Forget empty nesters; say goodbye to investors. The buzzwords in today's new condo market are Echo Generation, those young first-time buyers looking to escape the monthly tyranny of rent in favour of owning a home of their own.
In truth, those young first-time buyers are just about all that is left to sell new condos to, given the state of the economy. Unlike empty nesters, they do not have to worry about getting a good price for an existing home; nor have they seen a lifetime of savings whittled down by plummeting stock markets.
As for investors, who once made up between 25 and 30 per cent of buyers for new condo projects, they have found that with prices nudging toward $500 a square foot for new downtown construction, the economics of buying, then renting to cover mortgage and monthly maintenance costs, just do not make sense.
So, who's left? Those young first-time buyers.
“The so-called Echo Generation has emerged as a powerful force in the market,” says Barry Lyon of N. Barry Lyon Consultants Ltd. “What characterizes them is that they are extremely value-conscious, but at the same time they want all the bells and whistles that go with condo suites.”
Those bells and whistles include granite counter tops in the kitchen, stainless-steel appliances, hardwood floors, and walk-in closets, says Shawn Richardson, sales and marketing manager for Liberty Development of Markham, which has a project called Metro Place at Sheppard Avenue West and the Allen Road targeting first-timers.
“They might only be able to afford a studio or a one-bedroom, but they want it to have everything the larger suites do in terms of finishes and features,” he says. “The same with amenities; they want their new condo to have the pool, the gym, the home theatre, the rooftop lounge.”
The challenge is in meeting all these expectations at a price first-time buyers can afford. That means creating smaller suites and structuring purchase prices, particularly deposit requirements, in ways that young men and women starting careers can handle.
And here, the law of unintended consequences may be kicking in.'
As developers turn more and more to studios, one-bedrooms and one-and-dens, the Toronto area runs the risk of becoming a megacity with fewer and fewer options for families. It runs the risk of becoming Tokyo on the lake.
Back to pricing. There are two parts to this equation, says Dan Flomen of TFN Realty Inc. He is sales agent for projects such as Holiday Towers in Etobicoke and LTD at the foot of Bathurst Street. The first part is creating smaller suites; the second is structuring the price in ways cash-poor buyers can afford.
Examples of those small suites include the 401-square-foot studios offered by Empire Communities at its FLY condo on Front Street West, across from the Rogers Centre, for $159,900 and 515-square-foot one-bedrooms being sold by Metro Place for as low as $202,600.
Creating small suites can be done in the design stage or, in some cases, by redrawing floor plans after construction has started.
“At LTD, for example, we took an existing two-bedroom-and-den suite and an adjacent one-bedroom-and-den and turned them into three smaller suites – a studio, a one-bedroom and a one-and-den,” Mr. Flomen says.
That 415-square-foot studio could then be sold for $179,900.
“The mortgage for that with a 15-per-cent down payment comes in at about $520 a month at today's rates,” he says. “Add in taxes and maintenance and you can buy for less than you can rent in a new building downtown.”
While the carrying costs might be manageable, coming up with $27,000 in cash for a down payment on that studio suite can be the deal breaker.
“Deposits are the way developers are really changing the way they do business,” Mr. Flomen says. “They are coming up with options that turn buying a condo into something like one of those old layaway plans where you paid a bit down on something and then additional payments over a long period of time.”
Restructuring deposits is simpler with projects already under construction, Mr. Richardson says. Before providing construction financing, lenders want to see each suite sold with at least 15 per cent cash down. Once financing is in place, however, developers can get creative.
In the case of its M3 tower at Metro, which is still in the pre-construction stage, Liberty asks for a 15-per-cent deposit but can arrange to have it paid through 5 per cent cash up front and the balance over 270 days. For M1 and M2, which are already under way, Liberty will accept a 10-per-cent deposit with 5 per cent up front.Mr. Flomen says he knows of projects where buyers can put 5 per cent down, then go to a bank and borrow the remaining 10 per cent with the developer agreeing to reimburse the buyer for the loan interest.
“The moves are all designed to let cash-strapped first-time buyers finance that big down payment through income rather than savings,” he says.
