he noted, the ever-increasing cost of an ever-shrinking condo is a significant barrier for first-time buyers. It also makes it tough for young couples who want to start a family but remain in the city centre. “Affordability is an issue for families being able to live in medium and high-density (condo buildings), and that’s a problem we’re going to have to solve.”

Whither family housing?

Are highrise condo towers an appropriate place for families?

Toronto Councillor Adam Vaughan thinks so and pushes condo builders in his ward to include a set portion of “family sized” units in their projects.

“I’ve certainly spent my time with Vaughan and had many a debate,” Vihant told the forum. “And I continue to argue that it’s fundamentally wrong to try and put families into three-bedroom units on the 48th floor of a 63-storey building. Maybe a small percentage of families will move there, but that’s not where they want to move.”

Instead, Vihant said, the city should focus its energies on promoting development of family-sized housing in areas where families “can and should live . . . in particular the neighbourhoods where schools are being threatened with closure because there isn’t enough population in those neighbourhoods.

“There are ways to intensify and (put) infill family housing into neighbourhoods where there are schools, transit, parks, community centres and daycares.”

Posted on Wednesday, October 17, 2012 at 02:20PM by Registered CommenterElaine in | CommentsPost a Comment | References1 Reference

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