Top-Ten Burning Questions For The 2019 Real Estate Market (Pt3)

Opinion | January 11, 2019

I sure hope the blog readers are up early on a Friday!

We all know that Friday blogs only get one weekday of display on TRB, but they do get Saturday and Sunday, for what it’s worth.

Here’s hoping that “Burning Questions” #4 through #10 get the eyes they deserve…

4) How many condos will be cancelled, and will changes to the Condominium Act result?

In short: several, and no.

That’s a pessimistic viewpoint, right?  Well, it’s a realistic view-point as well.

I literally had this conversation with a colleague of mine today when he told me, “You’re being pessimistic.”  I told him that as much as I’d love to be optimistic, I can’t help but be realistic.  I don’t go through life seeing the cup as half-empty, but I sure as hell don’t ever want to fall into the segment of society that willfully delude thesmelves into seeing something that isn’t there.

Being realistic means you’re less likely to be caught off guard.  And perhaps that’s a mantra that every pre-construction condo buyer should adopt.

We saw more condo cancellations last year than that any year I can remember, and the media coverage was ramped up too.  It makes for a sexy story, especially when you have whiny buyers who will mug for the cameras while telling their sob stories.  Remember, it’s always somebody else’s fault!

Since, in my opinion, politicians aren’t actually in the business of helping people, but rather in the business of self-preservation, I don’t believe that at any point in the near future, we will see changes to the Condominium Act that will prohibit developers from cancelling more condo projects, for any reason they see fit.  There’s just nothing “in it” for a politician to enact change.  Don’t get me wrong – politicians will stand in front of podiums at some point, lamenting the evil developers and promising to help the poor, infantilized pre-construction condo buyers, but once the flashbulbs stop, those politicians will simply go back to City Hall and work on their giant paper-clip chains at their desks.

Remember, I’m not being pessimistic, I’m being realistic.  There’s a difference!

At some point, developers will cross the line, and maybe, just maybe, something will be done.

Take the Cosmos Condo, for example.  In 2018, Liberty Developments cancelled the 3-tower, 1,453-unit complex, citing the cliché “financial constraints” as the reason.  And only a few months later, Liberty filed an application with the city of Vaughan to build two “new” condos on a plot of land that they own right next door.

Is that fair?

Well, yes, of course it is.  Because, 1) Liberty was permitted to cancel the project as per their clauses in the Agreements that buyers signed, and, 2) Liberty can file an application to build a condo on any plot of land that they own, as they see fit.  Liberty is free to suggest that one project has nothing to do with the other, and while we know that’s not the case, it doesn’t matter.

Is that case enough to cross the line?  Or is it just business as usual?

We will soon find out!

Because on February 13th, 2019, a class-action lawsuit against Liberty Developments finally goes to court!

Suing a condominium developer is never easy, and when it comes to suing for a cancelled condo, I have never seen a class-action result in a “win” in Toronto.  Correct me if I’m wrong.

The website will tell you all you need to know about this class-action, as well as what is required for a class-action of this statue.  In order to proceed, the law firm requires 400 people to provide a non-refundable fee of $500 plus HST, which represents a paltry $200,000 retainer for the firm.

It should be noted that the law firm, Charney Lawyers, is perhaps the most experienced firm in Toronto when it comes to condominium lawsuits.  According to their website, they have class actions against Festival Tower, X-Condos, Emerald City, Murano, and One Bedford, just to name a few.  And according to THIS article, the firm is poised to take on the developer of Iconica Condos, which was the second major condo cancellation in Vaughan in 2018, this one even larger than Cosmos, with 3-towers and 1,633 units getting the axe.

According to Urbanation, in 2018 there were 12 buildings in 9 developments, representing 4,202 units, that were cancelled.

In 2017, there were only eight buildings and 1,658 units cancelled.

In 2016, a mere 379 units were cancelled.

Will this trend continue in 2019?

5) Will we open up the Greenbelt to development?

I mentioned this in December’s year-end blog, specifically including in the “Future of the City of Toronto” story, which I felt represented Story #1.

I wrote that blog about two weeks after the Ontario government launched Bill 66, the “Restoring Ontario’s Competitiveness Act, 2018,” and mere days after the media had grabbed on to the story, and the reaction.

The Toronto Star sought out mayors and twenty municipalities for statements, and while Mayor John Tory was the only one to dance around the issue and not provide any comment of substance (no surprise…), most mayors were wholeheartedly against the idea of residential development on the Greenbelt.

But here’s what’s interesting about the idea of building on the Greenbelt: it’s not for the benefit of municipalities other than Toronto.

At least, not in my opinion.

The biggest reason why the Greenbelt would be opened to residential development would be to alleviate the massive imbalance of supply and demand in Toronto, and potentially reduce prices and/or stop rapid appreciation.

