Susan Pigg – Toronto Star – September 28, 2011
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Toronto Councillor Adam Vaughan can tell the minute he looks at a condo building in his downtown ward if it’s full of renters or home to owners.
“The bigger the building, the higher the rate of renters,” says Vaughan.
The optics can be even more obvious when he steps inside. Even newer buildings can have the feel of university dormitories with shabby lobbies and cheap carpeting meant to keep down maintenance costs for investors who own a unit or two but may live half a world away.
With Toronto’s condo market among the hottest in the world right now — almost 68,000 new units are now in the planning stages or under construction across the GTA — investors are cashing in big time on what looks like a sure bet compared to battered stock markets.
Some 45 to 60 per cent of all new condos planned for the GTA are being snapped up by investors, says market research group Urbanation. That number is believed to be closer to 80 per cent in the downtown core where 12 new highrises, with 5,707 new units, are creeping floor by floor into the Toronto skyline right now.
That frenzy of investor activity is now being seen — and felt — as developers try to keep condo prices down by building more, and smaller, units meant to maximize investments for people who will never have to live in studios smaller than hotel rooms.
The surge of investors is part of the reason new downtown units are now averaging just 749 square feet — about half the 1,440 square feet average being built in crowded Manhattan.
While there are growing concerns about where Toronto’s condo market is heading, the activity here comes as a shock to Jonathan Miller who monitors the U.S. as president and CEO of Manhattan-based Miller Samuel Real Estate Appraisers & Consultants.
“If this isn’t a bubble, I don’t know what is,” says Miller. “This is going to end badly.
“You can’t have such a rapid influx of supply without this going too far. One thing I’ve learned is that builders will build until they can’t build anymore.”
Ben Myers disagrees. The editor and executive vice president of Urbanation has recently started tracking rental demand for those condos.
“This (condo building spree) is providing the city’s rental stock,” he says, adding that some 100,000 new people are flocking to the GTA each year.
“We are one of the only markets in the world that is catering to renters and first-time buyers by creating these smaller suites. In my view, this is absolutely the best approach. Great cities grow and expand, they have people walking around and you can only do that if you have a lot of people living downtown.”
While Vaughan has fought hard to see continued construction of larger and three-bedroom units that provide a better mix of residents, he finds older condo dwellers are gravitating to smaller buildings where the number of owner-occupants tends to be higher.
Developer Peter Cortellucci has seen what’s happening downtown and his Cortel Group made a conscious decision to head the other direction. Its five new condo towers planned for the Vaughan Metropolitan Centre at Highway 7 and Jane St. will feature bigger units and sales contracts discourage buyers just looking for units to rent out.
“We’re trying to create a sense of community and a neighbourhood where people actually live,” says Cortellucci, vice president of Cortel.
“We took a bit of a risk with large units and we’ve been quite successful so far. We wanted people to come in and say, ‘I could really live here.’ We didn’t want it to be too far a stretch from their homes.”