For the past three years we have done a survey of our clients, plus selected other lenders, brokers, and developers that are active in the new condominium apartment market in the Toronto CMA.
Here are some quick highlights from the December 2012 questionnaire:
1) 53% of respondents expect 17,500 to 20,000 new condominium apartment sales for the Toronto CMA in 2013. In 2011, 41% of respondents answered the same way - there were 17,997 new condominium sales in 2012.
2) Just over 1/3 of respondents think investors make up 45% to 60% of buyers of new condominiums, which was the top response. 60% to 80% was the top response in our December 2011 survey.
3) 34% of respondents think the biggest concern in 2013 will be a flattening or decrease in condo prices in 2013. A further 18% think construction lending will be more difficult to obtain this year.
4) There is also concern among 37% of respondents that incomes are not keeping up with growth of condominium pricing. 23% of those that took the survey think there will be less investors in the market this year.
5) 36% of respondents think the new mortgage rules had the greatest negative impact on their bottom line in 2012.
6) 91% of respondents of our survey think media reporting on the condominium market in Toronto is skewed negative and stories are sensationalized.
7) 1/4 of respondents think the best new condominium launch strategy in 2013 is to wait until market conditions approve and keep the project the same, while 24% think prices should be lower and the project scale and scope kept the same.
8) 53% of respondents think 6-8 storey condominium projects on the avenue is the next big market opportunity in the Toronto market.
For full results of the 2012 survey, click here.
For full results of the 2011 survey, click here.
For more information on Urbanation, go to: www.urbanation.ca, or follow us on twitter: www.twitter.com/urbanation
Monday, February 11, 2013
Friday, February 8, 2013
Q4-2012 Press Release Supplement - Toronto CMA Rental Condominium Market
FOR IMMEDIATE RELEASE
ATTENTION: News; Financial; Real Estate Media
RENTAL CONDOMINIUM MARKET HOTTER IN 2012 THAN 2011
More Rental Activity and Higher LLR in each 2012 Quarter in Comparison to the Equivalent Quarter in 2011
TORONTO – February 8, 2013: Urbanation Inc., the leading source of information and analysis on the Toronto condominium market since 1981, today released summary results of its Q4-2012 UrbanRental report.
There were more registered unfurnished condominium apartment units leased through the Toronto Real Estate Board (TREB) in 2012 than resold (15,355
vs 15,292), as demand for investor-held private rental suites remains very
strong.
In Q4-2012, there were 3,292 rental transactions
in the Toronto CMA, an increase of 13% year-over-year from 2,902 in Q4-2011. Index rents increased 3.2% annually in the CMA to $2.29 psf (Average: $1,836 per month for 803 sf).
While listings in the resale condominium market declined annually in Q4-2012 (-4%), rental condominium listings increased 11%. Despite the jump in supply, the Lease-to-Listings Ratio (LLR) increased year-over-year from 64.8% in Q4-2011 to 66.5% in Q4-2012.
"An LLR above 50% would likely be considered a landlord's market, anything below 40% a renter's market, and anything in between being a balanced market" says Ben Myers, Urbanation Executive Vice President. "So to put the 66.5% LLR in perspective, a further 3,500 listings would be required to drop the market into renter's market territory!"
Approximately 15% to 20% of units in completed buildings come up for lease in the quarter the project registers, therefore for the market to see 3,500 more listings, approximately 18,000 more units would have needed to register in Q4-2012 (more than the past five quarters combined)!
Myers adds, "the rental condominium market remains under supplied, and even if record condominium completions are realized in 2013, Urbanation expects the rental market to remains strong for at least the next 15 to 18 months".
