Thursday, November 22, 2012

How does the 2012 New Condominium Market in the Toronto CMA Stack Up Historically

It is often difficult to put the 2012 new condominium apartment market in context as it relates to the past decade of activity in the Toronto CMA. There is often confusion when figures are compared to record highs or record lows for sales and pricing, or misunderstanding as it relates to unsold inventory in the market and what that really includes.

We are putting together notes as we formulate our 2013 forecast for the market, but figured we might as well share a few of the points with you:

      1)      Between 2002 and 2011, the new condominium apartment market in the Toronto CMA sold 17,100 units on average annually. In 2012, the market is expected to absorb approximately 18,000 units.

      2)      Between 2002 and 2011, the average quarterly sales rate has been 78% in the Toronto CMA new condominium market. At the end of Q3-2012, 80% of the active units were sold (68,926 of 86,108).

      3)      Of the 17,182 units of unsold supply at the end of Q3-2012 in the new condominium market in the Toronto CMA, 60% of those units were in projects that have not started construction. The ‘standing inventory’ or unsold units in occupying projects or projects registered for less than six months (that are still developer owned) was at just 562 units, or 3% of the overall total as of the end of the third quarter. The typical project is between 90% and 95% sold at occupancy, and many developers choose to keep several suites until occupancy because the feel they can sell them for a premium at that time (prospective buyers can view the completed suites) and avoid the additional cost of keeping a sales office open once the development has achieved a certain sales threshold.

     4)      How does the unsold supply of 17,182 units break down by project? Often the assumption is a lot of higher priced, larger product in the big downtown developments. In reality nearly 1/3 of the unsold units are in projects with average unsold index prices of between $400 psf and $499 psf! The majority of the projects in this price range are suburban projects, or are larger scale ‘416’ projects in less desirable locations. By comparison, there is less unsold supply in projects with unsold pricing of $600 psf to $800 psf. This makes sense, as the boom in condo sales resulted in developers bringing on bigger projects in “B” locations than they would in a less successful market. When the market normalizes, future projects in B locations are cut down in scope, or launched as ground-oriented projects, such as stacked or traditional townhouses. During these ‘normal’ sales periods, buyers and investors tend to gravitate towards A locations closest to transit, employment and amenities.

      5)      How does this peak in unsold supply compare to the previous peak? In Q4-2008 there were 17,610 unsold units in the Toronto CMA new condominium market of 65,186 active units. In Q4-2008, 28,776 units were in pre-construction (44% of the 65,186 active units); at the end of Q3-2012, 28,820 units were in pre-construction (33% of the 86,108 active units). Although there are an identical number of units in pre-construction projects in Q4-2008 and Q3-2012, 43% of the units in 2008 were in projects that were less than half sold, compared to just 25% in 2012. In addition, in Q3-2012, there were 14,000 units in projects that had sold 70% of their suites or more, in comparison to just 11,000 in 2008.

      6)      The average annual sold index price increase in the Toronto CMA between 2002 and 2011 was 6.4%; annual price growth in Q3-2012 was 6.8%. The highest rate during that 10-year period was 12.4% in 2007, during the peak sales market of 2011, the highest annual appreciation recorded was 8.4%. In Q1-1989 the annual appreciation in the new condominium market was 41.9%.

     During the next three weeks, we hope to share more of our notes with you as we prepare out market forecast for next year.

          Urbanation Inc

Wednesday, November 14, 2012

Assignment Survey Cancelled

Urbanation would like to formally announce the cancellation of our assignment survey.

We were disappointed that less than 15 of the 120 developers that we reached out to, ended up providing us data for this undertaking.

We certainly understand how busy most folks in the development industry are, and the time that would have been required to accumulate the information, we also recognize that many developers don't want to release any information that might come back to "bite them in the rear" so to speak. As noted in the previous blog posts, the individual project data was not to be released, just the cumulative results.

Urbanation has no doubt that rampant media coverage of "speculation" in the condominium market and the recent mortgage rule changes (brought on by the worry of condo flipping) have had a major dampening affect on new condominium sales in Q2-2012 and Q3-2012 (both dropping approximately 50% from their respective quarters in 2011) and the 40% decline quarterly in resale units priced above $400,000 in the third quarter.

