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Toronto condo sales on a roll
Seduced by a raft of freebies and cut-rate pricing, condo hunters in the Toronto area are confounding analyst's predictions, snapping up units at a rate expected to translate into a year-end level close to the record set in 2002.
"The [sales] numbers for the industry are terrific, especially when everybody expected sales to slow down this year," says housing economist Mimi Ng of N. Barry Lyon Consultants. "Instead, they have been spectacular, and [2004] could be the second-best year on record."
Condo developers are naturally delighted to see the swarms of buyers. But they're not so happy about the ferocious competition and rising costs -- for everything from land to advertising -- gnawing away at their already pinched profit margins.
"They've had to readjust their revenue expectations," Ms. Ng notes. "They can't increase prices because of the competition. Consumers are in the driver's seat."
With all the momentum in the condo market, Ms. Ng's company projects that about 22,800 condo units will be completed in the Greater Toronto Area next year. But by 2006, builders will drastically cut back production, to a piddling 8,600 units.
A report released Monday by Toronto Dominion Bank highlighted the differences in the current condo market from that of the early 1990s, when a condo bubble burst leading to a 30 per cent drop in prices over four years.
This time, TD said, "the market is likely to get squeezed on both sides of the supply demand ledger in 2005-06, which will place downward pressure on prices. However, the extent of the drop is likely to be small -- about 2 per cent per year." Its conclusion?: "While the market will undeniably cool as interest rates rise, we do not expect a major downturn."
Even so, some might say there is a lemming-over-the-cliff aspect to the current situation. About 5,800 units in 26 new condo projects have just been launched -- or are poised to come on the market this winter -- by developers who faced a backlog of about 12,220 unsold suites in the GTA as of July.
With the market awash in condos, the average price in the GTA (excluding a few super-luxury sites that would skew the figures) barely moved in the past year. It went from $289 a square foot in September, 2003, to $298 last month -- a 3.1-per-cent increase, according to RealNet Canada Inc.'s high-rise price index.
Buyers are sniffing out the best deals and are flooding back into a bloated market, tirelessly shopping sales centres. And it shows. By the end of September this year, sales hit 10,218 units, compared with 7,973 units during the same period last year, Ms. Ng says, a hefty 28.1-per-cent increase.
Compounding developers' woes is the added competition from several hundred -- possibly several thousand -- rental apartments being reinvented as condos. Some, such as Minto Gardens' recently completed 34-storey tower at Yonge Street and Sheppard Avenue, are in late pregnancy.
Chris Sherriff-Scott, senior vice-president of Toronto-based MintoUrban Communities Inc., says the company "was disappointed [it] couldn't make the numbers work as a rental building, which [it] would have preferred."
Disappointed or not, Minto sold about 200 of the 377 condo units in the first two weeks of September for an average price of $300 a square foot, he says.
Another 957 apartment units could be transformed into condos next year if O'Shanter Development Company Ltd. wins its case at the Ontario Municipal Board. Jonathan Krehm, an O'Shanter principal, says the company has been trying to convert its mid-Toronto Brentwood Towers to condos since 2000. The city, which wants to preserve the stock of rental housing, is opposed.
Other recently conceived and some barely consummated rental projects could well be heading for condo registration. Virtually all apartment rental projects built in the GTA over the past two or three years have, in fact, been registered as condos, rather than rental buildings, even if that's how they start out development life. That allows companies the option of selling units if they get stuck with too many vacant apartments.
Two landmark rental buildings in downtown Toronto have already been converted to condo units -- the 1950s-era One Benvenuto Place, with 116 units and its celebrated Scaramouche restaurant, and The Lonsdale, with 110 units and four townhouses, built nearly 25 years ago.
Agents say units in the two buildings -- about a kilometre apart on Avenue Road, north and south of St. Clair Avenue West -- are selling briskly.
Buyers spurred by continuing low interest rates and confidence in the economy, rather than condo investors, are pushing up sales. Canada Mortgage and Housing Corp. has reported that the investor-owned share of condos in the GTA has remained static -- 19.6 per cent by late September, compared with 19.2 per cent in the same period of 2003.
Adding to the renewed buying fever is a huge shopping cart of incentives, including free cars and $10,000 shopping sprees. "It's like zero-per-cent financing on new cars," Ms Ng says. "The condo market is so competitive, with such little price growth, that developers have to offer incentives. There are some really good deals."
Developers must be wishing they could find some good deals themselves. They have to pay more for land, construction materials and labour, more in development charges (up by 110 per cent over last year in the City of Toronto), and more on advertising and promotion.