- -
ABOUT URBANATION
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.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Rent to Resale Update
At Urbanation we do not believe "magic bullet" forecasting models like the rent-to-resale ratio really tell you if a market is overvalued, headed for a decline, or is getting more or less affordable. To think a market as complicated and dynamic as the Canadian Real Estate market could be boiled down to two variables is absurd. Comparisons of these types ignore location, product type, unit age, unit size, unit upkeep, maintenance, taxes, interest rates, mortgage insurance rates, the political environment, etc, etc, etc. Read more about it here: March 2012
Now that we have a better time series from collecting data from our UrbanRental Report we wanted to compare resale index pricing and index rents to see if the Toronto Condominium Market is becoming more un-affordable or not. We took the average resale index price in 46 submarkets across the Toronto CMA and divided that figure by the average index rent in that submarket in each of the last eight quarters to get a price multiplier by submarket. We took an average and a median of the 46 submarkets for each quarter since 2011 to derive the two lines in the figure below. Our model controls for product type, location and size.
If you look at the green median trendline, there has essentially been no change in "affordability", if you look at the blue average trendline, the Toronto CMA condominium apartment market has got more affordable since 2011!
Thursday, January 31, 2013
Urbanation's Q4-2012 Press Release - Toronto Condominium Market
FOR
IMMEDIATE RELEASE
ATTENTION:
News; Financial; Real Estate Media
RecORD HIGH LEVEL OF CONDOMINUM APARTMENT CONSTRUCTION
STARTS IN 2012
Toronto
developers commence building 24,388 units in 104 projects
TORONTO – January 31, 2013: Urbanation Inc., the leading source of information and analysis on the
Toronto condominium market since 1981, today released its Q4-2012 market
overview.
In the
Toronto Census Metropolitan Area (CMA) there were 3,841 new condominium
apartment sales in Q4-2012, an increase of 16% over the third quarter. Overall,
17,997 new units sold in 2012, between the five-year CMA average of 20,119 annual
sales (2007 to 2011) and the ten-year average of 17,139 annual sales (2002 to
2011), but down from the record breaking pace set in 2011.
The Toronto
CMA condominium market set several records in 2012 including: construction
starts (24,388), active developments (355), total active units (89,251), and
total units under construction (56,866).
The average
sold index price in the Toronto CMA was $536 psf in Q4-2012 (up 5.2% annually),
while unsold suites were being offered at $568 psf on average in the fourth
quarter.
Overall the
active Toronto CMA new condominium market is 79% sold overall, down from 80% sold
in Q3-2012 and 82% sold in Q4-2011, but above the ten-year average of 78%.
“Despite concerns over the level of unsold
supply in the new condominium market, the ratio of sold to unsold units has consistently been above the
long-run average in recent years” says Ben Myers,
Urbanation Executive Vice President. “There remains confusion over unsold
supply and standing inventory, to clarify, at the end of Q4-2012 there were
just 613 completed and unsold new condominium apartment suites in the Toronto
CMA - some would be rented out by the developer, some used for construction
offices, and others used as model suites for subsequent phases, effectively
lowering this standing inventory figure even farther”.
Overbuilding
was a term cited quite often in relation to the Toronto condominium market in
the second half of 2012, however, a survey of developers, lenders and brokers
conducted by Urbanation in December indicated that just 11% of respondents
indicated that over supply in the new condominium market was their top concern
going into 2013.
The resale
condominium market suffered from a lack of supply in Q4-2012, as just 3.2% of
the 227,700 units (1,285 buildings) tracked by Urbanation were listed for sale
in the fourth quarter, the lowest quarterly level in over 10 years. Resale
activity declined 14% quarterly in the Toronto CMA to 2,941 transactions.
Despite the decline in resale units traded, the Sales-to-Listings ratio
increased quarterly to 40.2%, indicative of relatively balanced market
conditions.
“Many investors chose to hold and rent their
units in 2012 rather than sell them into uncertain market conditions” adds
Myers. “This is contrary to the theory that condominium unit holders will panic
and sell their suites at significant discounts during a softening market”.
Of the
2,941 resale condominium apartment transactions in Q4-2012, just 0.9% of these
suites were sold for less than 90% of the list price. These 27 units sold at an
average price of $641,000 ($282,000 over the average Q4-2012 resale price of
$359,000), indicating that most of these luxury suites were owned by
individuals with unrealistic value expectations, not investors looking to ‘cut
their losses’.