Based on the responses we did get, the assignment activity was relatively low and there is very little "flipping" of registered units in the resale market, as the percent of units listed by projects during the first quarter post-registration is actually DECLINING in comparison to previous years (for subscribers, see Q2-2012 Condominium Market Survey). Investors are instead choosing to lease their suites in an extremely hot rental market (data from our UrbanRental report), which has seen demand hit recent market highs in Q3-2012:  80% lease-to-listings ratio and a very low 16 days-on-market in the Toronto CMA overall. In the investor heavy zones the results were better, Cityplace (89% LLR & 10 DOM), Downtown Core (84% LLR & 11 DOM), Harbourfront (82% & 12) and Downtown East (82% & 10).

We hope in the future should make a second attempt at this survey, that the development community will co-operate fully. Market information is extremely import, as key stakeholders are making decisions based on these results (or lack of results) that could detrimentally affect residential real estate developers.

Thursday, November 1, 2012

Urbanation's Q3-2012 Press Release - Toronto Condominium Market Results


ATTENTION: News; Financial; Real Estate Media

Lack of New Project launches leads to decline in new condominium sales in q3-2012
Cautious developers hold back and reevaluate pricing

TORONTO – November 1, 2012:  Urbanation Inc., the leading source of information and analysis on the Toronto condominium market since 1981, today released its Q3-2012 market overview.

In the Toronto Census Metropolitan Area (CMA) there were 3,317 new condominium apartment sales in Q3-2012, a decrease of 30% from the second quarter.

“With slowing sales and a record level of unsold inventory in the market in the second quarter, condominium developers reacted quickly by delaying their project launches, especially in the ‘416’ area,” says Ben Myers, Urbanation Executive Vice President. “Just five projects launched in Toronto in Q3-2012, as developers chose to review their pricing assumptions and unit mix”.

The average unsold unit in the Toronto CMA was being offered at $573 per-square-foot (psf) at the end of Q3-2012, an increase of just 2% year-over-year. Unsold pricing in the former City of Toronto remains virtually unchanged from one year ago, rising from $668 psf to $670 psf.

The lack of new site openings in the third quarter resulted in a decrease in unsold inventory from the CMA record high of 18,123 units in Q2-2012 to 17,182 units in Q3-2012. With 20% of the 86,108 units (341 projects) unsold, the share of unsold inventory in the Toronto CMA remains below the 10-year average of 22%.

With condominium apartment construction starts outpacing completions for the 8th consecutive quarter, units under construction in the CMA have set another record high at 207 projects and 56,336 units.

“The number of unit completions in 2012 are well below our forecasts, as construction delays have pushed back occupancy on a number of projects” adds Myers. “The average project that completed construction in 2012 took 3.85 years from sales launch to occupancy, compare that to 2003, when the average took just 2.68 years for a similarly sized project (205 units vs 197 units)”.

The reduced level of project completions has contributed to a very tight condominium rental market, as Urbanation’s UrbanRental report indicates a record-high lease-to-listings ratio in Q3-2012, an indication that demand is much higher than supply for investor held rental units.

The resale condominium market conditions also softened in Q3-2012, as transactions fell 32% quarterly in the Toronto CMA from 5,050 in Q2-2012 to 3,413. Pricing on a per-square-foot basis remained flat in comparison to the second quarter at $407 psf, as both the average unit size traded and the average end-selling price decreased (910 sf to 891 sf / $370,000 to $362,000).

“The change in the mortgage insurance rules may have forced many buyers to settle for smaller units then they had previously desired” says Myers. “The number of resale transactions for units priced over $400,000 fell 40% compared to last quarter, while there was a 38% quarterly drop in units traded over 1,000 sf.”

Just 10 projects, or 2,035 condominium units registered in Q3-2012, and the dearth of new supply resulted in a decline in resale listings quarterly from 10,163 in Q2-2012 to 9,032 in Q3-2012. Urbanation expects a much higher level of resale listings in 2013, as more than half of the 56,336 condominium units under construction are expected to complete construction next year.

The 28,000-plus completions next year could add as many as 14,000 new condominium rental units to the Toronto CMA via private landlords, which would represent a whopping 25% increase in condominium rentals in the Metropolitan Area.

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Urbanation is Canada’s leading condominium market research company. Since 1981, Urbanation has analyzed the Toronto condominium market, publishing the “industry bible” – Urbanation’s Condominium Market Survey. This quarterly report tracks new, resale and future condominium projects. The newest report from Urbanation is UrbanRental, which tracks activity in the condominium rental market. Urbanation also provides the development community with essential consulting services, which include site and topic specific market studies and surveys.

Media Contact:          Pauline Lierman
Pauline at
416 922 2200