Original article By: Susan Pigg Business Reporter, Published on Tue Dec 31 2013
An estimated $25 billion worth of condominiums are under construction across the GTA. A record number of units — development research firm RealNet estimates close to 20,000 — are slated to be completed in 2014.
Currently 63,909 new condo units are under construction across the GTA as of the end of October, according to RealNet.
“Exactly how many units we’re actually going to see occupy (in 2014) is really hard to predict because we’re entering a phase that is uncharted in history. We’re completing more units than we’ve ever completed because more units were sold in 2011 than have ever been sold in history,” says RealNet president George Carras.
“If 2011 was the strong takeoff year (for new condo sales), in 2014 they are all coming in for a landing.”
Well, not quite all of them.
More than 28,000 condos sold in the preconstruction phase in 2011, the most by far in a single year. Many are unlikely to be completed for another year or so because of construction bottlenecks — a shortage of skilled trades and equipment — that have limited completions to about 16,000 units a year.
But so many are already well underway, Carras believes we could see closer to 20,000 new units open for the first time in one year. And that’s left developers scrambling to make sure all goes smoothly, not only with The Big Move but, more importantly, with The Big Close.
Developers, and federal finance minister Jim Flaherty, will be watching closely to see how many condo buyers struggle or fail to close on units they bought in the preconstruction phase two or three years ago with meagre down payments, before tighter mortgage lending rules and last year’s slight bump up in interest rates made finalizing deals more difficult.
In the past few months, mortgage brokers, realtors and developers have seen a surge in people, especially the self-employed, “scrambling” to get final financing from institutions that have not only toughened lending requirements, but grown more leery of the condo sector.
Already, some buyers have had to walk away from deposits or borrow from family or secondary lenders at higher rates. Others have sought developer approval to put their units up for sale on the so-called “assignment market” as the project was just coming to completion, in hopes they could find a new buyer before final payments were due.
Veteran condo developer Scott McLellan of Plaza, whose company has an unprecedented 2,511 new units coming to completion in 2014, on top of more than 1,100 that closed in Liberty Village in late 2013, acknowledges the coming surge of closings is being watched closely.
“There is a concern in the industry,” acknowledges Plaza’s senior vice president. “There are a lot of bigger projects closing” in 2014.
But McLellan believes the closings at Plaza’s King West Condominiums in Liberty Village are a sign that all will be fine in 2014.
Of the 1,141 King West units sold in the preconstruction phase over the last two to three years, just two buyers did not close. One died and the other could not be located.
About 100 units were sold on the assignment market before final payments were due and all the new buyers have closed, he says. He estimates that 40 per cent of the project is owned by investors, and most are leasing out their suites for hefty rents rather than flipping the suites for a profit: Just 36 (or three per cent) of the units have been sold on MLS so far and another 21 units are up for sale.
McLellan believes the biggest issue for Toronto’s condo industry in 2014 won’t be finalizing closings as much as “getting sales back.”
Condo realtor turned developer Brad Lamb believes “the great Toronto development boom is over” and that condo sales, which averaged about 19,425 units a year from 2010 to 2013, will slip to an average of 12,000 a year as developers continue to hold back on new project launches.
(Lamb, who claims an essentially unblemished record of accurate predictions over the years, expects condo prices to “rise meaningfully” and rent to climb by mid-2016 as the “ample supply” of units begins to dwindle.)
Veteran development consultant Barry Lyon believes sales will average 12,000 to 15,000 units a year going forward, more in line with demographic demand. He sees 2014 as the year of incentives — from free parking or lockers to breaks on maintenance fees — as a way for developers to entice buyers back to their showrooms.
“Developers will be trying to win over markets they’ve been ignoring for the past several years, particularly first-time buyers and the end-user market,” says Lyon.
“I think developers are going through withdrawal pains from their addiction to investors. They are going to have to wean themselves off their dependency.”
That should mean more of a focus on small or midrise condo projects where owner-occupants actually care about the look, size and feel of the unit because they plan to live in them, rather than own them as investments and rent them out.
“The new sweet spot will be buildings with 100 to 150 units” along main streets just outside the downtown core, Lyon believes.