Toronto-based condo developer Alan Vihant was recently recounting how he visited Shanghai for a presentation to real estate investors.
One investor wanted to know about the prospective view from a building planned for the area near Yonge and Wellesley. If he purchased on the eighth floor, would he be high enough to see beyond a hulking building to the south?
Mr. Vihant is often astounded at how intricately buyers in China know the landscape and texture of Toronto.
"This is not from Google Earth," he says of the on-the-ground knowledge investors possess.
Mr. Vihant, who is vice-president overseeing high-rise development at Great Gulf Group of Companies, told a round table of developers who gathered in Toronto recently for a Queen's University seminar that he still sees opportunities.
Great Gulf does not disguise the fact that it sells to many foreign investors – not only from China but Russia and the Middle East as well, he says.
Many overseas investors have relatives who live here and many send their kids to school in Canada, he adds. They are professional investors in the sense that they often aim to build a small portfolio of 20 to 30 units for future income. "We cater to them."
Developer and real estate agent Brad Lamb says the pace of building will not be as intense as it has been in the past 10 years, but he believes condos are the only realistic choice for many potential buyers in the Toronto market.
Rising prices have put single-family houses out of reach for many, he says, and banks have tightened their lending. At the same time, money is flowing around the world looking for a safe place to park, he says. "We're now being compared to London and New York as safe places to put money."
Mr. Lamb believes that population growth and the greenbelt around the city together will continue to exert upward pressure on prices. "It's very hard for economists to understand that Toronto may not follow traditional metrics."
But as Toronto's inventory of unsold condo units continues to expand, market watchers around the world are wondering how much longer the city's real estate market will continue to draw investors.
Sales of new units fell 27 per cent in the first nine months of 2013 from the same period in 2012. Even as inventory stands at about 23,000 units, building is intensifying, points out John Andrew, director of Queen's executive seminars on corporate and investment real estate. He says buyers purchased about 3,000 units in three months.
"The inventory is just rising steadily," Prof. Andrew says. "There's a lot of construction still under way."
Prof. Andrew reports that builders say they don't put a shovel in the ground until 70 per cent of the units have been sold – but he points out that that formula can still leave a lot of condos standing empty.
"They try to sell that 30 per cent while they're building the building, but clearly that's not happening."
Real estate agents say that investors who live in Canada are more hesitant to line up at builders' sales centre and buy condo units from plans. In the past 10 years, anyone willing to put a down payment on a unit and wait would be rewarded with a nice profit if they sold as soon as the building was complete.
But as land prices have risen and unit sizes have shrunk, the early investors no longer stand to make money.
Prof. Andrew points out that buyers who wanted to live in a luxury condo had little choice but to purchase from plans and wait three to five years until it was built. Now that so many units are completed and sitting empty, they can walk through and move in right away if they decide to buy.
"There's a huge advantage now to seeing what I'm getting – I can feel the carpet and touch the light fixtures and see the gymnasium and the other amenities. That's a great feeling."
He's even more alarmed that no one has a really good handle on the percentage of units being purchased by overseas buyers. Investors are more likely to bail out of the market in the event of a downturn, he points out. "They're the first to dump them when mortgage rates go up."
Foreign investors have even less incentive to hang on, he says. Even those who paid in cash will not necessarily hang onto a money-losing investment.
Mr. Vihant of Great Gulf says that builders need to sell a lot of units within the first couple of weeks of launching a project. "If you don't get that velocity early, it's difficult to get your financing."
He is looking beyond residential real estate in Canadian cities to other markets: Washington, D.C. is one city poised for more development, he says. Great Gulf is also undertaking commercial development. "When you look at the cranes in the sky right now in Toronto, they're not all residential."
David Feldman, president and chief executive of Camrost Felcorp Inc., says investors are still buying. His company is seeing strong sales at such projects as the redevelopment of the former location of the Four Seasons Hotel on Avenue Road in Yorkville.
Many new buyers and current owners will be the landlords of the future and Toronto needs those rental units, he says. "I feel very bullish. You've got to be cautious. You've got to be priced right."
Prof. Andrew says that a recent rebound in condo sales may be short-lived. He attributes some of the bounce to buyers who may have been trying to secure a deal before mortgage rates climbed too high.
November's results may be disappointing, he adds. "Now mortgage rates have come back down and the panic is gone."