Toronto Condo

Investors rush to get out of pre-built Toronto condo deals

https://www.theglobeandmail.com/business/article-assignment-sales-are-rising-in-toronto-as-investors-who-bought-pre/

Published November 1, 2020

St. Lawrence Condos at 158 Front St are mid-way through construction in Toronto on Oct. 29, 2020. 

Real estate investors are increasingly trying to get out of closing on their newly built condos in the Toronto region, as rents plummet and banks toughen borrowing qualifications for rental properties.

Selling the right to buy the new condo, also known as assignment sales, has soared during the past few months of the coronavirus pandemic, according to realtors.

It is a sign of weakness in the condo market beset by a glut of new units, declining rents and a dwindling number of renters.

“We are seeing a massive wave of assignments of people who don’t want to close in this market,” said Simeon Papailias, senior partner with REC Canada, which brokers hundreds of preconstruction sales every year.

Since the pandemic started early this year, the rental vacancy rate in the Greater Toronto Area has reached its highest level in more than a decade and the average rental price is 9-per-cent lower than the previous year, according to industry research group Urbanation Inc.

Demand for rentals has declined, with border restrictions slowing immigration, tourism and the influx of foreign students. At the same time, the number of available rental units has spiked. A record 23,000 new condos units will be completed in the Toronto region this year, and another 22,434 are due next year, according to Urbanation. It estimates that 50 per cent were bought as rental units.

Condo resales and their average selling price have increased over the previous year. As well, preconstruction sales on condo projects are still robust. But the number of new condo listings and new rental-unit listings are rapidly increasing. If that persists, realtors predict selling prices will start to decline.

As well, many Airbnb operators turned their properties into long-term rentals or are trying to sell them because tourism disappeared. In addition, many condo tenants gave up their places when they lost work or because they found space outside of the city.

Now, real estate investors who are due to close on their new condos worry that they won’t be able to cover their mortgage payments with rent.

“Guys who are closing in the short term are absolutely shook and affected by the pandemic and what it has done to the rental market. That is what is pushing them to assign,” said Mr. Papailias, who estimates that assignments now account for between 20 per cent and 25 per cent of his preconstruction sales. This compared with a range of 10 per cent to 15 per cent before the pandemic.

Unlike condo resales, which is tracked by local boards, there is no database for condo assignments and realtors are typically not allowed to list them. Over all, assignments account for a small fraction of the residential property market.

Assignment sales are only allowed when the condo building is almost completed, and the sale must be approved by the condo developer. The original buyer would have made a down payment for the purchase and sales agreement on the preconstruction condo before it was built about three or four years ago. For condos due to close this year, the original purchase was made around 2016 or 2017, when the economy was strong and demand for downtown city living was high.

With COVID-19 cases rising and some pandemic restrictions back in place, people are losing income and the economic recovery is uncertain. Banks don’t want investors defaulting on their mortgage payments and are trying to ensure that investors have cash and employment income to draw upon if a tenant stops paying rent. Since the pandemic began, lenders have become stricter with their qualifications, including in some cases requiring bigger down payments and not accepting down payments that were borrowed.

“The financing has gotten a lot more difficult,” said Matt Elkind, senior broker with Connect Realty, an expert in preconstruction sales. “The banks' appetite to lend to investors is down significantly. An individual, six months ago, would have qualified without problem. They’re not now,” he said.

Mr. Elkind said one of his clients did not qualify for a bank mortgage because she received federal aid when her business lost revenue from the pandemic. Some banks are asking prospective borrowers for a 35-per-cent down payment to qualify for the mortgage, whereas in the past, 20 per cent would suffice.

Lenders are also recognizing less of the rental income as part of the borrower’s total income. For example, before the pandemic, a lender would count 80 per cent of the prospective rental income as part of the borrower’s total income. Now, the same lender will only recognize 50 per cent of that income, according to real estate experts.

“For people whose only income is rental, it is hard to qualify,” said Bernadette Laxamana, mortgage broker and president of Karista Mortgage in B.C.

Banks typically have the cheapest mortgages, with interest rates at record lows. (The popular five-year fixed rate is below 2 per cent.) If buyers don’t qualify at a bank, they are forced to seek alternative lenders, which typically charge higher interest rates.

“They are having to look at options where the money is much more expensive. That is where people are having problems,” Mr. Elkind said.

Because the prices of condos have increased since 2016, investors are able to sell their contracts at a higher price, according to realtors, though they said it was not an ideal time to sell, especially as housing demand is expected to soar with Ottawa boosting immigration targets for the next three years.

“Life changes, your situation changes and you have the option to sell. Is this the best time to sell it? No it is not," said Hunny Gawri, managing partner of My Investment Brokers, which works on all types of preconstruction projects.

