Wednesday, 31 July 2013

What Toronto Neighbourhoods Can Learn from the Rust Belt

The other day someone asked me if I would invest in Detroit real estate. Hmmmm.... Let me think for a moment...Ah, no. But not everyone thinks like me. There are many Canadian investors who are buying up Detroit real estate at bargain prices in the hopes that Windor's American Cousin across the river will come back after free falling for half of a century. Hopefully, with this town's declaration of bankruptcy, the big "reset" button has been pressed, and it works this time.

In a way, Toronto has changed in the exact opposite way of Detroit. In 1950, Detroit topped 1.8 million in its population, where Toronto was just over 1.1million. That was the year that the Detroit population peaked. It's metro area is now a mere 700,000 today where Toronto has reached over 2.6 million (over 6 million if you count the GTA).  It's a remarkable turnaround for both cities. 

In some ways, they share a common history. Both are, historically speaking, "rust belt cities" that prospered when manufacturing contributed much more to the wealth of the U.S. and Canada. Still, each city could not rely so heavily on manufacturing to carry the city into the future. And like many cities at the time, both Toronto and Detroit have seen some flight to the suburbs in the 70s as well, though Detroit would suffer much more from it. 

Rust belt cities have been largely unsuccessful with the slow down of manufacturing sector in the American economy. Some have gone into a long decline - Cleveland, Detroit, Baltimore, Buffalo, and a few have rebounded like Pittsburg and Chicago. Aside from Toronto, that is currently at is highest population to date, American rust belt cities have suffered a decline in population, even in successful cities like Pittsburg and Chicago.  Some argue that Canada  faired better because its population did not have a Sun Belt to draw them away.  Others will say that the Toronto area has managed to diversity its economy better and keep its manufacturing base strong. 

In many ways, neigbhourhoods in Toronto function like a rustbelt city. Some are rebounding winners and some are in decline no matter what you do. Around the 1960s and 70s, many Toronto neighbourhoods began to go into decline as many moved to the more properous and, at the time, more attractive living in the suburbs. And after some decline, some city neighbourhoods emerged at a future date when the residents can find a way out of their decline. 

Let's take the Beach neighbourhood for example. In the early part of the 1900s, the Beaches of Toronto were all the rage. You can access the beach easily and there was a great advantage to being near one.  There was no air conditioning back then. So, on those hot summer days, people would head to the beach in droves. No one went to the cottage to swim - it would take much longer to get to Muskoka back then. Then of course, the highways improved and air conditioning arrived, and the beaches of Toronto went the way of the steam powered trains and powdered wigs. But not long after, the hippies and artists started to buy up the housing near the beach, the city realized that the beach was a good thing, and then the turnaround began. Now, the beach is insanely busy in the summer and one of Toronto's top established neighbourhoods. 

In Parkdale, we see another Toronto neighbourhood that went into decline due, in part,  to the end of the beach. At one time, Parkdale was for the wealthy set, with stylish city mansions and detailed Victorian architecture. A walk to the popular Sunnyside Beach was easy, but then along came the Gardiner to cut off access to te beach (on top of air conditioning, the flight to the suburbs and eas access cottage country) and Sunnyside Beach's glory days were done. Parkdale went into a deep decline, Detroit style. And still, Parkdale was able to turn it around to the point where many in Parkdale would like to stop the turnaround from happening so quickly. Those huge stately homes that were once a steal, are now not as cheap as they once were, despite Parkdale's gritty feel. 

Now, I don't want to give the impression that every part of Toronto is going to rebound into an emerging neighbourhood. Many parts of the city, further from the core will decline in the future due to poor urban planning and other urban woes. 

Some neighbourhoods are still undecided. Take Weston, for example. This area has been called "the rustbelt of Toronto".  It is like a little Cleveland or Detroit or Pittsburg right in the city. Like those rustbelt cities, the Weston neighbourhood was once largely a manufacturing area. It was a close-knit, working class neighbourhood with its own Santa Clause parade (which it still has), but then the factories where many of the locals were employed shut down, unemployment shot up and the decline began.  When the area's number one employer, the kodak factory, closed, that was the end of the areas manufacturing legacy. 

Unlike the rest belt cities, Weston has the advantage of having the city of Toronto behind it. Metrolinx will open up a GO station in Weston, creating easy access to downtown. Since Weston used to be a separate town, it has great architecture in its housing stock at a reasonable price.  The city as a whole, has seen the affordability of houses decrease for the average Torontonian. And with the increase in population and the lack of low-rise houses being built in the city, there may be buyers heading to Weston to cash in on the cheaper home prices.

