At what point will the sales-centres outnumber the actual number of holes being dug in the ground?

I feel that people need a general education on how condos come to be constructed, and how many of them incur problems and slowdowns along the way.

If you currently have a deposit down on a Toronto condominium, be prepared to wait…..and wait…

Every once in a while in my line of work, you receive a phone call like the one I’m about to describe.

First of all, the young lady told me that I had been referred to her by somebody that I had never actually heard of.  I was flattered, but somewhat confused…

She asked me if I could help with the sale of her 2-bedroom, 2-bathroom condominium, and of course I said, “yes.”

I asked her when she would like to sell the condo, and she said, “As soon as possible.  I’d really like to get my money out now!”

We were definitely on the same page!

Her condo was in Liberty Village and was about 800 square feet with a parking space and a locker.  I asked for the address and she replied, “Um, I’m not sure.”

Confused, I asked how she didn’t know the address, and she said, “Well they haven’t given it to me yet.”

I asked, “Who hasn’t given it to you?”  That’s when she let me in on the little secret: “The condo people….you know, at the sales centre.”

All of a sudden, I clued in and asked, “Are you talking about a condo that isn’t even built yet?”

She told me, in fact, that she was.

While this cleared things up for me a little bit, it made things more complicated at the same time since I had no clue what this girl was asking me to do for her.

“What is it that you want to sell?” I asked her.

She replied, “My condo.  I want to sell my condo.”

I took a deep breath and explained that she didn’t actually own a condo.  She had put down a deposit on a condo that would, presumably, be built at some time in the indeterminate future.

I asked her why she wanted to sell, and she explained that she had put down 10%, about $32,000, and that she was responsible for coming up with yet another 10% by May 1st, 2009.  Oh, and I should mention that she didn’t have the $32,000 or anything close to it.  When I asked her what she could come up with by May 1st, she said, “Maybe, like, a gee or two.”

I told her that she should just ask the developer for a mutual release and get out of the deal, and that’s when she said, “No way man, I want to make some serious money on this condo!  I want to, like, you know, flip it and make some money.  Right?”

Here is your medal.

Congratulations on having such a novel idea; an idea that surely nobody has ever had before.  Flipping a condo, and making “serious money.”

Bravo.

The fact is, this condo she speaks of (I know the one…) will probably never be built.  The project is only 35% sold and has been selling for the better part of two years.  If they don’t break 55-60% by the end of 2009, I suspect they’ll pack up the sales centre and give back the deposits.

All over Toronto right now, there are condominium sales centres for condominium projects that may or may not ever be built.

As I have explained before in other blog posts, most pre-construction condominiums take a backwards approach to financing their projects.

A developer will start “selling” by taking deposits, but he’ll never actually get financing until the building is 70% sold.

This is why most projects have “grand openings” with lots of flash and pizazz; they want to sell as many units and take as many deposits as soon as humanly possible.

But the lustre eventually dies out, and if the project doesn’t sell 40% in the first month, it’s going to be a long, difficult climb to get to that magical 70% threshold.

I’ve seen several projects fold in the last five years, and I suspect many more will follow suit.

My experience at West Side Lofts has been well documented.  The project was scheduled for completion in August, 2008, yet they only broke ground on the project in December of the same year!  Every six months for the past three years, I would get a letter in the mail saying that the builder has “extended is economic viability date,” meaning that they are still trying to decide whether or not to go ahead with the project.

A client of mine wanted to purchase a condo at Danforth & Victoria Park a while back, but when I spoke to the developer, he said that the project was only 30% sold.  They had been selling for almost two years, and I knew that the project would eventually fold.  My client wanted to put a deposit down, but I wouldn’t let her.  She was adamant about doing so, and I was equally as adamant that it was a terrible decision.

So, she went and found another real estate agent, and I heard through a mutual friend that she put down a deposit in April of 2008.  Last month, the project folded, and she is currently waiting for her deposit to be returned to her in full with interest.

In the last decade, investors and users have made boat-loads of money buying and flipping pre-construction condos.  Their successes are well documented, but this has led a legion of misfits to believe that pre-construction represents “easy money,” and many people throw down deposits without consulting a professional.

As we move into questionable financial times, I believe that a good portion of all the condominium projects in our city are going to have trouble selling and subsequently attaining financing, and thus many will eventually fold.

There are some fantastic projects scheduled to be built, but for every one of those there are a half-dozen awful projects that are destined to have their completion dates pushed back again and again.

I caution people to think twice about which projects they choose to be involved with, and I’d take it a step further and tell them to shy away from pre-construction altogether.

Resale condominiums are where it’s at right now.

There’s too much uncertainty with pre-construction.

And who wants to take on more uncertainty in uncertain times?