Probably hit a soft landing for Toronto real estate: Realosophy
After a three-year non-stop party, Toronto’s condo market is likely to settle down in 2019, some of the city’s biggest developers say.
“I can’t, for a minute, imagine that we’re going to continue to see the increases that we’ve experienced,” said Jim Ritchie, executive vice president of sales and marketing at Tridel. “Do I think there’s still room for growth? Yes, but not what we’ve seen in the past three years.”
Ritchie joined representatives from Menkes Developments Ltd., CentreCourt Inc. and Diamond Kilmer Developments for a round table discussion at Bloomberg’s Toronto offices on the outlook for the city’s condo market last week. Together, the closely held companies have built more than 100,000 condo units, including Menkes’ Harbour Plaza and Tridel’s Ten York by the waterfront.
Toronto condo prices have surged 50 per cent in the past three years to a record high of $570,764 in September, according to research firm Urbanation Inc. The segment soared amid the housing frenzy in the first half of 2017. While price gains have eased since then, they remain buoyant compared with the single-home segment which has been hit by harsher mortgage lending rules and rising interest rates.
“We have hit the peak and I think prices will probably stay flat, for, I would even say the next two years,” said Jane Renwick, vice president of marketing and sales at Diamond Kilmer Developments, a joint venture between Diamond Corp. and Kilmer Brownfield Equity Fund. The group is developing its first project of about 250,000 square feet of housing in mid-rise condos and townhouses that will include a mix of market and affordable units.
Shamez Virani, president at CentreCourt, added: “There is, for the first time in a little while, at least in the last 24 months, signs of resistance, signs of certain projects not being able to break barriers on pricing.”
Additional condo cancellations are also likely due to rising construction costs that could offset revenue from presales and pressure margins, the developers said. Costs have increased across the board, including steel, due to tariffs, labor, municipal charges and land.
This year, 15 buildings with more than 4,500 units have been canceled, Urbanation said. That compares with 1,678 for 2017 and 379 for 2016.
“We’ve seen cost inflation in the construction space being in the range of 10 percent this past year, which is something we hadn’t seen previously,” Virani said. “The theme of 2019 is about protecting your market, about ensuring that you’re really being thoughtful about the timing and the allocation of costs, and selling and building in the same market environment so you don’t get caught in that situation where you’re forced to cancel a project.”
While the developers may be cautious short-term, all are confident that prices will continue to rise longer term due to supply constraints and Toronto’s growth prospects. Gross domestic product in the city of 2.8 million people has been running at about 3.4 per cent for the past three years, above its population growth of 1.6 per cent, according to a city report.
Jared Menkes, executive vice president of high-rise residential at Menkes Developments was unwavering for the future. “There’s a lot of red tape that’s slowing down bringing more product to market,” Menkes said. “I promise you, pricing is going up.”
Below are additional insights on what to expect in 2019:
Jared Menkes on condo sales outlook in 2019:
- “I think 2019, you’re going be putting in more work just like for 2018 -- it’s not like it was 2016 or 2017, where you just opened the door and there’s a line up around the block. It’s rolling up your sleeves, telling the story, explaining the value proposition, the reasons to buying into this location.”
Shamez Virani on shift to suburbs:
- “The big part of the solution is the 905. Municipalities like Vaughn, Mississauga, Markham and Richmond Hill are all municipalities that have realized that because of price appreciation, all of a sudden, there is development potential on a lot of their land. They’re realizing that the City of Toronto is slowly closing the taps to new development and they’re going to be the beneficiaries of it, so there’s been this really meaningful shift in the last two years for developers to really go into the 905.”
Jim Ritchie on condo price growth opportunities
- “There are opportunities in 2019 where there could be reasonably good price increases depending on the product and where it is. There are some parts in our city that have a lot more competition and are building very similar product lines, maybe in that particular circumstance, we’re not going to see as much inflation, but you really have to break it out and look at it.”
Jane Renwick on affordable housing
- “Before, development didn’t happen east of Yonge because of Regent Park and Moss Park and where we had these areas where we had a concentration of social housing as opposed to it being integrated among market housing. So I think the best way to go is to integrate it.”