"Consumers are looking at everything on the market, so developers have to make sure people coming into their sales offices remember their projects," Ms. Ng says.
That is not to say developers' entrepreneurial fires have gone out, just that they are much more selective about sites they will fight over, and prices they're prepared to pay.
And some of them are still good at bringing undeveloped and underdeveloped sites to life. For example, a project involving a 34-storey, 337-unit condo tower along with townhouses is proposed for Sherbourne and Wellesley streets, the former site of Wellesley General Hospital. Aykler Real Estate's 29-unit Steam Plant Lofts is also slated for that site.
And suburban developer The Times Group has bought the old Princess Margaret Hospital site on Sherbourne for an as yet undisclosed downtown project.
Intensive condo and other residential development is in the cards for industrial lands near the former General Motors plant at Eglinton and Warden avenues and on underutilized TTC lands at St. Clair Avenue East, says Mark Conway, a partner in N. Barry Lyon Consultants.
"Mattamy Homes and the Goldman Group have bought land on those sites, with condo towers, townhouses and single-family homes in mind," he says. "The City of Toronto has a land-use study under way."
Rod McPhail, the city's director of transportation planning, says the year-long study is nearly done, and a public consultation on Oct. 19 was likely the last. "Ultimately, new development there will change the face" of the area.
October 31, 2004 in Buying a Home | Permalink | Comments (2)
Realtor Ad campaign extended
The Realtor® national ad campaign has been extended for another three years, subject to an annual review of the effectiveness of the campaign by the CREA Board of Directors. Members at the CREA Special Assembly in Montreal voted in favour of the motion to extend the campaign.
The motion also proposed increasing the annual cost per member by $5, to $35.
The increase is to cover higher media buying costs. “We believe the campaign has done a tremendous job in helping to build the image of Realtors across Canada” CREA Past President Richard Wood told the Special Assembly.
As part of the annual review of the campaign, the Association does a detailed consumer survey at the end of each year of the national ad campaign to make sure the commercials do the job of promoting the professional image and services of a Realtor. The survey conducted as a follow-up for the 2003 national ad campaign showed the television ads continued to help improve the image of Realtors, and improve the perception they work hard on behalf of buyers and sellers.
Seventy-two per cent of English consumers and 56 per cent of Francophone consumers said the phrase “Realtors work hard on my behalf to help me buy or sell a home” described their attitude extremely or very well. For the same question after the 2002 campaign, 68 per cent of English consumers and 53 per cent of Francophone consumers agreed.
The view that Realtors maximize the selling price of a home has also increased with the continuation of the national ad campaign. In this year's survey, 56 per cent of English consumers and 48 per cent of French consumers said they agreed with that statement. By comparison, in the 2002 survey, 53 per cent of English respondents and 45 per cent of French consumers agreed. At the start of the campaign in 1998, 33 per cent of English consumers and 28 per cent of Francophone consumers agreed.
October 31, 2004 in Agency Matters | Permalink | Comments (0)
Low-rise condos in York Region
A look at condo developments in Aurora, Maple, Markham and Woodbridge. Prices do not include parking and locker unless indicated.
Aurora
1. STONEBRIDGE: Crossing Bridge Place off Benville Cres. the west side of Bayview Ave. between Bloomington Rd. and Vandorf Sideroad. Builder: Fernbrook Homes. Phase 2 has 64 brick stone and stucco condominium two-storey townhouses linked only by the garage. Prices (double-car garage included): from $409,900 for 2,000 sq. ft. to $509,900 for 2,800 sq. ft. Fees: $185 per month, plus heat and hydro. Sales: 55 per cent sold. Status: under construction. Occupancy: March, 2005. Sales centre: on site, 905-726-9642; http://www.fernbrookhomes.com.
2. WYCLIFFE GARDENS: South side of Vandorf Sideroad, between Bayview Ave. and Yonge St. Builder: Wycliffe Homes. 109 1 1/2- and two-storey Georgian-styled condominium townhouses with brick, stone and stucco façades. Prices (double-car garage included): from $459,900 for 2,362 sq. ft. to $329,900 for 2,470 sq. ft. Fees: between $275 and $345 per month, plus heat and hydro. Sales: Phase 2, two left. Phase 3, one left. Status: Phase 2, built and registered. Phase 3, under construction. Occupancy: Phase 2, 90 days. Phase 3, March, 2005. Sales centre: on site, 905-751-1152; http://www.wycliffehomes.com.
