Admit it – you thought I was going to say “Game of Thrones.”
You saw the caption, and your mind automatically went there, didn’t it? What is with this show? Is it really that good? Should I take a week off work and play catch-up?
Today’s blog post has a regal theme, and shows you how royally screwed you can get by trying to “flip” pre-construction condos in 2014. I’m not talking about 2007, and I’m not talking about buying a condo to live in – I’m talking about flipping pre-construction condos, today, and how there’s no money in it anymore.
Numbers don’t lie. Have a look…
I’ve been saying this since 2008.
There’s no money to be made in flipping pre-construction condos anymore.
The City of Toronto has DOUBLED development charges for condominium builders. Who do you think is going to pay for that? The developers? Or do you think they’re going to pass it on to the buyers?
Some downtown condo projects are charging over $700/sqft in pre-construction, and yet you can buy a resale condo in a one or two-year-old building for $550/sqft.
Every week, I get a phone call from somebody who is in occupancy, bleeding money each month, or somebody who just closed on a condo and now wants to sell – while forty other speculators in the building try the same.
I was sickened to see an article in a major Toronto newspaper a few weeks back with “experts” in “investing” in pre-construction condos.
I’ve made my name on being the most honest and forthcoming Realtor in Toronto, and even though it could cost me business, massive 6% commissions, and anger other Realtors, let me say it again one more time, for the last time:
You cannot expect to purchase a pre-construction condo in 2014, hold it until it’s finished, and then flip it for a profit.
God Speed, for those that do….
Appraiser
at 8:35 am
Forsooth dear David. While flipping was once a profitable game plan for the adventurous, it is no more. Even in the low-rise segment of the pre-construction market, the “profits” are so thin at closing (after aqusition and divestment expenses, including tax implications) as to be completely non-existant, if not negative. It all died about 2 years ago. Alas, ’tis true.
On another note, I see your buddy Garth Turner mentions your name in vain on his blog today. Yes, Turner’s boring missives regularly lack substance, but today he flat-out lied. His theme is that the $1Million CMHC cap has killed the luxury home market in T.O. Here is a sample of his drool from today…”Above $1 million, crickets, price reductions… it’s obvious that cutting seven-figure houses off from mortgage insurance has had a dramatic impact on the market.” Turner further embarasses himself by stating ” The average prices and Frankenumbers that real estate boards trot out are being skewed higher by a paucity of sales at the top end and a small riot in the middle…”
Does he back these claims up with any data – well, no. So I thought I’d do a little research of my own. What a revelation!
I compared TREB first quarter sales for 2013 and 2014 for condos and freehold. In Q1 2013 there were 610 freehold sales over $1M in T.O. proper; in 2014 there were 736, an increase of 17%. In the GTA there were a total of 1070 freehold sale in excess of 1$M in 2013; in 2014 there were 1345 sales, an increase of 20%.
When comparing Q1 sales in 2013 vs. 2014, the condo story is even stronger, with T.O. sales over $1M up by 30% and GTA sales up by 35%.
So much for empty theories.
Geoff
at 8:57 am
Agreed. Garth Turner is a schmuck. All he’d say though to the above is that since all numbers are made up, that your logic is faulty too. Can’t win.
Also re: Game of Thrones. Yes, it is that good and yes, you should take a weekend off and watch it straight.
Kyle
at 9:44 am
So true, when presented with data that’s contrary to the garbage he mines and cherry picks, he quickly pulls out the main stream media and real estate cartel conspiracy theory. To anyone with their eyes open, his tactics are laughable.
Paully
at 9:09 am
How do those sales figures compare to total listings for the same price range? Are there more or less $1M+ listings for the same time period?
Appraiser
at 9:53 am
@Paully. Retroactively determining active listings by date and price range is not possible under the current search parameters of the TREB MLS. Nor is it particularly relevant. I assume that you are prepared to defend Mr. Turner in some fashion based on the sales to listing ratio of $1M+ properties, then vs. now.
Sorry to burst your bubble, but what part of Turner’s bullshit statement regarding the “… paucity of SALES at the top end…” don’t you get?
Here’s another clue Paully. Last year (2013) the percentage of sales on TREB of properties of all types that were in excess of $1M was 5%. As of Q1 2014 it was 7%.
That’s right, since the implementation of the $1M CMHC cap, sales of $1M properties have actually increased as a percentage of total sales on TREB.
Go figure.
Paully
at 4:04 pm
So the short answer to my question is that you don’t know.
I don’t see any reference to Garth Turner in my question. It should be possible to ask a simple question without having an axe to grind. I was merely curious what the sales:listing ratio looked like. If this year’s listings were substantially larger or smaller than the previous year’s listings, then that would colour the sales number.