Myers adds
“We do not subscribe to the theory that a major correction in resale
condominium pricing is forthcoming, the lack of recessionary conditions, the
nearly non-existent foreclosure market, and the unwillingness of condominium
sellers to accept low-ball offers will keep prices from falling to any
significant extent in 2013.”
Overall,
15,292 resale condominium apartments traded in 2012, down from the five-year
average of 15,609, but above the ten-year average of 13,486.
Urbanation
is forecasting 14,500 resale condominium transactions in 2013 and 17,000 new
condominium sales in the Toronto CMA. 53% of respondents to Urbanation’s
industry questionnaire expected between 17,500 to 20,000 new condominium sales
in 2013, while 42% expected sales between 14,000 and 17,500.
- -
ABOUT
URBANATION
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
416 922 2200
Thursday, December 13, 2012
New Press Release Format
Starting in February, with the completion of our Q4-2012 data, we will feature a new press release format. We will include a chart with the current data, as well as historical long-term averages. We will take advantage of our 30 years of data collection on the Toronto CMA condominium apartment market.
You may have had a chance to read a couple of our previous posts, and you've seen that we don't always agree with the data and assumptions made by others in the industry and the media, but we have come to the realization that we are as much to blame as anyone for some of the media's coverage of the Toronto market.
We do not allow our subscriber data to be used by other organizations in their public publications without our consent, and we do not allow our market presentations to be downloaded or forwarded by non-subscribers. We prefer to control the flow of information and make sure the data is presented in its proper context and fully explained. However, we put out a quarterly press release to get our firm's name out there for various reasons, as one would expect a company with a product/service to sell would do. The problem is that we have not done a good job with our mandate mentioned above, putting the data in its proper context and explaining why things have differentiated from longer-term trends in that press release. As you can imagine that getting press/media coverage, and providing data in its longer-term context in two pages does not always mesh well.
Its is the media's job to present the key facts, and like us, do not have the space for all the context, are not giving all the context, do not understand all the context, or purposefully ignore the context to create a more interesting story! We cannot control the last point, but we can help control the first three.
As an example, let's say a doctor told you that 36 people died last year in Canada during a surgery that they wanted to do on you. Well, it wouldn't make it too likely that you would opt for that surgery. If you were told that the surgery had a 94% success rate. Would your opinion change?
When told that the number of unsold units in projects under construction has increased from 5,000 to 6,300 this year, you say wow, that's a 26% increase. However if you were told that 90% of units under construction were sold at the end of Q1-2012 and 89% at the end of Q3-2012, your opinion would likely not change too drastically. If you also know that the number of unsold units in projects that are under construction is often tied to the developer's risk tolerance and less to actual demand in the market, as they have 2-3 years and sometimes longer to sell those (on average) 26 units, it makes a big difference to the perception of that unsold number.
In our last press release - click here - we did not provide the context for most of the data points that we made, and the assumption would likely be from someone looking at that snippet of information would be that the market is substantially down, when in reality the 2012 new and resale market is quite average. As you know, several media outlets do not like average - the real estate market MUST be either in a bubble (when things are going well), or at high risk for a crash (when conditions are softening).
Lastly we will mention again that any comparisons to 2011 will make 2012 took terrible, the 28,000 new condominium sales were an anomaly that we may not see in this market for some time. To put that figure in its proper context, during the peak boom years in the United States of 2005 to 2007, the metro area of Chicago with almost 10 million people sold 17,558 new condominium apartments in 2005. Cities with similar populations as Toronto did significantly less than us: San Fransisco, 6,085 in 2006; Washington, DC, 8,663 in 2005; Philadelphia, 1,375 in 2006; and Dallas, 824 in 2007 (data from Hanley Wood Market Intelligence). You want a city that was oversupplied, Las Vegas (population of 1.8 million) sold over 18,000 condominium units in 2005!