Maple
3. THE AMALFI RESIDENCES ON THE RAVINE: Northeast corner of Keele St. and Fieldgate Dr. Builder: Armour Heights Developments. A three-storey, 100-unit brick and stone building. Prices (parking and locker included): from $225,990 for 860 sq. ft. to $342,990 for 1,370 sq. ft. Fees: 35 cents per sq. ft., plus hydro. Amenities: party room, saunas, lounge, indoor pool, equipped exercise room, billiards room, garden terrace, outdoor tennis court. Sales: 10 left. Status: under construction. Occupancy: March, 2005. Sales centre: on site, 905-303-7800; http://www.theamalfi.ca.
Markham
4. CIRCA: Northwest corner of Hwy. 7 and Town Centre Blvd., east of Markham Town Centre. Builder: Tridel Corp. and Dorsay Development Corp. A 16-storey, 388-unit building with a façade of brownstone on street level and glass on upper floors, plus 155 condominium townhouses. Prices (parking included): building, from $275,000 for 1,028 sq. ft. to $1.5 million for 3,561 sq. ft. Townhouses (single-car or double-car garage included), from $360,500 for 1,701 sq. ft. to $537,500 for 2,758 sq. ft. Fees: building, 37 cents per sq. ft., plus hydro; townhouses, 10 cents per sq. ft., plus heat and hydro. Amenities (building only): 24-hour concierge, indoor pool, saunas, exercise/weight room, virtual golf, theatre, party room, billiards room, cards room, dining room, four guest suites. Sales: building over 90 per cent sold; townhouses 60 per cent sold. Status: under construction. Occupancy: townhouses, summer 2005; building, spring 2006. Sales centre: on-site, 905-305-0588; http://www.tridel.com.
5. SWAN LAKE VILLAGE: 6450 16th Ave., two lights east of Markham Rd. Builder: Daniels Corp. Swan Lake Village will be a resort-type, adult-lifestyle development with about 1,200 units. The Enclave Collection Phases 1 and 2 will have 67 condominium townhouses. Prices (garage included): from $280,900 for 1,482 sq. ft. to $426,000 for 2,070 sq. ft. Fees: $301 to $347 a month, plus heat and hydro. Amenities (for the whole community): 24-hour gatehouse, three outdoor pools, four tennis courts, satellite club houses, 16,000-sq.-ft. recreation centre with indoor pool, equipped fitness gym, games room, billiards room, craft room, fireside lounge, library, change rooms, server and pantry kitchen, outdoor decks overlooking lake. Sales: Phase 1, 80 per cent sold; Phase 2, just opened. Status: Phase 1, under construction. Occupancy: Phase 1, this fall; Phase 2, summer 2005. Sales centre: on site, 905-294-4003; http://www.swanlakemarkham.com.
6. OLD KENNEDY VILLAGE: Northwest corner of Old Kennedy Rd. and Steeles Ave. Builder: Delterra Inc. Three-storey stacked buildings with 137 condominium townhouses and units. Prices (townhouses include parking): from $159,782 for 660 sq. ft. (builder will lend purchaser a down payment of $14,526) to $285,148 for 1,380 sq. ft. (builder will lend $25,923). Fees: 11 cents per sq. ft., plus heat and hydro. Amenities: multi-purpose room. Sales: 25 per cent sold. Status: construction to start next spring. Occupancy: fall 2005. Sales centre: by appointment only. Call Options For Homes at 416-867-1501; http://www.optionsforhomes.ca.
7. OLDE THORNHILL VILLAGE: Southeast corner of Green Lane and Bayview Ave., just north of John St. Builders: The Wynn Group, Rosebud Homes and Sundance Homes. About 230 stacked condominium brick townhouses and a nine-storey brick building with 109 units. Prices (parking and locker included): building, from $170,000 for 570 sq. ft. to $339,880 for 1,380 sq. ft. Townhouses, from $174,880 for 610 sq. ft. to $319,880 for 1,610 sq. ft. Fees: building, about 40 cents plus hydro; townhouses $170 to $200 per month, plus heat and hydro. Amenities (only for building): two guest suites, exercise room, concierge, party room, billiards room. Sales: 70 per cent sold. Status: construction to start this fall/winter. Occupancy: September, 2005. Sales centre: on site, 905-771- 8850; http://www.thornhillvillage.com.
Woodbridge
8. AMBRIA: North side of Hwy. 7, between Pine Valley Dr. and Islington Ave. Builder: Rice Development. A four-storey, 80-unit brick, stucco and stone building, sitting on a green belt property. Prices (parking and locker include): from $219,900 for 780 sq. ft. to $519,900 for 1,700 sq. ft. Fees: 33 cents per sq. ft., plus hydro. Amenities: party room, multi-media room and walkout to outdoor courtyard terrace with rose garden. Sales: 25 per cent sold. Status: construction to start early 2005. Occupancy: end of 2005. Sales centre: on site. http://www.ambriacondos.com.