Ongoing price inflation should push more properties into the $1M+ range every year. For example, with a 5% average price increase, all of last year’s $955k properties should now be over $1M, shouldn’t they?
ScottyP
at 2:31 pm
I’ve been reading this blog for several years now, and have never known Paully to be a Garth Turner apologist.
He (Paully, not Garth) may be a bear in the purest definition, but he’s also a thoughtful commenter who contributes to the discussion in a positive way.
Do better next time, Appraiser.
Not as foolish as anyone dumb enough to listen to Garth
at 9:38 am
Garth Turner routinely talks out of his a$$, but sadly his followers are so brain-washed to them it smells like roses. Contrary to the outright lies he feeds his unquestioning trolls, the truth is pancake restaurants wish their hotcakes sold like $1M + houses in Toronto.
Just took a look at all 30 homes that sold for over 1M yesterday in the T Dot, 10 of those (or 33%) sold with 4 or less days on the market. And another 6 of those (cumulative 53%) sold with 10 or less days on market. Crickets, my a$$. Garth is a lying scum bag, who preys on his desperate followers to boost his wealth management portfolio. Truth is as a pure money manager, he sucks and would get whooped by the NL@TB selling mutual funds and GICs, so he uses the real estate angle as his hook. Just like most other professionals (e.g. Economists, Personal Finance Columnists, Analysts, etc) who have gained notoriety as real estate bears, if you strip away their real estate angle, they fundamentally aren’t any good at what they actually do. Their only draw is the magnetism that talking about a real estate crash/correction has on those frustrated and desperate to own a home.
S2H
at 12:57 am
Those days on market numbers are bs. Realtors terminate listings and re-list and the count goes back to zero. A house that has been re-listed several times over the past 8 months finally sold and it showed 6 days, which is total crap.
Not as foolish as anyone dumb enough to listen to Garth
at 9:34 am
Are you questioning whether there’s strong demand above $1M or are you just trying to prove Appraiser’s point about pedantic behaviour? First, relisting isn’t any indication of lack of demand, it’s simply an indication of unrealistic pricing on the part of the listing agent and the seller. Second, the relisting you speak of happens on such a tiny percentage of homes as to be meaningless to this discussion. Did I also mention that many of those 30 homes sold over 100%, so at the end of the day the fact still remains (regardless of how many times a property has been listed) that houses over $1M are selling fast once they hit the market at a realistic price.
Cliff
at 12:12 pm
Great topic!
I too read that article and LMAO at all the crap the developers were talking about. I closed on a condo in 2009 and closed on one in 2012. The difference in the costs were astounding. I’m still mad about it. LOL.
Pre-con used to be very appealing because the price was far cheaper than resale. But now, the price is HIGHER! The closing costs are into the $10,20,30K. On top of that, you have to fork over 20% and have that money tied up for years, delay after delay. Then you move into a poorly built shoebox and have to wait years for the developer to fix the deficiencies. Often, they’re never fixed. This would all be an easy pill to swallow if the value skyrocketed (like 5+ years ago). Not the case. You’ll break even or lose money if you sold it.
Precon market is dead. It died years ago, actually.
Sam
at 12:35 pm
Are presale buyers that want to flip that stupid? How can the fact that the presale price per square foot is higher than existing product, yet buyers still think it is a good deal? I would love to hear from their side of the story justifying paying more for a presale than a current product.
Cliff
at 12:55 pm
You have to understand. People buying these condos are certain that the value will go up by 30-40%+. Flashy model suite, sleek brochure and false promises go a long way to convince people that they’re getting a deal!
There’s some good value in the pre-con market.
David Fleming
at 12:55 pm
@ Sam
Buddy, I’ve been asking that for years.
“Are buyers that stupid?”
Yes, they are. At least some of them…
If you were presented with a “fantastic opportunity” to “get rich quick,” wouldn’t you listen? Well, not YOU, because you’re intelligent. But what if you weren’t?
The other part of the equation that I didn’t mention is that many of the pre-construction condo buyers are from China, where money isn’t “safe.” These folks have no problem taking money out of the country (where the banking rules prohibit them from taking more than a certain amount out each year), and buying pre-construction condos in Toronto where their money will be “safer.” Many of these condos sit vacant once completed, but the buyers don’t care, because they’d rather own real estate in a world class city than keep it in a bank in a communist country.
jeff316
at 2:46 pm
I think that pre-con appeals to slightly less wealthy buyers – singles, young medium income couples, people on the cusp of retirement that are counting on using some of their current property equity to finance their non-working years. These people have seen prices continue to rise and have been priced out of buying something that they could have afforded had they ‘invested’ in the market four or five years ago. This group is really feeling the squeeze and I know some less scrupulous agents are promoting pre-con to these groups as their only way to get into the market.