We will try to keep our data releases consistent and our data accurate. We want our data to be used to make make intelligent, well informed decisions for purchasers, developers, lenders, insurers and suppliers. If we can increase the exposure to Urbanation's poducts and services, all while increasing the newspaper sales, web clicks and listenership/viewership then that should be seen as a bonus.
You may have had a chance to read a couple of our previous posts, and you've seen that we don't always agree with the data and assumptions made by others in the industry and the media, but we have come to the realization that we are as much to blame as anyone for some of the media's coverage of the Toronto market.
We do not allow our subscriber data to be used by other organizations in their public publications without our consent, and we do not allow our market presentations to be downloaded or forwarded by non-subscribers. We prefer to control the flow of information and make sure the data is presented in its proper context and fully explained. However, we put out a quarterly press release to get our firm's name out there for various reasons, as one would expect a company with a product/service to sell would do. The problem is that we have not done a good job with our mandate mentioned above, putting the data in its proper context and explaining why things have differentiated from longer-term trends in that press release. As you can imagine that getting press/media coverage, and providing data in its longer-term context in two pages does not always mesh well.
Its is the media's job to present the key facts, and like us, do not have the space for all the context, are not giving all the context, do not understand all the context, or purposefully ignore the context to create a more interesting story! We cannot control the last point, but we can help control the first three.
As an example, let's say a doctor told you that 36 people died last year in Canada during a surgery that they wanted to do on you. Well, it wouldn't make it too likely that you would opt for that surgery. If you were told that the surgery had a 94% success rate. Would your opinion change?
When told that the number of unsold units in projects under construction has increased from 5,000 to 6,300 this year, you say wow, that's a 26% increase. However if you were told that 90% of units under construction were sold at the end of Q1-2012 and 89% at the end of Q3-2012, your opinion would likely not change too drastically. If you also know that the number of unsold units in projects that are under construction is often tied to the developer's risk tolerance and less to actual demand in the market, as they have 2-3 years and sometimes longer to sell those (on average) 26 units, it makes a big difference to the perception of that unsold number.
In our last press release - click here - we did not provide the context for most of the data points that we made, and the assumption would likely be from someone looking at that snippet of information would be that the market is substantially down, when in reality the 2012 new and resale market is quite average. As you know, several media outlets do not like average - the real estate market MUST be either in a bubble (when things are going well), or at high risk for a crash (when conditions are softening).
Lastly we will mention again that any comparisons to 2011 will make 2012 took terrible, the 28,000 new condominium sales were an anomaly that we may not see in this market for some time. To put that figure in its proper context, during the peak boom years in the United States of 2005 to 2007, the metro area of Chicago with almost 10 million people sold 17,558 new condominium apartments in 2005. Cities with similar populations as Toronto did significantly less than us: San Fransisco, 6,085 in 2006; Washington, DC, 8,663 in 2005; Philadelphia, 1,375 in 2006; and Dallas, 824 in 2007 (data from Hanley Wood Market Intelligence). You want a city that was oversupplied, Las Vegas (population of 1.8 million) sold over 18,000 condominium units in 2005!
We will try to keep our data releases consistent and our data accurate. We want our data to be used to make make intelligent, well informed decisions for purchasers, developers, lenders, insurers and suppliers. If we can increase the exposure to Urbanation's poducts and services, all while increasing the newspaper sales, web clicks and listenership/viewership then that should be seen as a bonus.
Monday, December 10, 2012
Still Not Doubled!
It was brought to our attention that the difference in the information presented in the Bank of Canada report and the data we presented in our blog post last week was due to the difference in timing.
We apologize for that oversight, but as such we decided to run some numbers.