9. TERRACES ON THE GREEN: Northeast corner of Willis Rd. and Islington Ave. Builder: Windleigh Millennium. A five-storey precast concrete building with about 152 units. Prices (parking and locker included): from $192,000 for about 636 sq. ft. to $635,000 for a penthouse with 2,300 sq. ft. Fees: 27 cents per sq. ft., plus heat and hydro. Amenities: party room, fitness room, rooftop lounge, saunas, steam rooms. Sales: 92 per cent sold. Status: under construction. Occupancy: fall 2005. Sales centre: on site, 905-850-2646; http://www.onthegreen.ca.
October 30, 2004 in Location, Location ... | Permalink | Comments (0)
Realtors approve ethics vote
Members at the Canadian Real Estate Association's Special Assembly in Montreal October 23 rd. approved four motions dealing with the ongoing ethics project of the Association. The overall motion calls on the Ethics Task Force to continue working on development of a new Code of Ethics and Standards of Business Practice, while two other motions specified work should continue on an Education and Communications protocol. All of the motions specified the final vote on the Realtor Code, business standards, and all protocols should be held at the CREA AGM scheduled for April 9 th , 2005.
During his speech to the Special Assembly, CREA President Samir Bachir announced that the CREA Board of Directors had approved creation of a President's Ad Hoc Task Force to develop a compliance model. “To help develop a model that will work in every province, the committee will have a specific mandate to review and make recommendations on compliance,” he said.
The fourth motion passed by members at the Special Assembly said a proposed ethics model containing a Compliance protocol should “consider the varying enforcement models used by different jurisdictions and the primacy of provincial statutory jurisdiction in the regulation of real estate” for presentation at the CREA AGM in April 2005. The concept of “primacy” means that in the event that there is a conflict or divergence between individual parts of the CREA Code and Standards and a provincial regulator's Code/regulation, the provincial regulator's Code/regulation would take precedence.”
The motion dealing with education said the final version of that protocol should “recognize, respect and complement, in whole or in part, any existing Mandatory Continuing Education program on ethics in any province or territory. The motion dealing with the Communications protocol said the final proposal presented to the AGM should “be directed at three distinct target audiences – boards, Realtors and the public.”
“Our goal has been, and continues to be, to reach a positive consensus,” Task Force Chair Alan Tennant told the Special Assembly. “We believe that this review of ethics should grow our association, and make organized real estate stronger. It is the view of the Task Force that Professional Standards are an important member service. It is our sincere hope that this very important initiative will resurrect ethics in the public mind as a fundamental Realtor trait.”
“This project is less about regulation than it is about Realtor image,” CREA President-elect Gerry Thiessen told the Special Assembly in presenting the motions dealing with ethics. “The REALTOR trademark is - or should be - an assurance of a level of service. That level is defined both by the nature of the services provided, and by the quality and integrity of those services.
“This document defines that quality. The work we are doing is intended not to erect more roadblocks in the path of our members, but to clear the roadblocks that now exist. Those roadblocks include the perception in the mind of the consumer that ethics are not important to us. It is intended to shore up the Realtor brand and increase the stock and profile of Realtors in the marketplace.”
The Code of Ethics Task Force has completed another series of revisions to the specific wording for the proposed Realtor Code and business standards. These will be reflected in the CREA Ethics Workbook 6, to be distributed to all Boards and Associations by the middle of November.
October 29, 2004 in Agency Matters | Permalink | Comments (0)
Toronto housing expected to cool
A balanced market better for buyers
More listings, higher priced homes and rising interest rates mean that the Toronto area housing market will start to cool in 2005. Sales will not be as robust as 2004, which is forecast to be the peak in existing home sales, says the Canada Mortgage and Housing Corporation.
"Look for few if any bidding wars, and multiple offers only in the most desirable neighbourhoods. In this environment, vendors should avoid over-pricing their homes," said Ted Tsiakopoulos, senior market analyst at the federal housing agency, in his annual housing forecast released yesterday.
While this year home sales are forecast to peak at a record 84,000 units, 2005 will be less frenzied, although still a good year at an estimated 82,000 sales, down 2.4 per cent, predicts Tsiakopoulos.
"A more balanced market puts prospective buyers in the driver's seat and points to slower pace in price growth ahead," said the analyst.
New home sales will take a bigger hit, diving from 42,000 forecast sales this year to 38,000 sales in 2005, down 9.5 per cent.
"With the share of first time buyers on a downtrend, homes will stay on the market longer," said the CMHC.