I know of a number of people for whom condo appreciation was their ticket to moving up – I’d say they were lucky, but regardless of whether they were smart or accidentally got on the ride at the right time, it was their ticket to eventually landing a property that they otherwise would have never been able to afford now. To some extent you can’t blame people for modeling behaviour that, in the near past, proved successful.
Cliff
at 12:56 pm
Edit: I meant good value in resale, not pre-con.
Kyle
at 3:42 pm
Pre-con, definitely doesn’t makes sense today. You get way less for way more money. But i’m not sure i’d call it “dead”. Just as the arbitrage forces that brought the once lower pre-con prices to the same (and then beyond) the prices of resale. I could see a case where developers need to start cutting prices on unsold units or risk cancelling projects.
Joe Q.
at 11:12 am
It would be interesting to see where / if this is already happening. I’ve been wondering about the condo project going up at the south-east corner of Bathurst and St Clair — they seem to have been advertising units (pre-con) for sale for ages. The businesses that used to be there were shut down quite some time ago. Not sure what’s going on.
Kyle
at 4:33 pm
I would not be surprised if this is happening already or will be happening soon. I don’t follow the condo market, but i have noticed some projects struggling, so i think there could be some opportunities soon. The Upside Down Condos, now relaunched as Fuse comes to mind. In any event, i believe pre-con and resale are essentially substitutes for each other and there should be some equilibrium price spread between them, that reflects the differences (e.g. HST, owning now vs later, shiny newness factor, cost of occupancy period, etc).
Right now that spread is out of whack (making pre-con a rip off), but i also think that demand for condos is very persistent and steadily increasing, while the supply of condos is very lumpy with long lags between market signals to launch or cancel and eventual building completion. As pre-con sales slow and prices drop, developers will stop building leading to a future shortage (yes i’m calling a future condo shortage before the decade ends), which i think could lead to new opportunities in pre-con again in the future.
Paully
at 4:08 pm
If these pre-construction condos are such a dubious deal, why are people not running screaming for the exits? I don’t understand.
I heard a radio ad today for a condo at Yonge and Eglinton that said that the developer would guarantee a buyer two years of rent and two years without maintenance fees. Every condo site in North York that I pass has a big sign saying “sold-out” or some big percentage like “88% sold!”
Appraiser
at 7:13 pm
Latest RealNet stats for new home sales for Q1 in the GTA are out: http://www.realnet.ca/gta-new-home-sales-q1-2014/
Check out those high-rise sales numbers eh, up by 68% over Q1 2013 and 35% above the ten-year average. Wow!
AndrewB
at 10:07 pm
Someone has got to buy pre con if we’re gonna buy resale. Its just too bad that nothing pre con is better than existing resale for the same dollar.
Appraiser
at 9:30 am
Follow-up:
Don’t look now but TREB mid-month stats are out this morning. Detached homes in the 416 average price breaks over the $1M barrier ($1,012,172)!
Yeah, the CMHC insurance cap really cooked that market.
Kyle
at 11:59 am
No surprise to see Garth is steering well clear of the mid March TREB release and the RealNet release on his blog. Those numbers pretty much reconfirms for the thousandth time what an absolute failure he is, and how incredibly unwise it is for anyone is to be listening to him.
Thanks for sharing the links to the releases.
Kyle
at 9:20 pm
Duhh, that should say mid April, not mid March.
Appraiser
at 10:12 pm
No worries Kyle, you’re welcome and thanks for your kind words.
Jeremy
at 12:50 pm
Why do some people on this blog hate Garth Turner so much?
I can understand that you disagree with him, but why do you care so much about what he says that you express this level of vitriol toward him? I personally like his blog, and find his viewpoint interesting. Sometimes I agree with him, sometimes I don’t.
Obviously I like David’s blog too, and it’s nice to get an opposing viewpoint. And again, sometime I agree with what he says, and sometimes I don’t.
Appraiser
at 1:09 pm
@ Jeremy. The short answer is that Turner is full of shit and David Fleming is not.
If you genuinely have difficulties seeing through Turner’s lies, obfuscation and sophistry, I pity you.
Kyle
at 2:15 pm
It’s not just Garth, I have the same disdain for any parasite who lives off of frauding, lying, twisting, misrepresenting, going back to change his blog records, and all manner of deceitful things to sell false hopes to desperate people who want a house. To me that’s no less despicable than a witch doctor promising to cure someone’s cancer or infertility. And long after failing to do so, continuing to fleece them by saying, don’t worry it just hasn’t happened…yet.
