Friday, July 26, 2013
Is GTA’s condo boom too much, too little or just right?
The numbers are revealed by RealNet’s GTA new-home market results for June, which were released last week, and mark the halfway point for 2013.
What better time for a bit of healthy perspective on the market?
Some see this condo construction boom as a threat to the overall housing market. Others see it as a huge success: intensification in action.
Those who consider the current level of condominium construction a market danger typically wonder who’s going to buy all these units once they’re completed.
But the fact is that most of the units are already sold. Condominium builders undertake extensive pre-sales programs to ensure that their projects are financially feasible before starting construction.
The projects are under construction because 87 per cent of the units were sold to purchasers who are now expecting them to be delivered, and have binding agreements of purchase and sale (with deposits that are, on average, 20 per cent of the purchase price).
Many market watchers worry that all of the units under construction will be delivered at the same time, flooding the market with supply.
This simply won’t be the case. Unlike traditional single-family homes, which can be delivered within a year, high rise condominiums take three or four years to complete. Condominium units being built today are mostly the result of sales from 2009 to 2012.
It’s also important to note that all this condo activity was spurred by government intensification policies calling for more high-rise development, and less low-rise development, across the GTA.
The market today has been fundamentally transformed by intensification efforts initiated seven years ago.
Just look at the most recent RealNet numbers: During the first six months of 2013, total new-home sales across the GTA were at the second lowest level in a decade, at 13,424 units.
The decline is largely attributable to the continuing decline in low-rise homes sales. Near-record-low supplies and near-record-high prices drove low-rise sales in the first half of 2013 down to 6,044, the lowest level in a decade, and 41 per cent below the 10-year average.
High-rise home sales in the first six months of 2013 also dipped, down to 7,380 units, which is 19 per cent below the 10-year average. Unsold inventory is at a near-record high of 22,651 units, mostly in pre-construction projects.
Those with condo-market concerns should take note: GTA builders are proceeding with caution here.
Developers across the region reduced the number of new launches in the first half of 2013, introducing only 7,995 new units through 45 projects. That’s 49 per cent fewer than the same period last year.
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