"The market will likely hover near the cusp between a balanced and a sellers' market, pointing to price increases slightly higher than the rate of inflation."
Price growth in 2005 is expected to be 5.1 per cent, with the average cost of a resale home at $330,000.
With fewer first-time buyers, repeat buyers will lead the market over the next several years. But this will be in an environment of deteriorating affordability. Multiple dwelling homes such as semis and townhomes are expected to capture a larger percentage of sales.
"More expensive detached housing in core areas, faced with increased price pressures, will fall outside the reach of prospective buyers."
New listings will grow and are expected to outpace sales in 2005. Year to date new listings are up nearly 10 per cent from the same time last year, and will grow another 8 per cent in 2005, as the surge of home completions means that vendors leave their existing homes and move into their new ones.
The new home market share of total sales is expected to trend lower from its high of 42 per cent in 2002 to just over 30 per cent in 2005.
"Higher new home prices, land constraints, new home completions and more choice in the resale market will all weigh on the new home market in 2005," said Tsiakopoulos.
Meanwhile, Toronto area housing starts have plateaued and will move lower next year as higher home prices start to hit pocketbooks.
The CMHC is forecasting that the posted 5-year mortgage rate will be 7 per cent by the end of 2005, compared to 6.3 per cent at the end of 2004.
- An article by Tony Wong published in The Toronto Star
October 29, 2004 in Buying a Home | Permalink | Comments (0)
Ontario orders greenbelts
The 10 million people who are expected to live in the Greater Toronto Area in the next couple of decades will increasingly find it difficult to find an affordable house and will be concentrated more in condominiums and townhouses under a sweeping plan to protect another one million acres as a greenbelt around urban areas.
The plan, announced yesterday by Premier Dalton McGuinty, would try to focus growth along transportation corridors and would encourage redevelopment of underused land within cities.
”Within the greenbelt area, our plan will set strict limits on where urban boundaries can and cannot expand. Areas not currently zoned for urban development will be protected,” he told reporters at Queen's Park.
”This means no new subdivision paving over our valuable farmland. It means no new shopping malls carved out of our forests.”
Municipal Affairs Minister John Gerretson acknowledged that the plan is ambitious, but he warned that it is essential to combat urban sprawl that has chewed up farms and forests over the past few decades.
Representatives of the development industry warned that limiting urban growth will inevitably push up prices for homes, especially for prized single-family dwellings.
Mark Parsons, president of the Greater Toronto Home Builders Association, said developers will co-operate with the government but warned that the plan runs counter to the basic desires of homeowners.
”Sixty-five per cent of Toronto and suburban GATE residents polled [by the association] said they would like to move into a single-family home,” he said.
Including the 800,000 acres (3,240 square kilometres) now protected in the Oak Ridges Moraine and the Niagara Escarpment, the Greenbelt will add an area the size of Algonquin Park – bringing its size to 1.8 million acres (7,280 square kilometres).
It will run from Rice Lake, which is southeast of Peterborough, to the Niagara Peninsula. The Green Belt will include and protect agriculture land, such as the grape areas of the Niagara Peninsula, recreational areas, rural communities and important environmental areas, such as major lakes, rivers and marsh lands.
About five million people now live in the communities enclosed by the proposed Green Belt. Another four million are expected to move into the area over the coming 25 years.
The plan won widespread support, largely from those who have been consulted in its development.
Mississauga Mayor Hazel McCallion said, ”Preserving our green spaces, fighting gridlock and urban sprawl are essential to maintaining the quality of life we enjoy in central Ontario.”
Jim Faught, executive director of Ontario Nature, called the plan ”an important measure toward protecting vital green space in the Golden Horseshoe and ensuring the health of the province's citizens.”
October 28, 2004 in Agency Matters | Permalink | Comments (0)
What a few million can buy
James Spader, who co-stars with William Shatner in David E. Kelley's new ABC series Boston Legal, has purchased a Mediterranean-style home in the Hancock Park area for nearly $2.7 million (U.S.).
Spader, whose character, attorney Alan Shore, breathed new life into the eighth and final season of The Practice and earned the actor an Emmy, purchased a restored 1920s villa with four bedrooms, an updated kitchen and a guesthouse.
Spader sold his Beverly Hills-area home in December for about $3 million. He has had a home in his native Massachusetts.
The actor, 44, joined the cast of The Practice last fall. In Boston Legal, a spin-off of The Practice, he plays the same charismatic but morally questionable character. Spader has appeared in such films as Secretary (2002), Stargate (1994) and Sex, Lies and Videotape (1989).