I will give him one thing, he’s absolutely mastered the technique of brain-washing and getting his followers not to question or challenge. Like creating these BS wedge issues, designed to get his followers to choose his side and reinforce his message, rather than challenge it. Ever notice the constant narrative of “us against them” that runs through every one of his blog posts. You’re either with him (the altruistic saviour, the pathetic underdog crusader for the little guy, the smart money) or you’re one of them (a house horny virgin, a sheeple, part of the main stream media conspiracy, a real esnake agent, or part of the cartel, etc). Clearly anyone who stands back and looks at his track record can see that following Garth could only ever be considered stupid money, and that there is nothing altruistic or crusading about him trying to convince people to take money out of housing and put it into investments (preferrably managed by Turner Tomenson Wealth Management). Frankly, my question is how do you not hate him?
Jeremy
at 4:18 pm
Thanks Kyle,
That actually was very helpful- specifically, I was not aware of the existence of Turner Tomenson Wealth Management. That is a game changer!
You have successfully cast him in a new light that demonstrates a clear ulterior motive on his part that I wasn’t aware of, but makes perfect sense to me now. He often advocates getting professional financial advice in the comments section, and says not to buy individual stocks unless you have a portfolio of over $1 million (which is ridiculous in my opinion).
Geoff
at 4:49 pm
Good reply Jeremy.
The fact that he tries to quote David Fleming as an example of the many lying realtors full of @#$#, when he fact is one of the few who are the exact opposite, is so telling on so many levels to me.
Kyle
at 5:00 pm
I truly appreciate that you’ve considered my views, so thank you. I also want to add another nugget. Ever wonder why Garth does these “free” speaking engagements, where his fans can come out and meet him? It’s to pump up the crowd, so the guys sitting at the back of the room can get your contact info. The picture at the bottom shows a room full of fresh meat:
http://www.turnertomenson.ca/OurApproach.htm
ScottyP
at 2:28 pm
The books are far better than the series.
crazyegg
at 9:39 pm
Wow. All you “haters” of Garth all seem to be very educated and up to date about his blog posts and preachings. Just saying…
While I don’t agree with everything Turner says, he does occasionally raise SOME good points. Rob Carrick from the Globe is another person who raises SOME good points. FYI, he has had a negative real estate angle recently and supports these with empirical facts.
Any educated Canadian should absorb all angles of the story & do their own due diligence. That’s what separates us from the animals.
Kyle
at 11:20 pm
You’re right I am pretty up to date on Garth’s blog because I read it from time to time for two reasons 1. I agree one should consider all the angles, so I seek out rationale that counters my own, but so far I’ve never found any plausible rationale that i couldn’t instantly debunk in either Turner or Carrick’s writing. In fact the only bear that I’ve ever encountered that has ever raised anything to make me stop and reconsider is JoeQ who comments here. 2. I also read his blog because I find it very entertaining (in a different way than most people). I get a huge kick every few months from reading his latest elaborate new theory on why real estate is going to crash and how it will unravel. Whenever I read these posts images of Wile E Coyote opening a big box from ACME come to mind. His latest theory that Pauline Marois and Quebec will separate, causing Canada to become a second world country and therefore trigger a real estate collapse was pure ACME rocket powered roller skates!
Joe Q.
at 12:13 pm
I’m flattered … I think.
I used to read Garth Turner’s blog (many years ago) but got tired of the doomsday scenarios and the broken-record aspect of his posts (there are only three or four actual topics — they get rehashed endlessly).
I don’t consider myself a hardcore housing bear (maybe by this blog’s standards, I am) … but I am a scientist by training and this perhaps makes me less likely to accept assertions made without data (or with limited or poor quality data). My experience is that these types of assertions are frequently made in discussions of the RE market.
ScottyP
at 12:06 pm
You don’t seem to know the readers of this blog very well, crazyegg. Maybe your own due diligence was in order before you decided to post your comment.
jeff316
at 3:02 pm
Carrick is fine, although you have to read his articles with the awareness that his aim is not to inform, but to keep specific groups of readers coming back for more … advertizing.
Turner shmurner carrick sparrick
at 11:01 pm
Carrick is an ass. I like how the Shlub and Mail continually puts out crap written by non qualified morons with zero real world experience, just regurgitating some BS heard in an elevator. As far as Turner goes, anyone who listens to him deserves everything that happens to them.
Tri State Pat
at 1:16 pm
The thing with Garth Turner is that he makes you think. That’s the most important thing people have to start doing right now with real estate the way it is.