It seems the only question that remains about new condominium development is how much this metropolis can sustain.
Toronto's new high-rise condominium market is near a perfect state of balance. For first-time buyers, borrowing costs are still historically cheap, and the sheer volume of new projects on the drawing board has kept purchase prices low in comparison with other markets like Vancouver and Calgary.
But the condo-buying community has also been heavily influenced over the last five years by Baby Boomers in their fifties and sixties who are cashing out of their single-family homes and plowing the profit into a growing number of this is notesluxurious new high-rise developments located in or near their traditional community.
The biggest issue confronting the condominium development industry lately is not market forces but community groups who fear that high-rise construction is getting out of hand.
In the middle of 2007, the best thing that can be said about the broad market factors affecting condominium development is that they have hardly changed. All the key indicators are chugging along at the same pace as they were at this time last year. The remarkable aspect of the market's behaviour is how it continues to find buyers for the vast and varied quantities of new suites that enter the market every year.
The lack of volatility suits everybody fine.
Those with long memories will recall the last big condominium building spree in the late 1980s, complete with its own speculative bubble of double digit price increases and short-term flipping. It resulted in such an enormous crash that it took nearly a decade for prices — developer confidence — to recover. It wasn't until 1998 that condominium construction finally regained 1980s levels — around the same time that prices for resale homes began to rise out of the trough.
From January to May, 7,253 high-rise suites were sold in Greater Toronto, up 2.2 per cent over the same period in 2006, according to RealNet Canada Inc. Not surprisingly, 75 per cent of these sales were in the City of Toronto, but the suburban regions of Durham and York also have respectable high-rise sales components of over 10 per cent of the market.
Another indicator that high-rise developers keep a close tab on is remaining inventory — the number of suites that are newly completed or launched on the pre-construction sale market but not yet sold. As of May, there are 12,595 new unsold suites in Greater Toronto, down from 13,360 in May, 2006. That's about 21.7 per cent of all new suites, which is a little higher than the ideal rate of 15 per cent, but good for keeping prices in check.
As of May, the most expensive condo pocket is downtown Toronto, with an average price of $699 a square foot. That's nearly double what the average price is across Greater Toronto; $354 a square foot.
The Greater Toronto average price is only 2.9 per cent higher than it was a year ago in May at $344 a square foot. The average suite price clocked in at $315,857 in May for Greater Toronto, which is only a 1.5 per cent increase from the same month last year; $311,133.
It's that affordability that sustains the high-rise market, even with a growing number of luxury projects coming on stream to serve Boomers. If the average condominium price goes up dramatically — like they have in Vancouver with average prices over $700 a square foot — that's when sales will drop off.
Since there's such a broad diversity of locations where condominium activity is taking root in the Toronto area, that's an unlikely scenario.
High-rise condos make up 42 per cent of new home sales in the Greater Toronto area, which hasn't really changed in the last two years.
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