Laker settles by the ocean
Chris Mihm, one of three new L.A. Lakers players who came from the Boston Celtics in a trade in August, has purchased a Manhattan Beach home for about $2.2 million (U.S.).
The 7-foot-tall Mihm, 25, signed a three-year, $11.4-million deal with the Lakers.
He bought a Mediterranean-style home equipped with five bedrooms and 5 1/2 bathrooms that measures 4,400 square feet. The house, which was built in 2002, also has an office, a family room with a corner fireplace, a pool, spa and firepit.
Producer lists piece of paradise
Sandy Gallin, producer of Broadway and TV shows such as Buffy, the Vampire Slayer, has built a gated Malibu home that he has listed at just under $30 million (U.S.).
Gallin, who has managed such stars as Dolly Parton and Neil Diamond, is known for buying, refurbishing and selling houses.
This Cape Cod-style house, at Paradise Cove, has private beach access by foot or golf cart to more than 85 metres of sandy beach. Reached at the end of a long, private drive, the home also has a pool and city-to-ocean views. There are six bedrooms and eight bathrooms in the 9,300-square-foot residence.
October 28, 2004 in Buying a Home | Permalink | Comments (0)
When a house is not a home
Investment in real estate is starting to look good again, even to people who couldn't fix a leaky faucet if their life depended on it.
With property prices continuing their nationwide ascent and confidence in stocks still wobbly in the wake of the political and economic crises of the past five years, many Canadians are looking to real estate as a way to diversify their investment portfolios.
Unlike mutual funds, which require as little time and effort as a signature below a dotted line, investing in real estate does take some legwork.
On the other hand, if you're in it for the long haul, there's no such thing as a bad time to invest, says Ozzie Jurock, a real estate analyst, lecturer and author based in Vancouver. "Don't worry about the market," he says. "The biggest mistakes are made in a hot market and the best deals often happen in lousy markets."
Mr. Jurock divides real estate speculators into three categories -- shark, flipper and genuine investor -- and says it's important to know which category best describes you, as "each one requires a different investment strategy."
The shark looks for -- and capitalizes on -- extreme distress sales. "If you can't see yourself buying a house where a girl just drowned, you're not a shark," he says.
Flippers purchase undervalued houses or homes in need of extensive repair, and resell them within a year or two.
Debra Gould used this strategy to advantage when she bought a home in Montreal in May, 2002, and resold it three months later at a $30,000 profit. The president of Six Elements Inc., a Toronto firm specializing in home staging or "fluffing," Ms. Gould used her decorating talents to polish the home's appearance before selling it.
To her clients interested in the flipping scene, Ms. Gould advises: "Buying a structurally sound but ugly house in a great location, and preferably one that needs lots of minor repairs and cosmetic changes like removing old carpets, wallpaper and lighting. These changes can make a huge difference to the perceived value of a property, often at minimal cost."
While it's true that flippers can make large gains, they can also land belly up if real estate prices take a dive after they purchase.
Genuine investors, on the other hand, take no such risk, Mr. Jurock says. The smart way to invest, in his view, is to buy property that gives you a positive cash flow right from the outset. That way, your investment doesn't depend on the whims of the market.
But how to ensure that positive cash flow?
For starters, look for an income-price ratio of 0.75 per cent or more, Mr. Jurock advises. That means a $100,000 property should generate at least $750 of monthly rental income. Some investors also use capitalization rates to gauge the soundness of a property. To calculate a property's cap rate, divide the projected operating income (after expenses and excluding the mortgage payment) by the purchase price, and multiply by 100. A cap rate in the double digits, such as 11 per cent, bodes well for your investment.
Mr. Jurock cautions against over relying on such figures, however, emphasizing that each property "tells its own story."
Key questions to ask yourself:
What is the tenant history?
Are the tenants paying market rates?
What capital improvements are needed?
How old is the building?
Then do the math: itemize all expenses -- mortgage, taxes, insurance, and maintenance/repair costs -- calculate the expected rental income, and subtract expenses from income. You're looking for a plus sign in front of the answer.
If you can't see yourself tinkering with those leaky faucets, you'll need to add property management fees (typically 7 to 9 per cent of rental income) to your expense sheet.
Still, Darren Weeks, president of the Edmonton-based wealth management company Fast Track to Cash Flow, says it's possible to find properties that yield a positive cash flow even after accounting for such fees.
"But you may have to get out of Canada's large cities to get such a property," he notes.
Mr. Jurock, in fact, recently bought some townhouses in Prince George, B.C., making a 10 per cent down payment on each $43,000 property.
