Wednesday, 19 December 2012

Toronto: Are You Ready for Your Future?

Lately, Toronto appears to be more and more like a teenager. Not because it has a few blemishes and is relatively young compared to the older cities in Europe, but because, in just a few short years, it has grown so much taller than than it used to be. 

By 2015, Toronto will  have 44 high rises exceeding 150 meters.  To put that in perspective: That's over three times more than the mere 13 high rises we had in 2005. Though I think builders will shift back to more midsize condos 5 to 10 years in the future, condo projects recently done or slated to be done in the next few years will change this city in a fundamental way.   

And this will be reflected in how we have and will buy property in Toronto. It is not just evident in our reaching skyline, but also in the sales figures. Only ten years ago, 25% of the sales were in highrises. Last year 62% of new homes sold were high rises. 

In many ways, it's a smart way to grow the city by making it more sustainable, growing up, instead of  growing out into sprawling suburbs. It makes for a more walkable city with more density that brings in better commercial strips to do that walking with more stores and better selection. 

On the downside, the city of Toronto has not changed its infrastructure at all to accomodate this massive shift in how we live. We have been in a state of complete paralysis around highways and public transport, lacking the leadership from all stripes of government to get any big project even started. We all know the Gardiner is reaching the end of it's shelf life. Plans to bury it or replace have been expressed, but that's about as far as it gets with the exception of a few patch jobs. 

Whatever the solution, the car's future in this city is not bright. So, for some, owning a car can be more of a liability,especially downtown. In fact, you will find a lot more condos sold without parking these days for that very reason. If you are truly a downtown animal, you may not feel you need it. Though I personally cannot imagine life without a car, I some times think there has to be a better way to get across this city. 

So, what about public transit? Well, in Toronto, I think planning for public transit has been impressive, though the implementing of any thing large scale has gone the way of the Gardiner. Few Torontonians would certainly agree that a better transit system wouldn't hurt. I know it's not cheap, but this city is lacking in a transit system suitable for a city its size. Madrid, roughly the same size as Toronto, has 293 kilometers of subway lines serving 272 stations. Toronto has 70 kilometers serving 60 stations. Do you see where I'm going here? Toronto should have four times the amount of underground rapid transit as it has now. 

I know it's easy to say we should have better roads and better transit, but at the end of the day, someone has to pay for it, right? Though I do think road tolls would be a good way to generate revenue for people using the highways around Toronto,  I'm not here to suggest a budget or any funding streams. I know that's really where the tough decisions have to be made, but really, if we are going to become taller and denser, and we still want to be able to move around the city with relative ease, then its time to take on those big projects, like public transit and the Gardiner, and get this city ready for the inevitable. 

Thursday, 13 December 2012

Buying A Condo New: Still a Good Idea ?

Remember when buying a Toronto condo off the floor plan was the best idea in the world? Investors would purchase units from a developer before any dirt was dug up to make way for the new building, and then sell them on assignment or after the owners/investors had lived in the unit a short time. Sure, there was always delays. They promised it would be ready in 2005, but you did't take possession until 2007. Still, if you were in if for the bucks, then those were pretty rewarding years. 

But there was some thing else special about those years not so long ago. The developers offered you better pricing than now. Let's say in 2003, if you bought a condo, the developer would charge you the price/ square foot for that particular condo based on  2003 prices. So, when it was built in say 2007, then you would have had some appreciation on the equity of your condo. So, you could sell it and make money or move in and just feel pleased that you were the smarty pants who was brave enough to get in early.  

It seemed like a good idea to be buying from the developer, but some thing happened since those good old days. Many developers in Toronto changed their pricing strategy. Let's say you bought a condo in 2012, and your unit is not suppose to be completed until 2015. Well, most developers don't charge you 2012 prices. They charge you the price they think it's going to cost in 2015, based on the sales of the past 3 years. So, nowadays you actually pay more for new. 

But, you may think this condo is brand, spankin' new and the fees are lower. True, there is a big plus to new.  Developers have learned to use smaller spaces more wisely and spend a little more on the finishes in the kitchen - a lot more granite counters and stainless steel. And in many ways, the fees are lower, partly because nothing needs repairs yet, and partly because newer condos have less amenities.

But the big problem has to do with the developers pricing projections. I'm no guru. I don't know where the market is going, but I do think if you buy some thing in 2012, you should pay 2012 prices. 

And this Fall, we have certainly seen the condo market soften, and even slip in price for some locations.

I'm thinking it's time for the developers to take a great big reality pill. Whether the market goes up or it goes down, I don't think it's particularly wise to ask for the price of a condo at a completion date based on very successful years that have already passed us.

I'm sure there are some developers out there who don't really appreciate what I'm saying. I'm not saying the new developments are terrible, and that no one should ever buy new. There are some very exciting proposals and projects out there. I think there is a lot of potential in Cork Town right now with the new builds. I think there are great small and midsize projects in the works along Dundas West. 

In some ways, you really can't blame developers for charging more money if the buyers will pay it. I think there is a lingering belief that buying new is always a good investment. And that's not always true. And if the condo prices grow slowly, or stagnate or slip in price, I know a condo that I bought in 2012 should not be purchased as if the next three years were as robust and impressive as the last three years. 

Monday, 3 December 2012

Condo Fees: More Than Just a Number!

Condo fees. The mightiest of obsessions among the condo owner across the city, the world, and possibly the universe, if there are condos on other planets. And for good reason! You can spend a lot of money on maintenance fees for any given condo. So, you want to make sure your money is well-spent, and you are not being taken to the cleaners. Nothing wrong with that.

Still, there are some misconceptions out there on how condo fees function. Understandably, condo owners want to spend as little on condo fees as possible. I know first hand that a condo with exceptionally high fees will act as a repellant for condo shoppers buzzing around looking to find a new home or income property. Prices will stay low, and the condo seller will likely make less money on the sale of his or  her unit. So, often it is assumed that the lower the condo fee, the better the building will be as an investment.

Most of the time, I find buyers are focused exclusively on that number. What are the condo fees? That's almost always the first question I get. Some buyers have a limit with how much they will pay. The thing is, the number can be a little misleading. A higher number in an older condo can often include a lot more of the cost of ownership, like the heat and the hydro. If there is a healthy reserve fund and good management, this number may not be increasing all that much for a couple of years.

When it comes to brand new condos, on the surface they are selling for  49 cents/per square foot.   Resale market averages about 59 cents/ square foot. It seems like the resale condos are more expensive but the truth is, the newer condos will likely have fees going up very soon. On average, common expenses can rise almost 30% in the fist three years. The law requires 10% for a reserve fund, but this often is not enough. So once the new condo is up and kicking, the reserve fund will likely need more funds. So, if you're not suppose to judge a book by its cover, then don't judge a condo by it's condo fees.

Of course, it's not just about the cost of the maintenance fees.  Many condo buyers don't like the idea of maintenance at all. They don't like a big yard, fixing roofs or replacing old wiring like those who own a  house. Many do not want to be caught up in the servitude of taking care of a property. They don't like the surprise when some thing breaks down and suddenly requires their savings. Simply put: The "maintenance" in maintenance fees does not sit well with them. Many condo owner don't really accept that they own a portion of the condo building, and they are responsible for maintaining it with their fees. They like to think they only own their unit.  And because there are so many new condos in Toronto, it some times feels that condos will never need to be fixed. They will always be new. The reality is, all buildings, as they start to age, will need new roofs, new window and new other stuff whether it's a house or a condo. So really, you never really fully escape maintaining your place. But if you own a condo, you can at least share the cost of repair.