Weston has a long way to go though. The commercial strip is still pretty dismal, and some of the nearby high-rise rentals seem pretty rough around the edges. Still, crime here is decreasing, and the early buds of an emerging neighbourhood are appearing. Let's hope Weston functions more like a Pittsburg or Chicago that can successfully rise from it's industrial past and create some thing more diversified with a strong community, instead of a rustbelt city that can't seem to stop their decline. 

Wednesday, 24 July 2013

Buying A New Condo or House? Take Heed...

Often in my blogs, I express that I'm not a big fan of new builds. It's not that new condos or houses are not exciting. They can be. I get very excited about certain condo or townhouse developments in the works.

From a purely financial perspective, however, at this particular moment in time,  resale prices on a condo or home tend to be better priced than new builds, even with some of the incentives that are coming out. Nonetheless, you can't blame people for liking new things like a new pair of shoes or a new toothbrush.  So why not a new home? I can certainly see why buyers can get excited about certain projects.

Regardless of your desire for new, the real shocker is not that a new build may be priced higher, but that many buyers buy their units directly from a developer. They march up to the sales centre and just pick a condo and  buy it.

I'm not really sure why this happens. I'm assuming that some buyers feel they don't really need a real estate agent or that perhaps it will cost more if they use one.  Neither one of these things are true. In fact, acting without an real estate salesperson can lead to spending more money than you need to.

If you buy a new build on your own, you are essentially using the salesperson who is representing the developer, and since  his or her boss is the developer, there's a good chance they are not entirely in your corner. The developer's salesperson will be looking to sell units for the developer, not for you.

If you had someone there representing you, you are more likely to find out about the hidden costs. Most buyers who do not use an agent will miss these. Real estate agents (and lawyers) can spot and negotiate some of these and may be able to put a cap on some of these charges.

If you buy from the builder, they may not give you the preferred lot. Their sales people will likely be trained to give you the least favourable location first so they can more easily sell the choice ones after you. You need to ask for the premium lots.

The developer's salespeople will also try to chat about upgrades. What most people don't know: Upgrades are what will bring the builder the most profits. So, when offering upgraded finishes, the prices are often inflated. Some real estate agents can tell which upgrades will bring them additional value or return on investment and which ones will not.

Unlike resale properties that use a standard Agreement of Purchase and Sale form, many of the new builds use a form from the developers that their lawyers have help them put together. It is not a standardized form. I would make sure to run this builder's form by your own lawyer before signing any papers. The forms can vary widely, particularly with fees, but also government taxes, levies, connection fee and extra costs for such things as a recreation centre.

And lastly, let's talk about the builder's measurements. The builder's plans  are pretty generous. I know this first hand because I often hire a professional to measure a unit or home I'm selling for resale, and almost every time, the measurements are less than the floor plans of the developer. The developer's floor plans are usually taken from the outside wall, while most buyers who may live in this property want to know the measurements  from the inside wall. So builder's tend to be generous with their floor plans. But keep in mind a clause can be added that a unit must be within 2% of the measurements or a rebate can be had by the buyer.

Even if you, for whatever reason, do not want to use a real estate salesperson, you should visit the Tarion site to make sure the builder is registered with Tarion. New homes under Tarion Warranty will protect you for a given period of time on all of the new items. So, if your fridge breaks down the day your arrive, then they should be able to replace it. Some things have shorter warranties than others, but they are either 1 year warranties for things such as Ontario building code violations, 2 year warranties for such things as water penetration in the basement, and 7 years for such things as cracks or distortions in the foundation walls.

The Tarion site will also provide you with a list of builders who did not comply with the Warranty Program. You do not want to end up with a new place with a builder that has a lousy track record. Also on the Tarion site, you can find what other developments were done by the same builder. If you are serious about a property, go knock on some doors from buyers who have previously bought from the same buyer in a different project. Ask the owner of that condo or townhouse what they think of the devleopers and what sort of problems ( if any), they had along the way.

All in all,  for those of you who buy directly from a builder, you are not doing yourself a favour by skipping the real estate salesperson. The developer will not charge you any less for not using one. In fact, you may end up spending more on hidden costs, on overpriced upgrades, and a potential buyer who does not  have the reputation to follow through on their Tarion duties.

Tuesday, 16 July 2013

The Strange Truth About Real Estate Agents

From time to time, we all find ourselves at those parties where people like to talk about their jobs. Fair enough. It's what we do for most of our waking life.  But as we all know, not all jobs are as exciting as others, or at least they don't appear as exciting. So, if you are a lawyer working on an plot-twisting criminal case or an artist working on  a mind-bendning new gallery show,  then it is easy to get the crowd worked up about the kind of things you do. I know I'm a sucker for such things.

Many years ago, I used to work in television, mostly on HGTV shows, before I became a real estate agent. At parties, most people loved to ask about my job. They watch television.  So, it makes sense that they would want to know about the inner workings behind how the shows are made. And yes, a lot of reality on reality shows are made up.  All I would have to do is mention I worked on a given show, and the questions would start rolling in.