I don’t think that Doug Ford is even considering what’s best for Aurora in all of this, but rather what’s best for Toronto.  Ironic, considering he’s known as the mayor who doesn’t care about Toronto, and panders to voters outside the GTA (ie. his desire to build subways north of the city, rather than a downtown relief line).  That is the only reason why I think, maybe, Doug Ford will do what’s best for the Greenbelt, rather than what’s best for the real estate market.

And of course, that raises a good discussion point!  With regards to whether or not to build residential real estate on the Greenbelt, what comes first: a) what’s best for the Greenbelt, b) what’s best for real estate values and affordability to those in southern Ontario, in the long-term?

Is this simply a case of, “If you want to make an omlet, you need to break a few eggs”?

Are we naive for thinking that we won’t ever need that land?

Every time I see a movie based hundreds of years ago, and there’s nothing but green land surrounding the quaint little town, in every which way, it makes me think about what existed on the site of my home, or office, one hundred, two hundred, or five hundred years ago.

Call this line of thinking exaggerated if you please, but don’t people acknowledge that at some point, we’d have to consider building on the Greenbelt in order to house the people who want to live in the Golden Horseshoe?

Or do we just continue piling people on top of one-another in the downtown core until the house of cards implodes?

6) Will there be any changes in the mortgage market?

I believe that as things stand right now, this is the most confusing time for the mortgage market in a decade.  Maybe more.

There have been worse times, ie. 20% interest rates, vendor take-back mortgages, et al.

But in terms of being able to know, with a modicum of certainty, what interest rate you will end up with, before purchasing, I don’t know that there’s been a stranger time than now.

5% down?  20% down?  House?  Condo?  Variable?  Fixed?

There’s absolutely zero consistency across the board, and what’s worse is that most buyers are making assumptions that are entirely incorrect.

For example, would you assume that if you have a 20% down payment, you would get a better interest rate than the buyer with a 5% down payment?  I think that’s a reasonable assumption, right?

Wrong.  Dead wrong.

Buyers will 5% down get better rates than those with 20% down.  Buyers who are better qualified financially are punished by the banks, who charge them higher rates.  For those of you that work in banking, we can call this semantics, and yes, I’m being a dramatic.  But you get my point.

The “pre-approval” is ironically both more necessary, and useless, than ever before.  It’s necessary because lenders have tightened up their criteria and no longer should a buyer simply rely on an online calculator, or loosey-goosey conversation with a bank or mortgage broker with respect to a pre-approved amount.  But the pre-approvals are useless because so much changes in the mortgage market, week-to-week, and literally day-to-day.  Not only that, a buyer looking at different property types, at different prices, will ultimately get very different terms from a lender.  So what good is a pre-approval if the terms are going to change between the day the ink on the document dries, and the day the purchase is made?

I’ve heard anecdotally that most banks have a November 1st year-end, so after that date, they “turned off the taps,” so to speak, and made far fewer loans.  This wouldn’t make sense to many people who simply assume that banks are in business to lend, 24/7, 365.  But having experienced exceptional years, most banks realized the need to let employees catch their breath, and prepare for 2019.  Based on this, I would expect restrictions to loosen this month.

I’ve also heard that CMHC will be releasing new policies in April that will be groundbreaking, although exactly what those new rules are, remain to be seen.  I’ve heard rumours that this is mainly to do with self-employed, contract, and commission-based individuals, who have been hit hard over the last couple of years.  It’s amazing, because I’ve had clients who are commission-based with exceptional incomes get turned down for loans that salary-based individuals, with half the salary, would have had no problem obtaining.

7) Will we continue to see a mass exodus from the city?  Where will buyers go in 2019?

Over the past six years, two of my friends have moved from Toronto to Mississauga, one has moved from Toronto to Montreal, one has moved from Toronto to Kingston.

Work, life, and family played a role.

But you can’t think for a second that the cost of living in Toronto wasn’t a major factor.

As I’ve mentioned before many times, it can actually be faster to get to work, living outside the city and having access to better transit, than living downtown in a poorly-serviced spot.  I always reference my friend who moved to Mississauga and walks 8-minutes to the GO Station, takes a 16-minute train to Union, and walks 5-6 minutes to his office.  He used to take 40 minutes to get to the same office from Bathurst & Queen’s Quay.

Some clients of mine who live east or west of the city are seeing absolutely zero point in living in the core, although to be fair, I just received an email from a client who works at Yonge & Finch, who’s wife drives to Mississauga, and who wants to live in midtown.

But whereas moving outside the core used to be a last-resort, and one that was fought by the parents and friends, and much debated among the buyers, it has now become a realistic discussion point at the start of many searches.