With each unit bringing in $230 a month after all expenses, he says he feels "secure about the investment, even if it doesn't yield any capital gains down the line."
Feel ready to take on a small apartment building? Mr. Weeks says you'll need to think like a business person, with checks, balances and contingency plans in place. In his experience, "95 per cent of apartment buyers underestimate expenses and vacant-suite costs, so cash flow becomes a problem."
If you're taking your first bite out of the real estate investment pie, Mr. Weeks suggests you start with a more modest transaction, such as a single-family home.
"To know whether you're getting a good deal, you'll need to become an expert in the area where you're buying," he advises. "Find out what rent the market can actually bear, not what it 'could' bear under ideal circumstances."
You should also know that you'll be slapped with a 2.5 per cent GST bill if you buy a brand-new home. Until three years ago, only owner-occupants could get a rebate on this expense, says Toronto real estate lawyer Alan Silverstein.
In June, 2001, "the government changed the rules," he says. "If you hold the unit and can demonstrate you expect to rent it for a year, you can get the GST rebate after the year is over." This has "levelled the playing field for investors."
The tax perks of real estate investment don't stop there. "You can write off your expenses," Mr. Weeks says, "and you can claim depreciation on the property, even if it appreciates in value while you're holding it." Of course, you'll eventually face a tax bill of about 25 per cent of any capital gains you make when you do sell the property.
If the prospect of buying and selling homes makes you nervous but you'd still like a piece of the action, you may find your investment niche in real estate investment trusts, or REITs.
Using pooled capital from investors, REITs invest in various forms of real estate, usually income-producing assets that generate regular cash distributions. Here too, the tax breaks are considerable.
"All told, you can shelter about 40 to 60 per cent of the distribution," says Seymour Temkin, a senior business adviser and REIT specialist at the Goodmans LLP law firm in Toronto.
With the exception of REITs specializing in the hospitality sector, which tanked after 9/11, Mr. Temkin says REITs have yielded an average return of about 18 per cent over the past three years.
So why isn't everybody flocking?
"Many people believe interest rates will soar and REITs will run into trouble," he says.
For his part, Mr. Temkin foresees a more modest rise in interest rates - about 1.5 per cent -- and a healthy future for REITS. "They're an excellent choice for the long-term player."
Location 101
Having decided to play the real estate investment game, you may be wondering where on earth to make your first move.
Vancouver-based real estate guru Ozzie Jurock suggests you start by "looking for a high-employment area with a low vacancy rate."
Does this mean bright lights, big city? Not necessarily, Mr. Jurock says. "In some provinces, such as Ontario, you're better off looking in the suburbs or smaller towns." But above all, "avoid investing in an area with a high vacancy rate."
According to Douglas Gray, a real estate consultant and retired lawyer in Vancouver, the Canada Mortgage and Housing Corp. keeps statistics on expected rental rates in every part of Canada. "It's fantastically useful information, and it's available for free," he says.
Mr. Gray, whose second edition of Making Money in Real Estate is scheduled for publication in early 2005, also suggests that would-be real estate investors think like demographers, and ask questions such as: What is the baby boomers' next move? What areas will be attractive to downsizing seniors?
Other things to look for:
"An attractive enclave in a less valued part of a city -- the 'well-kept-secret' -- has a good chance of appreciating over the years," Mr. Gray says.
In terms of property prices, "an area that hasn't shown a big growth spurt yet. An area that seems to be on the cusp."
October 28, 2004 in Buying a Home | Permalink | Comments (0)
R is for Real Estate
The real estate boom has its attractions
Vancouver's overheated real estate market is attracting more than buyers and sellers.
It's also attracting people in record numbers who want to make real estate a career.
Enrollment in real estate licensing courses is up 60 per cent this year over last with 4,345 people enrolling in the hopes of cashing in on B.C.'s housing boom.
That's way up from 691 who took the pre-licensing course in 2001. The figure has been climbing rapidly, with 1,548 signing on in 2003 and 2,688 making the move this past year. The numbers reflect Real Estate Council of B.C. tallies that run annually from July 1 to June 30.
"This usually happens as soon as the market picks up, everybody thinks people must be making a lot of money in real estate so it's the time to come in," said Rosemary Barnes, an agent with Park Georgia Realty in Coquitlam and vice-chairwoman of the real estate council, which administers the real estate act in B.C. "It also applies to some who may have dropped out over the years and now think it's a good time to come back."
With numbers like that, competition for clients is tough but Barnes said the number of sales people usually fluctuates with market demand.
"I think there is enough business to go around," she said. "If you talk to some of the old-timers, they'd just as soon it stayed where it was in terms of numbers, but things change.
