Jump to content

Recommended Posts

Builders face financing squeeze

'We can expect a solid demand for condominiums well into the future'

 

TorontoCranesbig.jpg

 

TERRENCE BELFORD

From Friday's Globe and Mail

September 5, 2008 at 12:00 AM EDT

 

Remember how A Tale of Two Cities starts? Charles Dickens writes, "It was the best of times, it was the worst of times." Stretch that theme a bit and you might be describing what is about to happen in the Toronto-area condominium market.

 

First, the best of times. According to Urbanation Inc., which tracks condos from the Burlington border to Ajax and Whitby, there were a record 295 projects for sale at the end of June. Of these, 147 were under construction and another 38 new ones were ready to break ground.

 

Behind those projects stood 151 different developers, and for many of them it was their first shot at building a condo. Those first-timers were mainly house builders who could no longer find building lots.

 

Their choice was either to move into condos or fold their tents.

 

So on the plus side, prospective buyers have never had greater choice.

 

Now on to the worst of times. That impressive number of projects may prove to be the Greater Toronto Area's version of a Potemkin Village by the end of the year.

 

Veteran market watchers say that up to a third of them are likely to be pulled from the market. Along with them, up to 50 developers may bite the dust.

 

The reason? They are unlikely to find financing, says Barry Lyon. He is a 40-year veteran of the Toronto area real estate market.

 

His company, N. Barry Lyon Consulting Ltd., provides research, marketing and project management to the condo and commercial sectors.

 

"The U.S. credit crunch means the money to build just is not there," he says. "The tap has run dry."

 

So, what determines who gets the money to build? In large part, GTA condo buyers. Developers need to presell about 60 per cent of the units in any project before lenders will take a look at providing the money to build. Equally important, they have to do it within reasonable time frames.

 

As their marketing and sales teams scurry to sell suites, construction and carrying costs for high-priced land are ticking upwards. Mr. Lyon says he would not be surprised to see some developers pulling projects out of the market because those costs have risen to such an extent that they simply can't make a buck going ahead. "In some cases, even with 60 per cent sold, some developers are still going to have a hard time finding financing," he says.

 

It is not that there is any lack of demand. It remains strong, says Jane Renwick, executive vice-president of Urbanation. But it is nowhere near the levels seen in 2007, which was a banner year for the industry.

 

Thanks to record sales in 2007, 76 per cent of the 66,310 suites on the market at the end of June had already been snapped up. "I think a lot of last year's sales went to first-time buyers," she says. "I also think that most of them have now been absorbed so we are looking at a return to a more stable market — less of a gold-rush mentality."

 

Again on the plus side of demand is the lure the GTA holds for immigrants. Ms. Renwick points out that of the 150,000 people who immigrate to Ontario in any given year, 100,000 of them make their way to the Toronto area.

 

"If that trend continues, if we continue with high employment and if the economy continues to expand, we can expect a solid demand for condominiums well into the future," she says.

 

That demand will continue to be strongest within the old city of Toronto. That is where 70 per cent of today's projects sit, says Mr. Lyon. It is also where prices are highest — an average $461 a square foot, versus $418 a year ago, according to Urbanation.

 

Compare that with $294 in Scarborough, $254 in Pickering, $287 in Ajax and $313 in Aurora.

 

Much of the difference is simply the cost of land to build on. But in that area Mr. Lyon suggests the coming shakeout may bring positive benefits to buyers. He says the loss of about a third of the developers today jockeying for land and bidding against each other to arrange construction crews likely means less competition for available resources.

 

Less competition means lower demand and lower demand usually leads to, if not lower prices, then at least a much slower rise in prices.

 

"It is going to be an interesting year," Mr. Lyon says. "By the end of 2008, the GTA's condo market may be a quite different place."

 

Terrence Belford is a veteran journalist covering the Toronto real estate market.

Link to comment
Share on other sites

Again on the plus side of demand is the lure the GTA holds for immigrants. Ms. Renwick points out that of the 150,000 people who immigrate to Ontario in any given year, 100,000 of them make their way to the Toronto area.

 

"If that trend continues, if we continue with high employment and if the economy continues to expand, we can expect a solid demand for condominiums well into the future," she says

 

C'est la clé du succès de Toronto. Ils acceuillent tellement de monde dans une année, que ça ne peut qu'être bénéfique pour l'économie local. Quand allons apprendre cette leçon?

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...
adblock_message_value
adblock_accept_btn_value