When I became a real estate agent, the interest in my job took a bit of a turn. There were always a lot of questions about certain neighbourhoods and my opinion about what's going on in real estate right at the moment. There were a lot of questions to pull out my expertise, but very little interest about the job itself.  As a career, real estate agents rarely inspire a gasp of excitement, usually because it is not much of a novelty these days to be one, especially in Toronto.  

So, without anyone asking me any questions directly about my full-time career, I'm going to tell you a few pretty fascinating things about real estate agents in Toronto.  With the help of the talented Mark McLean, the Manager of Bosley Real Estate at the Queen West office and the knowledgable Ann Bosley, the VP and General Manager of Bosley, let me reference their findings and graphics to show you what real estate salespersons are really like in Toronto. 

1. There are a lot of us. I've known this for awhile. You probably have too, but do you know just how many? There are approximately 33,000 real estate agents in this city. I know. Yikes. That's a lot. That's one agent for every 167 people. How can a real estate agent  possibly make any money with those kinds of numbers? Well, let me guide you to the top graphic that indicates that more than 40% of all agents are  new.  The thing is that this new category seems to stay the same size year after year. So, that means a large number of people join up and many leave. In fact, 70% of all agents will drop out in the first 2 years. 

2. We're old. Compared to many professions we are an older bunch. The largest age group falls between 51 and 60. If you want to feel like a spring chicken, become a real estate salesperson. And who wants to retire? The agents who stick around stay awhile.  2.8% of our workforce works past the age of 70. 

3. Many Toronto real estate agents do not sell very much, if any thing. This brings us back to the 33,000 agents in Toronto stat. A full 18.6% of registered real estate agents did not sell one property last year. That's over 6000 agents with no deals.  Keep in mind that we all have to pay fees to belong to the appropriate boards to keep our licence. So, this large group of agents is certainly not making any money.  And agents with just one deal a year number over 5000. So that's almost a third of all agents who have very little experience in the trenches with one deal or less per year. The lesson: Pick your agent wisely. And at the very least, pick an agent who works full-time, and takes on real estate as a full time career. Otherwise, they may be a little clueless.

So, there you have it. Maybe not as interesting as someone who saves lives each night, but still, I'll bet there are a few things in there you didn't know...

Tuesday, 9 July 2013

The Bidding Wars of Summer: Where You'll Find Them

Bidding Wars. Buyers hate them. Sellers love em.  They are certainly less pervasive in real estate than they were 7 years ago. In fact, some Torontonians are starting to get the impression that bidding wars have disappeared from our collective radar like Richard Simmons or Tab Cola. But they're wrong.

In the media these past few months, there have been more than the usual musings and articles on a housing correction in Canada, like it's already happened, despite the fact that prices on average are continuing to rise in Toronto.  In addition, from a personal perspective, I have found myself in bidding wars these past few weeks, despite the latest round of predictions. And this leaves some of my clients scratching their heads. "How come I'm in in bidding war with 15 other people if Toronto is going through a correction?" they ask. It's a pretty big disconnect, and it's understandable why people are confused.

The truth is, bidding wars are alive and well in this market, but it's not everywhere. So, let's explore reason why it is happing in some areas and not in others.

Here is why  it is happening in some locations:

1. First Time Buyer Houses. Under 600K for a house is a hot place to be in most parts of this city, especially if you are close to a subway line in an emerging neighhourhood like the Danforth Village or the Junction Triangle. In these neigbhourhoods, you will likely see more bidding wars. Because of our green belt policy, the city is undergoing a lot more intensification. And building more houses do not intensify any thing. Simply put, houses are in short supply and few new ones are added. And because of that, there are fewer houses to buy.  So, the first time buyer are heading out to buy what's left while they can still afford them. If it's in a neighbourhood with an improving commercial strip and good transit, even better!

2. The Local Expectation.  I notice that some neigbourhoods have far more bidding wars than others. And a lot of it has to do with how homes in a given neighbourhood have sold in the months previous. If every seller is pricing their home below market value and receives a lot of offers, then this becomes the common practice in the neighbourhood. In some neighbourhoods, like Cabbagetown, I find that there are currently fewer bidding wars because agents and sellers seem to prefer to price their homes closer to market value or even a little higher. In other neighbouroods, like Parkdale right now, homes are more likely listed below market value, and then the bidding wars bring it up to market value or beyond.

3. Interest Rates: Sure, interest rates are low, but in the past few weeks they have crept up, just a bit. So, the buyer who locked in at a rate of 2. 89% for a 5 year term that is good until August will be more likely to buy before that rate expires when he or she would roughly have a new rate of 3.39% for a 5 year term. This probably won't make a huge different, but it does, in all areas of the city.

