By Shane Buckingham, Canadian Real Estate
Excess supply in the Toronto condominium market will likely push prices down next year, making preconstruction condo speculation more of a gamble, according to the Canada Mortgage and Housing Corporation’s leading economist in the Greater Toronto Area (GTA).
“More units are going to be listed for sale and that’s going to inevitably slow down price appreciation, particularly in the condominium market,” Shaun Hildebrand, a senior market analyst at CMHC, told a crowd of real estate professionals at the CMHC’s 2011 Housing Outlook Conference in Toronto. “So those looking to bank on a 20% or 30% return in a few years probably should be doing their due diligence and not be buying.”
The number of projected GTA condo sales in 2011, which is at 25,000, also “seems worrisome,” Hildebrand said
Add to that the glut of new units coming onto the market in 2011 and 2012 (about 18,000 each year) and it’s only a matter of time before the market begins to adjust, he told the gathering, at the Metro Convention Centre.
“It’s not really a question of whether or not the level of development is going to slow; it’s how it’s going to happen,” he said. “If it happens into next year, if we start to see some moderation, the transition will be pretty smooth. If not, if buyers and investors continue along their current ways, then the transition a few years from now is obviously going to be a lot more abrupt.”
While Hildebrand warned of a near-term correction, he stressed that any adjustment in condo values in the GTA would be moderate, adding that he does not foresee a condo market crash similar to the one Toronto experienced in the early 1990s.
There were many more investors in the market two decades ago, he said. While CMHC does not have figures pinpointing the number of investor-owned condos, Hildebrand pegs that figure at roughly 25% of the GTA’s condominiums.
Given the prices of condos in many parts of the GTA, with the October average at $341,571 -- or 9% above the year-ago period -- more Torontonians will look to rent, he said. And that’s good news for buy-and-hold investors.
Hildebrand said in downtown Toronto investors could still find condos for $380 a square foot, costing $1,400 to maintain. Those units rent for about $1,500, generating $100 a month in cash flow.