At the end of Q3-2012 we had about 10,260 units of unsold supply in pre-construction projects in the Toronto CMA. Let's assume in Q4-2012 that NONE of these projects went under construction, and the lowest absorption rate among existing projects (projects that did not launch in that quarter) was 4% (which was recorded in the middle of the global economic meltdown in Q4-2008). So let's use that 4% absorption rate as a low level estimate of what was sold for these pre-construction units this quarter.
So 10,260 - 410 units = 9,850 unsold units.
There have been approximately 5,100 units launched in Q4-2012, with 363 already under construction (One Park Place). So lets say approximately 4,750 new pre-construction units added in the 4th quarter.
If we include the sales for just two of the 20 plus sites that launched in Q4-2012, we already have 1,000 sales!
So 4,750 - 1,000 = 3,750.
Add 9,850 + 3,750 = 13,600 (still not 14,000).
We obviously know that several projects have started construction in Q4-2012, we know that the absorption rate among these projects will be higher than the quarter depressed by the global recession, and we know that the other 20 sites launched in Q4-2012 will have more than 0 sales.
So again we conclude that the number of unsold units in pre-construction has not doubled this year.
We apologize for that oversight, but as such we decided to run some numbers.
At the end of Q3-2012 we had about 10,260 units of unsold supply in pre-construction projects in the Toronto CMA. Let's assume in Q4-2012 that NONE of these projects went under construction, and the lowest absorption rate among existing projects (projects that did not launch in that quarter) was 4% (which was recorded in the middle of the global economic meltdown in Q4-2008). So let's use that 4% absorption rate as a low level estimate of what was sold for these pre-construction units this quarter.
So 10,260 - 410 units = 9,850 unsold units.
There have been approximately 5,100 units launched in Q4-2012, with 363 already under construction (One Park Place). So lets say approximately 4,750 new pre-construction units added in the 4th quarter.
If we include the sales for just two of the 20 plus sites that launched in Q4-2012, we already have 1,000 sales!
So 4,750 - 1,000 = 3,750.
Add 9,850 + 3,750 = 13,600 (still not 14,000).
We obviously know that several projects have started construction in Q4-2012, we know that the absorption rate among these projects will be higher than the quarter depressed by the global recession, and we know that the other 20 sites launched in Q4-2012 will have more than 0 sales.
So again we conclude that the number of unsold units in pre-construction has not doubled this year.
Friday, December 7, 2012
Where is the False and Twisted Info Coming From? - Part 2
This post is a follow-up to yesterday's on some of the false and twisted info that appeared in articles published in the Post and Globe yesterday.
The Bank of Canada and the media have consistently pointed out that there is overbuilding in the Toronto Condominium Market. I wanted to put some statistics and forecasts out there to test that hypothesis.
According to the Statistics Canada, the Population in the Toronto CMA increased by 94,000 persons per year between 2006 and 2011, the previous three Census periods were 86,000, 84,000 and 73,000 people per year. The number of private dwellings in the CMA has increased by 37,000 units per year between 2006 and 2011. By comparison 45,000 units per year, and 35,000 units were added on average per year in the previous two Census periods.
This 2011 population in the CMA increased 9.2% over 2006 according to the Census, with 9.2%, 9.8% and 9.4% increases in the previous three Census periods.
Based on those figures, the average household size has decreased from 2.85, to 2.80, to 2.70, to 2.68 or about 2% on average per Census period (ignoring vacancies and second homes).
So let's make some conservative assumptions, the 2016 population will be 9% greater in 2016 than in 2011 (below each of the increases listed above), an increase of 100,500 people annually. Let's assume that the household size decreases only slightly by 0.6% (the last period was 0.5%, therefore we went with a lower estimate than the 2% average listed in the above paragraph). So with the 2.67 average household size, the 100,500 population per year would require 40,000 new households per year.
Based on Data from CMHC, there were 33,800 housing completions in the Toronto CMA in 2011, and based off their October 2012 figures, there will be approximately 31,500 by year-end in 2012. That's significantly lower than 40,000.
A further breakdown shows that 53% of completions in 2011 were condominium apartments and approximately 40% in 2012. However, based on sales in market over the past couple of years, the share of high-rise condominium will increase to above 60% of total completions.