"The market takes care of it. If the market was to slow down, at some point people would drop out."
Real estate attracts both young people just starting out and career changers. Young university grads searching for a job future, take the real estate pre-licensing course. Others are looking for new challenges after working at another job and it also attracts people who have been out of the workforce and are looking to launch or re-launch a career.
Barnes was a mother of two young children some 28 years ago when she "caught the real estate bug," as she says, when she starting helping out doing reception and office work with a real estate firm. She found it so fascinating that she signed on for the pre-licensing course, which all agents much take as a first step and now works in partnership with her husband, Bill Barnes, selling residential real estate.
The pre-licensing course, which is done by correspondence, has a requirement to finish it within a year, although Anthony Cavanaugh, communications officer at the council, said some students finish in as little as two months.
"Then you have to find a company that will hire you, which isn't a problem at all," he said.
Once an applicant finds a company as a sponsor, he or she applies to the real estate council for a licence and two months after that, new licencees are required to take a one-week long post-licensing course.
"It takes the theory you've learned in the pre-licensing course and looks at it in a practical sense," said Cavanaugh.
Licences, which cost $400, must be renewed every two years. There's an additional $500 for errors and omissions insurance that must be paid every two years and is to safeguard consumers who may have to be compensated for losses suffered through agents' mistakes.
The council receives about 330 complaints a year out of the 90,000 real estate transactions in the province and it has the power to impose disciplinary action, including removing an agent's licence to practice. Starting next year, managers who take care of strata properties will also have to be licensed.
"There's going to be a ramp-up period for the licensing of strata managers," said Cavanaugh. "A lot of property managers do strata managing and they will probably be required to take a course within a year or six months, or whatever, and for people who have never been licensed, they will have to take a pre-licensing course."
Real estate attracts people for more than just the potential for making a lot of money. It requires an entrepreneurial spirit, an ability to get along with all kinds of people and the ambition to be a self-starter. There are no clocks to punch but if you don't work, you don't make money. Barnes recommends people starting out be able to keep themselves for at least a few months because even if they make a sale early on, they don't get paid until the deal closes and that could be some time.
"It's a lifestyle, that's for sure," said Cavanaugh. "Some people love it because it gives them the flexibility to be with their kids, to be able to pick them up from school and still work in a professional industry.
"It is very entrepreneurial. The more you put into it the more you get out of it."
It's now a female-friendly business, but it wasn't always the case. Aimee Gabor, an agent with Macdonald Realty in Kerrisdale, started her real estate career in 1972 when her children were aged two and four.
"It was a challenge for women at the time, there were only a few women in the business," she said.
Gabor said when she started, one manager of a 40-person, male-only office refused to take on a woman as an agent. A male colleague who went on to become very successful recalled being told at 24 that he was too young to be in the business and should grow up a little first. All that has changed.
"Today it is a woman-dominated business," said Gabor. "I sometimes look at all these women who go through my agents' opens and they have no idea what it was like."
While the most successful agents are the ones we read about, not everyone is making a lot of money selling real estate.
"It can be as low as almost zero and as high as you want to go," said Barnes. There currently isn't a regular earnings survey of agents in B.C. but the Canadian Real Estate Association reports that this year so far in B.C., 48 per cent of sales people gross from zero to $75,000 annually. Another 34 per cent are in the $75,000 to $150,000 range and just more than 11 per cent make between $150,00 and $225,000. Just fewer than four per cent earn from $225,000 to $300,000 a year.
From that, sales people have costs to pay, which can depend on the arrangement they have with their office. There are signs, business cards, advertising and some of the more successful sales people have assistants.
"You're running your own business," said Barnes. "A lot of people who enter the industry think they can set their own hours and you certainly have the option of doing that, but if you get busy and your clients are calling you, you need to be available.
"People who want to put a lot into it will get the return. It is all based on how much time you're willing to put in and how much work you're willing to do."
October 27, 2004 in Agency Matters | Permalink | Comments (0)
Toronto condo market correction
Toronto's hot condominium market is heading for a soft landing, not the crushing fall it went through at the end of the last boom, a new report by Toronto-Dominion Bank predicts. Rising interest rates, weakening demand and an oversupply of units will bring a correction to the market in the coming two years, the report predicts. But it says that rising immigration, a strong job market and the low level of speculation in the market will mean that the downturn will be short lived. Builders, it notes, also have become more cautious and are not starting projects until the bulk of the units are sold. That compares with 1989, the peak of the last boom, when condominium sales fell by 50 per cent, and condominium starts hit a new record.
October 27, 2004 in Watching the Market | Permalink | Comments (1)
