Why Some People Mistakenly Think the Toronto Condo Market Will Fail

09 March 2011

First, negative news always sells. No one in the media wants to publish good news because it does not sell. That’s why anyone who forecasts that the ‘end is near’ will always get the headlines. When you try to tell the story that things are moving along well or doing well, it just gets passed over. Secondly, are the ‘bubble theorists’, who believe that anything that goes up must come down – regardless of any logic or underlying economic facts? It is true that condos have increased in value over the past ten years – but only about 5% per year – and when you adjust for inflation, it is closer to 3%. Is that sustainable? Thirdly, we have those so called experts who are relying on a methodology that is no longer prevalent in today’s market place. We keep hearing about supply because experts are unable to forecast the demand side. The reality is that about 100,000 people a year are coming to Toronto and they need housing – 40,000 new units per year and very little new housing will be detached and low rise. That means condos and people want to live downtown. The problem is that the construction industry is lucky to build 30,000 units a year and this is not likely to change. So it does not matter how much pre- construction sales take place, there is a limit on what will reach the market each year. Affordability is also a hot issue, but the reality is that this economy and people coming to Canada have a lot of unreported income and assets which makes these stats less than reliable. Statistics Canada has one set of information and the people in the market place are speaking with another – a lot of cash buyers in the pre-construction market place. Finally people keep referring to the 1989 boom and bust in condos. But have the Banks ever learned to take NO RISKS! Before a Bank will lend construction financing, they want the developer to own the land free and clear and they want 70+% pre sales. On top of that, they want Personal Guarantees from developers. In the last market correction, the Banks had to sell off the condos – not this time!! So we don’t see the Toronto Condo Market falling in the next few years!!