In 2013, there is the possibility of over 25,000-28,000 condominium apartments completing, however, it is more likely that the absolute maximum would be 20,000 to 22,000 unit occupancies (keeping in mind the most condominium completions the CMA has ever delivered in one year was 16,000 in 2010). Based on data from CMHC under construction info, up to 17,000 'other' housing completions could occur in 2013 (single-detached, semi-detached, row & rental apartment). Guess what, that's still below 40,000!
If the construction industry in Toronto is some how able to deliver 25,000 condominium units in a single year (which many experts in the industry do not believe is possible in the next five years), that's 63% of 40,000, so yes there is a remote possibility that more than 40,000 units could be completed in one year, but that is expected given that other years will be under 40,000 and our 2011 to 2016 estimates are based on the AVERAGE annual growth in total units.
The way that these articles and reports are written seen to indicate that the overbuilding is a foregone conclusion, that we will be WAY over on what is needed, and from the data we presented, that certainly doesn't seem to be the case.
The Bank of Canada and the media have consistently pointed out that there is overbuilding in the Toronto Condominium Market. I wanted to put some statistics and forecasts out there to test that hypothesis.
According to the Statistics Canada, the Population in the Toronto CMA increased by 94,000 persons per year between 2006 and 2011, the previous three Census periods were 86,000, 84,000 and 73,000 people per year. The number of private dwellings in the CMA has increased by 37,000 units per year between 2006 and 2011. By comparison 45,000 units per year, and 35,000 units were added on average per year in the previous two Census periods.
This 2011 population in the CMA increased 9.2% over 2006 according to the Census, with 9.2%, 9.8% and 9.4% increases in the previous three Census periods.
Based on those figures, the average household size has decreased from 2.85, to 2.80, to 2.70, to 2.68 or about 2% on average per Census period (ignoring vacancies and second homes).
So let's make some conservative assumptions, the 2016 population will be 9% greater in 2016 than in 2011 (below each of the increases listed above), an increase of 100,500 people annually. Let's assume that the household size decreases only slightly by 0.6% (the last period was 0.5%, therefore we went with a lower estimate than the 2% average listed in the above paragraph). So with the 2.67 average household size, the 100,500 population per year would require 40,000 new households per year.
Based on Data from CMHC, there were 33,800 housing completions in the Toronto CMA in 2011, and based off their October 2012 figures, there will be approximately 31,500 by year-end in 2012. That's significantly lower than 40,000.
A further breakdown shows that 53% of completions in 2011 were condominium apartments and approximately 40% in 2012. However, based on sales in market over the past couple of years, the share of high-rise condominium will increase to above 60% of total completions.
In 2013, there is the possibility of over 25,000-28,000 condominium apartments completing, however, it is more likely that the absolute maximum would be 20,000 to 22,000 unit occupancies (keeping in mind the most condominium completions the CMA has ever delivered in one year was 16,000 in 2010). Based on data from CMHC under construction info, up to 17,000 'other' housing completions could occur in 2013 (single-detached, semi-detached, row & rental apartment). Guess what, that's still below 40,000!
If the construction industry in Toronto is some how able to deliver 25,000 condominium units in a single year (which many experts in the industry do not believe is possible in the next five years), that's 63% of 40,000, so yes there is a remote possibility that more than 40,000 units could be completed in one year, but that is expected given that other years will be under 40,000 and our 2011 to 2016 estimates are based on the AVERAGE annual growth in total units.
The way that these articles and reports are written seen to indicate that the overbuilding is a foregone conclusion, that we will be WAY over on what is needed, and from the data we presented, that certainly doesn't seem to be the case.
Thursday, December 6, 2012
Where is the False and Twisted info Coming From?
The incorrect statistics in this Financial Post article today was quite unbelievable, we wanted to set the record straight on some the the data quoted in this article (click here for the article).
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.
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!
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