2019

Concord launched Concord King's Landing in Toronto late 2018, selling at an average of $1,183 per square foot; Westbank launched a 516-unit condo development in Toronto late 2018, starting from $1,687 per square foot; Pinnacle launched Pinnacle Toronto East Condos earlier this year, a 315-unit condo development starting from $736 per square foot.

https://www.theglobeandmail.com/real-estate/the-market/article-late-shoppers-lose-out-on-rare-condo-townhouse-in-downtown-toronto/

Late shoppers lose out on rare condo townhouse in downtown Toronto

Re/Max Hallmark Bibby Group Realty

140 Bathurst St., Th9, Toronto

Asking price: $1,025,000

Selling price: $1,025,000

Taxes: $3,340 (2018)

Days on the market: One

Listing agent: Christopher Bibby, Re/Max Hallmark Bibby Group Realty

The action

Buyers who planned to tour this three-storey townhouse at a public open house in October lost that opportunity as an offer was tabled following more than a dozen showings and an agents-only open house.

“In that downtown area, especially that close to the core, there aren’t many townhouse condominium options. Everything is either high-rise or low-rise,” agent Christopher Bibby said. “So there’s quite a demand for freehold alternatives.”

What they got

The townhouse is unique in a downtown area where options are limited to high-rise or low-rise dwellings, agent Christopher Bibby says.

Re/Max Hallmark Bibby Group Realty

Several townhouses flank an 18-year-old mid-rise, including this 1,376-square-foot unit with an entrance off a private gated garden and direct access to parking in an underground garage via the basement.

Past the living and dining area is a rear kitchen with hardwood floors, stainless steel appliances and sliding doors to a terrace.

A balcony and ensuite bathroom are special features in the largest of three bedrooms upstairs.

Monthly fees of $690 cover utilities, as well as use of fitness and recreation rooms.

The agent’s take

The house has a terrace and a backyard.

Re/Max Hallmark Bibby Group Realty

“For a lot of younger families working in the Financial District, this is great option for them because it has three bedrooms, three bathrooms, parking, a terrace and a backyard,” Mr. Bibby said. “And the maintenance fees are quite reasonable given that it’s a condo and hydro was included.”

Buyers also liked that this townhouse appears independent of the adjacent mid-rise. “They just look like separate homes from the condo complex, which is interesting, as opposed to some townhouses that are at the base or grade level of a condo building,” Mr. Bibby said.

“[Plus] you drive into the parking garage for the building, but walk right into your unit, so that’s super convenient and extremely rare.”

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According to Urbanation, a firm that studies Toronto’s condo market, there were 58,659 condo apartment units under construction at the end of last year in the Toronto region, but it expects about 19,000 will be completed this year due to resource constraints, weather and other delays. A lower number would lessen concerns about overbuilding, that would drive prices lower.

“We recognize that it creates certain vulnerabilities for the market should demand unexpectedly fall,” Urbanation said in a recent report on its website. “However we also don’t believe it should be used as the main basis for projecting a decline in condo prices.”

TD Bank warned recently that Toronto’s condo market will see prices drop by an average of 4 per centthis year and next, blaming a drop in demand amid a continued building boom.

“The number of new units scheduled to be completed in the GTA over the next two years is striking at a time when new condo sales are dwindling,” TD says, noting that high-rise condo buildings have accounted for 60 per cent of supply of overall new homes in the GTA since 2011. That compares to 28 per cent in 2000.   -- 2014 April 2   Yahoo!

Mid-rise Buildings Challenge Developers & City

“We call it the Oreo cookie problem,” Mr. Mallins added. “The problem is that there are so many fixed costs in any given building, from the mechanical systems on the roof and all the design and infrastructure costs at the bottom. But we have to make our money from the residential floors in the middle, whether you have 10 floors or 50.”

Despite those economic challenges, Ms. Keesmaat is promoting mid-rise development as a people-friendly solution that the city believes can house about half of the 500,000 new inhabitants the city is expecting by 2031.

“It is an important part of building sustainable neighbourhoods along streets that in many cases are underutilized,” she said. “It gently inserts more density and allows retail to flourish which benefits all residents in the neighbourhood.”

If the strategy continues to be embraced by buyers and developers, it also means that a considerable amount of new retail and commercial space is going to be available in mid-rises.

Cities such as Paris and Barcelona have high population densities comparable to that of Toronto’s downtown high-rise district even though they rely on mid-rises rather than towers, Ms. Keesmaat said.

Mid-rise complements public transit and makes more efficient use of the city’s existing sewer and water infrastructure. City guidelines encourage the use of stepped setbacks on higher floors to open up streets to sunlight and create more people-friendly neighbourhoods than the concrete-and-glass canyons that cast shadows across downtown.

Toronto approved the avenues and mid-rise study in 2010, which contains policies that are now guiding mid-rise development.

Date: Tuesday, January 21, 2014

http://www.theglobeandmail.com/report-on-business/industry-news/property-report/mid-rise-buildings-challenge-toronto-developers-city/article16410177/