I also think, and this is one of the rare times when you’ll hear me say this, that people are becoming more reasonable.  Don’t get me wrong, the good folks that protested the B.C. pipeline on the Bloor Viaduct in Toronto (John Tory clearly had no issue with this) on Wednesday night, during rush hour, with their e-vapes and man-buns, who went back to their parents’ houses when they were finished, will still clamour for the government to pay for their lives, and everything in it.  But the actual working-class in Toronto seem to have accepted that if you can’t afford to buy a property in Toronto, then you can look outside the city.

I understand.  Change is hard.  Acceptance is harder.  But it seems as though more and more people are accepting that, 1) The market crash of 50% that will enable them to buy their dream home, isn’t coming, and 2) The universe is not going to solve their problem.

Mississauga, Oakville, Burlington, Hamilton, Milton, and Brampton have all seen an uptick in activity in the past few years, despite the ups and downs of the market.  The same can be said for Ajax, Oshawa, Whitby, and Pickering, although prices have suffered there, as mentioned on Monday.

People are going to continue moving out of the city.  People will continue moving into the city, ie. those who can afford it, but I just don’t see all those with the means and desire to own a freehold property outside the city hanging on here any longer.

8) Will condos continue to get smaller and smaller?

Absolutely.  No question about it, in my mind.

But isn’t this a necessary evil?  I mean, if buyers are objecting to prices, and rapid appreciation, then isn’t buying a smaller condo the obvious alternative?

Paying more, to get less.  That’s the theme in today’s condo market, and I don’t see it changing.

I always point to The Art Shoppe as a classic example of what to expect moving forward.  There are studio plans of 321, 325, 331, 339, 379, 379, 418, 431, and 559 square feet respectively.  One-bedroom plans of 321, 480, 487, 510, 543, 567, 569, 607, 663, 867, 889, 893, and 1,004 square feet respectively too.  I’ll admit, the 800+ square foot 1-bedroom layouts are very rare, but this doesn’t offset the fact that this development has seven different floor plans of under 400 square feet.

Once upon a time, we thought that a sub-600 square foot condo was small.  When I bought my first 585 square foot condo, the people around me marvelled at what a tiny space it was.  I remember when condos started being built in the high-400’s, and it was just laughable.  The low-400’s came after that.  But the low-300’s?  This is something new.  And not altogether; I mean, there are 350 square foot bachelors in older buildings.  But in pre-construction, off floor plans?  This is a relatively new phenomenon.

9) Will pre-construction condo prices continue to make zero sense?

Oh yeah, we’re into bizzaro territory now.

Magic beans.  That’s what this has come to.

“King Toronto Condos” was launched last fall by Allied Properties & Westbank, and it was written up in the major newspapers, ie. THIS article in the Globe & Mail which drooled over the Danish architecture.

But what’s different about this condo isn’t just the architecture, which most people don’t actually care about, but just pretend to because it’s trendy, but rather the major difference between this condo and any other King West condo is the price.

How about $1,604 per square foot?

The 16-storey, 514-unit building will offer units starting at $659,900 and starting at 390 square feet.

For the love of GOD, who is paying $1,091,990 for a 681 square foot, 1-bed, 1-bath?

Apparently, “investors” are.  Yup.  Smart investors.  That’s the ticket…

10) Will “housing” be a major discussion point in the 2019 Federal election?

No question about it.  And if you know me, and you know my view on politics (ie. what’s written in point #4), you won’t be surprised to hear me say that this will be more pandering to voters.

I would love to see more affordable housing built across Canada, specifically in Toronto.  But with that comes about 1000x as much rhetoric which I just can’t stand.

I fully expect every politician, from every party, to appeal to the cash-strapped, gee-shucks Canadian who can’t afford they home that they want, whether that’s simply a roof over their head, or the 4-bed, 4-bath detached with a walk-in closet that they believe they “deserve.”

I fear we’ll get away from the idea of subsidized housing for those at the lowest-end of the spectrum, and waver into politicians promising that every Canadian can have what they want.  Because that’s been the theme in most elections of late, and I’m not sure that you’ll gain the vote of the middle class by promising housing for those holding the bottom-rung.

Liberals, PC, NDP, and whatever party Maxime Bernier seems to have started, will all make housing a major part of their platforms.  And while I don’t think it will dominate the election, I think voters who don’t feel as affected (ie. don’t care) about some of the bigger issues, will focus in directly on campaign discussions that affect them.

So there you have it, folks!

Ten burning questions, and probably fewer answers than we’d hoped to have.

The discussion after Wednesday’s blog was fantastic, and the readers even went through a few number-crunching examples for investment properties, which I thought was really cool.

More questions in today’s blog, albeit less appealing.  But I invite you to have your two cents either way…

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  1. Carl

    at 9:25 am

    For #4 — I don’t see how you could write a law that would prohibit cancelling a construction project. What the governments could do though, and what they do routinely, is to update the contract law. The law could mandate adequate compensation for those who bought into the project when the project is cancelled. For example, they could be given some portion of profits from any future development on the same land.

