After my experience last week at a few new-condo launches, I immediately came back to my office and put on an impromptu real estate seminar for those of my colleagues who were (un)lucky enough to be present.
I ranted and raved, and they sat and listened.
And then one of them played devil’s advocate and raised a very interesting way of looking at things…
Yeah, the photo is a little blurry, but football fans will remember what happened during that ill-fated coin-flip on Thanksgiving, 1998, in front of millions and millions of viewers.
It was as simple as “heads” or “tails,” yet a veteran referee managed to screw it all up.
There are to sides to every coin (even if a referee can’t figure it out), and two sides to every equation.
For every argument, there is a counter-argument.
And when it comes to my stance on the fact that “pre-construction in Toronto is dead,” a colleague of mine recently made an interesting argument to the contrary.
Of course, I ultimately rejected the argument, but it’s worth mentioning…
At the risk of repeating myself, I’m going to summarize my thoughts AGAINST pre-construction as quickly as I can, and then follow up with those arguments FOR.
“There has to be an inherent discount on the purchase of future goods relative to those similar goods currently available, otherwise there is no incentive to delay consumption of that good.”
Who said that?
I did, just now. Sounds fancy, eh?
Seriously – there has to be a discount on the purchase of pre-construction real estate relative to a similar product available on the resale market for purchase and immediate possession, otherwise what is the point?
Why would I put down a deposit on XYZ Condos and wait 3-5 years for it to be built when I can buy a unit at ABC Condos and take possession tomorrow?
The only reason I can think of would be a discount in price.
And this is the way things used to be….before the masses started “investing.”
The masses overheard how to “invest” in pre-construction real estate when they were on the subway one day while reading articles on TMZ.com on their new IPhones…
Once the developers had the masses lured in, they raised prices through the roof.
Now, it actually costs you MORE to buy pre-construction (and wait 3-5 years to take possession) than it does to buy resale.
Oh sure – the developers, marketers, and crack sales-team can put together a shrimp buffet and laser-light-show the likes of which you have never seen! But don’t believe the hype!
There is no more money to be made in pre-construction in Toronto. Believe me.
But if you have been brainwashed by the developer you work for, you might actually believe the crap that you are saying….
Mike and Suzanne are a young couple of 27 and 26 years old respectively, and they are looking to buy their first condo in downtown Toronto.
They spent a couple of months casually browsing on www.realtor.ca, and they started to keep track of properties they liked by saving the photos to their desktop, and scrawling down addresses of cool buildings.
After a while, they found a Realtor who began to help them get more involved in their search.
They went back and looked at some of the properties that interested them, and found that some of these $279,000 condos had sold for $300,000! Or more!
They started to go out with their Realtor every Saturday and drive around in the car, going into open houses, and battling hoards of other potential buyers just to get in the door.
They found a condo they absolutely LOVED down in Liberty Village, and they waited for the “offer date.” The condo was listed at $279,000, and with six offers, they offered $279,000.
They never stood a chance.
If they were my clients, I would have refused to submit the offer. Why bother offering if you’re not going to put forth a realistic offer? You’re just driving up the price! You may as well have offered $150,000. Or $10, for that matter.
But they aren’t my clients; they’re a fictitious couple that I’ve invented to illustrate my point.
Mike and Suzanne eventually became wise to the game, and a month later, they offered $305,000 on a condo at Electra Lofts, listed at $289,000. The condo sold for $315,000.
Every weekend, they would get in the car with their Realtor, and every weekend, they would go and look at more and more condos.
Every Sunday night, they would contemplate making yet another offer on another condo.
And after five failed offer attempts, they lost all interest.
One day, Mike and Suzanne were walking along Driggs Avenue in the west end, and they saw a throng of balloons tied to the roof of this old warehouse. There was a huge neon sign out front, and some trendy electronic music coming from inside.
The sign read “MAJESTIC LOFTS – ONE DAY PREVIEW.”
Mike and Suzanne went inside, and they were welcomed by some of the smiliest, happiest (sales)people they’d ever seen!
A gorgeous brunette with a beaming grin came up to Mike when Suzanne’s back was turned and said, “So nice to see you! Let me know if I can help!”
And then a cross between Johnny Depp and Brad Pitt looked over at Suzanne and actually made his left eye gleam like in a cartoon!/
They were immediately offered complimentary glasses of Merlot, and when Mike accepted and Suzanne said, “I actually only drink white,” somebody magically appeared with a glass of Pinot Griggio.
Mike and Suzanne mulled about the room and looked at what was for sale. “Majestic Lofts” would be a hard-loft conversion from an industrial space that was built in 1909 and was used as a shoelace factory until the mid 1970’s when velcro straps drove the company out of business. The conversion would begin in May of 2010, and occupancy was expected quickly – by early 2011!
The model suite was gorgeous and the finishes were much better than anything Mike and Suzanne had seen during their forays into the resale real estate market.
Mike was scarfing down crab cakes like there was no tomorrow, and Suzanne was licking her fingers from all the chocolate-covered strawberries.
But the best part about the whole experience was that they could buy a condo today, right here, right now, and they wouldn’t have to be in multiple offers and cross their fingers that they “won.”
They could buy a condo today if they wanted to!
And they got ten days to change their mind; something called a “rescission period.”
Sure, it would take a year until the condo was ready, but they were on a month-to-month lease, and for the right property, they were willing to stick it out.
Imagine: no more having to wait by the phone to hear if you “won” in multiple offers. All this could be over with the simple stroke of a pen!
Mike’s belly was full of lobster, and Suzanne was a little tipsy from the “vintage” 2009 vino…
The deal was done, and they lived happily ever after.
BUT IN REALITY…
This was simply a “devil’s advocate” approach to the situation.
I understand that some people are frustrated with multiple offers, but that’s just the market we’re in. It’s been like this for the last six or seven years, albeit with a few breaks in between.
Over-paying for pre-construction is not the answer.
Paying tomorrow’s prices today is not the answer.
Being lured in by ridiculous promises from utterly evil developers is no way to go.
The pre-construction industry in Ontario is a mess right now, with developers doing whatever they bloody well please.
Now that the prices have shot past the moon and are on their way to the cold, dark recesses of Pluto, there’s just no incentive to consider pre-construction anymore.
So who is buying it?