And here is why it is not happening everywhere:

1 High End Homes - High end homes where we're clearing about $1. 4 to $1.6 million just have fewer buyers coming to the table. The vast majority of people can't afford this kind of home. So, they take longer to sell. It's also a segment of the housing market that is just not moving much these days. There's a lot fewer  people buying expensive houses or condos than there are buying a smaller condo, townhouse or starter home. So, bidding wars are unlikely.

2. New Construction: You really don't have bidding wars for new construction, but I mention it here because it seems that some of the sizzle has fizzled these days from new construction. There was a time when people used to line up overnight to buy a condo at a certain project, and the next day it would be sold out. Those days are gone (for now). One reason is that the developers don't offer very good pricing these days. Though there are more and more appealing incentives, it is still not leading to a product that people rush to. Plus, there is a lot of new construction coming on the market. So, from a supply point of view, there is a great deal of new condos to choose from. The exception may be conversion condos and townhomes. Like houses, there is a much smaller number of these types of properties on the market than condo apartments.

3. Giant condos - Condos that are several stories high will have a few bidding wars from time to time, but generally, they don't. I think there's a belief out there that if you don't buy a certain unit you like in a large building, you can wait a month or two and a similar unit will pop up. Or maybe there are several same sized units in the building on sale at the same time. Unless there is some thing special about the unit or there is little turnover, it will likely not be sold a la the bidding war method.

All in all, I'm not saying that bidding wars necessarily mean that a given area is healthier than another. Bidding wars are not always a good thing. When one property sells for 100K over asking with 25 offers, it may have less to do with the property being fantastic, and more to do with the property being underpriced to begin with. Still, it can also indicate that the seller or buyer has  a certain confidence about their property. They feel it is important to let the property be exposed for a certain period of time. Any way you slice it, the bidding war has not gone the way of the dinosaur. As far as Toronto is concerned, the bidding war has gone the way of the raccoon. Still among us.

Thursday, 4 July 2013

Toronto's Double Trouble: Why the City is Asking Too Much

We all know our city could use A LOT more love these days. And by love, I mean money. In other words, Toronto has been largely ignored in terms of its infrastructure - most painfully, it's transit system, but also its parks and libraries.  And now, reality is finding us under our comforter and mess of pillows to shake us out of our neglectful sleep, and say,"We really need to do something about this!"

And because of this reality check, those who make rules for the city of Toronto are considering new ways to generate revenue. Their latest consideration: Nearly doubling the development fees charged to developers before they build a new project. That means, for developers, the City would collect a much larger fee each time a new project is launched.

Instead of implementing a 10% or 20% increase, they have decided to go way beyond that. So, for example, the fee to build a large apartment with two or more bedroom would rise 86%  from $12, 412 today to $23, 036 next July, if this increase goes through. So what you say? Those developers make enough money?! Those greedy bastards! Well, you may be right, but the developers won't carry those costs. They will likely pass it on to the buyer who would pay more for a given property or unit.

In truth, Toronto does not have the highest development fees in the land. In fact, compared to other municipalities, it's one of the lowest in the GTA. So, there is room for increases. It's similar to our property taxer , lower than other parts of the GTA.

The thing is, development fees are low because Toronto is one of the few municipalities to charge municipal land transfer taxes in addition to the provincial one. In fact, David Miller cushioned the blow of the new municipal land transfer tax a few years ago by freezing development charges.

So, Toronto has essentially doubled the cost of land transfer taxes and now development fees leading to a city where buying and selling will cost way more than it used to. Now, that's what I call a double double! Sorry, couldn't resists...

To be honest here, I'm a little conflicted. I know the city needs to raise more money. I can see how much improvement our city needs in terms of infrastructure, but a double blow of the land transfer tax and the development fees dump a lot on the individuals buying and selling their homes. Not only does it strike me as unfair, but financially shortsighted.

A large increase in both the land transfer tax and the development fees, by nature, work against raising money. They will make both buyers and sellers think twice about a purchase or a sale because of the extra money it will costs them. So, if fewer people sell because land transfer taxes are so high, and there are less buys because the development fees are so high, then the city makes less money because no one will pay for their fees. Not to mention that developers will not develop if their fees are high. In fact, if the market were to slow down, then the city will not collect the money it needs because the revenue stream won't produce as much revenue. And, in the end, our city doesn't have a reliable revenue stream.

It's simply not a good way to make money. I do agree, the city does need to create new revenue streams, but one that consistently delivers a predictable amount of funds seems wiser. Why not try road tolls? That would be consistent. A regular influx of cash. How about raising property taxes? Sure, I don't want to pay more, but at least the burden of the city's taxes won't be on the shoulders of buyers and sellers, but all Torontonians would pay for the improvement to their city.