  2. Kyle

    at 9:45 am

    I actually don’t think the green belt will be at risk for a while, regardless of what politicians do. The reality is people don’t actually want to live there- it’s terrible location-wise, it’s far from jobs, amenities transportation and services.

    As has been discussed the 905 region has already been hit hard and is slow to recover. If people are having troubles selling places in Peel, York and Durham, i can’t see where the demand is to live out beyond that will come from.

  3. Libertarian

    at 11:13 am

    “Are we naive for thinking that we won’t ever need that land?”

    That is an interesting question David. I always wonder at what point does the opposition to build on the Greenbelt crossover from NIMBYism to smart policy. On the one hand, we need housing, but on the other, building that housing will take away what makes southern Ontario desirable as a place to live.

    The people who live in Aurora bought houses there because they like the lifestyle. As citizens, they have power over what happens in their city. Why should they give up their lifestyle just because somebody can’t afford housing in Toronto, but can then afford it in Aurora?

    Is the future of southern Ontario simply to pave over everything to build housing? My prediction is that southern Ontario becomes so expensive that businesses start going elsewhere, so the demand for housing will actually decrease. Housing in downtown Toronto (including the core) will always have demand, but that’s it.

  4. Carl

    at 1:11 pm

    For #8 — A 400 sqft condo is basically a hotel room. So it can work as an investment, if you rent it out for $150/night. But if you plan to buy for your own use in a building where most units are that size, be prepared to live in an unregulated hotel.

  5. Carl

    at 1:21 pm

    For #6 — while so much discussion is about interest rates and how low they have been for a decade and how much longer that will last, it’s often overlooked that central banks engaged in another large scale experiment over the same time period. That was the so called quantitative easing, injection of trillions of dollars to the world’s monetary system. That’s where some of the cheap money came from that ended up in the stock market and real estate. The QE era is now over (until the next crisis), and nobody knows what that will do to the markets and the economy.

  6. Jennifer

    at 1:59 pm

    I’m interested in seeing how the airbnb issue in Toronto will play out with the latest report of about 1/2 of airbnb units being against the rules that are under appeal. Hopefully the hearing date will not be moved. If the rules stand, that could be a lot of inventory coming on the rental (or sale) market.

  7. BillyO

    at 3:35 pm

    As I’ve mentioned before many times, it can actually be faster to get to work, living outside the city and having access to better transit, than living downtown in a poorly-serviced spot. I always reference my friend who moved to Mississauga and walks 8-minutes to the GO Station, takes a 16-minute train to Union, and walks 5-6 minutes to his office. He used to take 40 minutes to get to the same office from Bathurst & Queen’s Quay.

    Great point and one I’ve been stressing to friends prices out of the core. Living strategically close to a GO station in another municipality is quite favourable, especially as the a) the network is being improved continually and b) most of the new tech/finance jobs are in the new towers close to union station.

    David, regarding King Toronto, I’ve got it on good authority that of what’s been released so far, it’s about 75-80% sold. Lots of end users actually, and lots of customizing and combining of suites. The city has far more monied types than ever before that can support ridiculous prices such as these – for now.

  8. crazyegg

    at 4:51 pm

    Hi All,

    9) Will pre-construction condo prices continue to make zero sense?
    How about $1,604 per square foot?

    I know that David is not a raving fan of new construction condos but I think it can work well for some people (those not in a pressing need to move or investors).

    I have always found cost per square foot to be irrelevant when buying a condo in Toronto. To me, the layout (i.e. as close to a perfect square as possible, windows in the bedroom and having a balcony) are the key drivers that impact overall unit desirability.

    The latest condo launch at the Wonder Lofts in Toronto is a good case in point. The unit is a “spacious” 453 SF. The price was $485,000. This works out to $1,070 per SF. On paper this sounds ridiculous and only a moron would even remotely consider this. However, the drivers that I mentioned earlier all underscored this moron’s decision to take the plunge….


  9. steve

    at 8:43 pm

    I am not a RE insider and so I am hoping someone here will step up and help me understand why properties seem to be lingering on the market (often being removed and re-listed) for months. I have been observing activity primarily south of Dupont, west of Spadina, east of Parkside Drive. I would appreciate any input.


  10. Frances

    at 6:30 pm

    Regarding building on the GreenBelt, I think it will be a long time before that would become necessary. There is a lot of room for intensification in Toronto – try driving along Lawrence East. We could even build more houses if there was a mandate to to build two houses in place of one if the lot size was, say, 50 ft. or wider. What we need are more family sized apartments or condos in mid-rise buildings. And I predict that we will come to regret very tall apartment/condo buildings. They are energy hogs and too dependent on technology; when the inevitable energy crisis arrives along with much higher temperatures, they will become unlivable.

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