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Thursday, November 9, 2017

Is Toronto's Condo Market Poised to Cool or Collapse?

November 9th 2017.

So today the CBC posted the following article on their website, but I don't want to talk about the article so much as I do want to talk about the implications of it:

Hundreds of Toronto condo buyers lose homes after developments fail

When Tanya Rumble and her partner Josh Kolic heard a new condo development was going up in their Junction neighbourhood, they thought it would be the ideal time and place to buy. After all, they had been renting in the neighbourhood for seven years and loved it.

The developer, Castlepoint Numa, advertised an exciting new 10-storey condo building on Sterling Road in the Junction Triangle, called Museum FLTS. The building was going to be close to transit, a new park, a daycare and a new contemporary art museum it was also building.

"We got really excited" Rumble explained. "I walked by the sales centre almost every day," she said, hoping to be one of the first people to put down a deposit the moment sales opened.

She was.

In May of 2016, Rumble and Kolic signed an agreement to purchase a two bedroom, two bath unit in the 10-storey condo. But as the months dragged on they noticed the project appeared stalled. "Sales staff kept telling us, 'Nothing to be feared. The developer has a great reputation,'" she said.

Unexpected letter came in the mail

Last week, about 18 months after signing their purchase agreement, the couple got a letter from Castlepoint Numa, along with more than 100 other condo buyers.

The company returned their deposits, explaining the condo project couldn't get construction financing. The developer also wrote, "we have not secured all of the development approvals or available permits" from the city of Toronto.

"We were pretty gutted," Rumble said. "It was quite devastating."

While the vast majority of condo projects proceed as planned in Toronto, CBC News has learned that more than a handful of proposed projects have failed this year alone, leaving hundreds if not thousands of buyers in limbo.

Many now find themselves priced out of Toronto's red-hot condo market where prices have soared 20 per cent in the last year alone, according to the Toronto Real Estate Board.

Developer says lack of financing, permits killed condo

Castlepoint Numa declined to answer several specific questions about the cancelled project, but in an email, company president Alfredo Romano vowed the condo will get built eventually.

It will "proceed but only once building permits are available. We can no longer rely on just a zoning bylaw to proceed to market. Only then will a project be 'safe' to go forward." he wrote.

Romano and company officials would not say when that would be, or whether they expect to resell the units to new buyers at higher prices.

The developer also declined to say whether it would offer the original buyers any discount or incentive once the project is eventually built.

Janice Creighton and her partner, Mike, also bought a condo at Museum FLTS and feels she's now been priced out of the market. "It seems as though there's a risk that you could put your money into something, think that you're in the market," she said, "and they could just take it away from you and resell it for whatever it is when they open it back up again."

Museum FLTS just the latest condo project to fail

Museum FLTS buyers aren't alone. Hundreds, if not thousands of other pre construction condo buyers have also been left in limbo.

Earlier this year, a project adjacent to the Mimico GO station in Etobicoke was placed into receivership after the developer, Stanton Renaissance, failed to meet its financial obligations. The company owed millions to suppliers and contractors.

More than 200 of the units in the proposed 27-storey tower had already been sold — some as far back as six years ago.

Today, the site remains only 15 per cent complete. It was recently sold to the Vandyk group of companies. Court records show Vandyk doesn't have to honour the purchase agreements of the original buyers, and it won't.

On the GO Mimico buyer Arash Borujerdi tells CBC News he still hasn't received his deposit back and fears he's now priced out of Toronto's housing market.

"The process has really set me back in life in terms of becoming a homeowner, as you know the prices have gone up substantially since I purchased," he said.

It doesn't take much for a condo to fail

Numerous other condo projects in the city have also failed — many due to lack of financing, zoning approvals or other factors. It's happened in Scarborough, North Toronto, and downtown. Hundreds of people who bought proposed condos and townhomes from Urbancorp are still fighting the bankrupt developer in court to recoup some of their losses. Unlike condos, deposits of freehold townhomes aren't protected.

Real estate lawyer Bob Aaron says it doesn't take much for a proposed condo to fail. A developer can simply decide they don't want the hassle of building if profits appear to be diminishing.

"It's always a case of buyer beware," he said.

"Sometimes purchasers think, 'I'm going to make so much money, I don't care about buyer beware, I'll take the risks.' Sometimes when the market gets a little tighter, people are a little more cautious."

Coun. Josh Matlow tabled a motion that was passed at city hall back in 2013, demanding Ontario's Ministry of Government and Consumer Affairs prevent developers from advertising or selling condos that still haven't obtained the necessary permits and approvals.

"Why should people believe all the community meetings, the votes at city council mean anything, if the developer is telling you there is already a predetermined outcome?" Matlow said.

"'Something is coming soon,' they advertise, even though nothing has been voted on."

Matlow says the province has yet to enact any regulations.

He also says a variety of issues can derail a proposed development, leaving behind financial and other problems for buyers who waited years for nothing.

As Creighton puts it, "I don't know that I could do pre-construction again knowing that this is the risk. I just kind of wish I had known beforehand that this was something that developers have done before."

Rumble says she and her partner knew buying a pre-construction condo came with risks but "developers are in a position to sell units when they don't have the necessary permits in hand. They can sell us a dream that they don't know if they can materialize."

So...

Really what happened is that the developer didn't have enough from people wanting to buy condo units. Lack of people and sales equals lack of financing. So when it came to crucial stages like getting permits to actually start construction, the developer decided to skip the whole project entirely.

Now this is just an example of one building, but I see it as evidence of something bigger. A cooling condo market.

And at present that is all it is, potentially.

As long as Toronto's economy remains strong, I don't currently expect any kind of collapse in condo prices.

To get that we would need Toronto to get hit by a recession, in which case the recession could be a tipping point if the economy sours enough to hurt condo sales - at which point then Toronto will be hit by condo and possibly housing market collapse.

But seeing as Toronto is not facing any kind of recession, and is not facing any recession in the foreseeable future, then a cooling of the condo market is all it could potentially be.

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