Toronto condo boom stirs bubble fears

Market watchers warn 20% to 30% return on investment is unsustainable

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Feb. 24, 2012

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"The goal is to sell as many units a possible. Anecdotally, a lot of the investors are from the Asian community. The number of units selling at preconstruction sales centers is very high -- in fact, probably unsustainable."

Toronto pundits should look at what happened in Richmond, Canada, in the province of British Columbia, where a year ago Chinese investors piled into the Vancouver suburb making it the hottest residential market in North America. Then when prices soared into the stratosphere, the buying mania just petered out.

So far, the Toronto market has been able to absorb all the new construction with the number of unsold units very low, Hildebrand said, concluding that "in the absence of another recession, we should continue to see a stable demand for condos."

What's probably going to happen, he said, is that with supply growing at such a rapid clip, price appreciation will slow down considerably.

"The days of seeing a 20 percent to 30 percent return on your condo investment within a few years are gone," he said. "We will see a much slower rate of price appreciation. Investors that are betting on speculation probably shouldn't be in the marketplace now."

Pricing hasn't gotten out of control in Toronto, Myers said. "Prices have gone up moderately, 7 percent to 9 percent, and the rental market has been moving up at the same pace, 7 percent to 8 percent. As long as those stay in line and unsold inventories stay low, we are not anticipating any kind of major correction."

It should be noted that the one thing Toronto has going for it is population growth. Net migration to the Greater Toronto metro is close to 70,000 people a year, said Hildebrand. "There is a strong demand for new housing."

Myers puts the migration number at 100,000 new people moving into the Toronto area every year.

"Some reports say this is the typical amount of apartment formation, but there has been a real switch to condo living," Myers said.

"We are not building any new roads into the downtown (highway infrastructure development in the Toronto has been extremely laggard); commuting is a problem; people are getting married later and staying single longer; and because of greenbelt legislation there is a lot less low-rise housing. All those factors are increasing our household formation and pushing people toward condos."

All good arguments, but is it enough to prevent an economic bubble situation? Only time will tell who is right and who is wrong. "Eh?"

Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "Growing Up Levittown: In a Time of Conformity, Controversy and Cultural Crisis," is now available for sale on Amazon.com.

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