The gist of the article is that the Bank of Canada is worried about the financial ramifications of a potential condo market meltdown, however they are basing their assumptions on the probability of such a meltdown on incorrect figures.
Here are the real figures in relation to what was included in the article ~
1) False claim: Since June 2011 the number of unsold high-rise units in the pre-construction stage has doubled.
Actual data: The number of unsold condominium apartment units in the pre-construction stage of development at the end of Q2-2011 in the Toronto CMA was 7,063, that figure increased to 10,261 at the end of Q3-2012. Not exactly doubled.
2) False claim: Unsold units under construction have also increased from fewer than 5,000 at the beginning of 2012 to almost 7,000.
Actual data: The first part is accurate, there were 4,915 unsold units in projects under construction at the end of Q1-2012 in the Toronto CMA, but that increased to 6,357 at the end of Q3-2012. Is 6,357, almost 7,000? That is a little bit more than a rounding error.
Because the total number of units under construction increased drastically, the increase in unsold units represents a drop from 90% sold to 89% sold of units under construction.
The Bank of Canada needs to understand that several developers raise the prices of their units significantly and close their sales offices when construction starts (and sales subsequently slow) as they believe they can achieve a premium selling these units when the project is completed in two or three years when buyers can walk through the units. The probability that pricing is below 2012 price levels in 2015 is very low, and even if that occurred, many developers would lease the units until the market improved, as the average project at occupancy is almost 95% sold. Assuming even that demand for condominium rentals was halved, we would still be in balanced market conditions in that sector.
3) Twisted claim: The prices of high-rise units have flattened while their sales have declined, suggesting that demand is slowing while the supply of unsold units (including those not built) is still strong.
Actual Data: The average new condominium apartment sold index price in Q3-2012 was $530 psf in the Toronto CMA, a 7% increase annually. The media was calling the 9% year-over-year pricing a bubble in 2011, but 7% annual growth in 2012 is now flattening out?
They are correct that sales have declined, but declined from the highest sales year on record. It's like saying a guy that is 6'7" is short because you are comparing him to Shaquille O'Neal! 2012 will result in approximately 18,000 to 19,000 new condominium sales, below the five year average, but above the 10 year average. Likely a welcome relief for the construction industry, that is trying to catch up with the sales.
Unsold supply decreased in Q3-2012 in comparison to Q2-2012 in the Toronto CMA and is still represents just 20% of the total universe of suites, below both the five year and 10 year averages!
We hope the Bank of Canada has a look at this post!