Toronto Real Estate and Neighbourhoods Blog | Move Smartly

Toronto's Condo Market - Bubble or Balanced?

John Pasalis in Toronto Real Estate News and Condo Buying

Ever since the federal government reduced the maximum amortization on insured mortgages in Canada back in July 2012 we have seen a 17% decline in sales. For home buyers it’s been tough to make sense of what’s really happening in the market because different segments of the market (price range, location, housing type) have been behaving quite differently.

To make things even worse, home buyers have to find some way of separating fact from fiction in the daily news stories they read about Toronto’s housing market.

One news story this week titled “Is Canada’s condo boom coming apart at the seams?” stood out for being very misleading and clearly there to alarm rather than educate readers.

In it the writer highlights “some major flashing red lights” with the condo boom in some of Canada’s largest cities. His key concerns and observations with Toronto’s condo market:

In March, active condo listings for sale on the MLS rose 8 per cent over last year to hit a record high for the month. At the same time, condo sales slumped 18 per cent. Compounding this growing supply-demand imbalance is the 55,000 new condo units currently under construction in the city, the majority of which are set to hit the market through the rest of the year and into 2014.

First of all, suggesting that 55,000 condo units are going to be completed over the next 20 months is nothing more than a bubble theorist’s wishful thinking. Yes, industry data does show that nearly 55,000 condos are scheduled for completion by 2014 and only 5,000 units in 2015 and a mere 1,000 units in 2016. But we all know that a condominium’s scheduled completion date is very different from their actual completion date. I have three clients who just took possession of a condo this month that was scheduled to be completed in 2011. Many of the projects scheduled for completion in 2014 are no doubt going to be delayed and their closings will be pushed out to 2015 and even 2016.

Why Flaherty’s policies are hurting Toronto’s condo market

John Pasalis in Toronto Real Estate News and Condo Buying

Over the past six years, federal Finance Minister Jim Flaherty has influenced the Canadian residential real estate market by making a number of changes to the Canada Mortgage and Housing Corporation’s (CMHC) guidelines for insured mortgages. While I have often called for more oversight of the market to ensure its health, the policy decisions that Flaherty has elected to implement endanger it instead.

Let’s start with a bit of background. Prior to 2006, any homebuyer with less than a 25% down payment needed to purchase mortgage insurance and the amortization on their mortgage could not exceed 25 years. In 2006, the federal government increased the maximum amortization on insured mortgages three times with the final change pushing it to 40 years.

These changes effectively allowed a home buyer to spend 30% more on a home. Put differently, a first time buyer with a 5% down payment whose maximum budget for a house in 2005 was $285K could suddenly spend $370K on a home in 2006.

It’s no surprise that this added fuel to an already hot real estate market in 2006 and encouraged Canadians to take on even more debt which contributed to the increase in household debt we often hear Flaherty and Carney talking about.

Since then Flaherty has backtracked by introducing several new changes to tighten CMHC’s guidelines, the most recent of which took effect in July 2012 and saw the federal government decrease the maximum amortization on insured mortgages from 30 years to 25 years.

Flaherty was prompted to make the changes because of the high volume of construction we are seeing in Toronto’s condo market.  From the Globe and Mail

“In Toronto in particular, what I’ve observed and heard about from developers is continuous building without restriction,” Mr. Flaherty said. “It’s distorting the market, quite frankly. And for that reason, we’re taking the steps we’re taking.”

Title Insurance Really isn’t Optional

Bob Aaron in Legal, Home Buying, Condo Buying

Despite the fact that residential title insurance has been commonplace in Ontario for the last 15 years, many of my clients still ask me what it covers just as we are about to sign the closing papers for their home purchase.

Even though I provide them in advance with an electronic or paper copy of the excellent Ontario Bar Association brochure “Working With a Lawyer When You Buy a Home” (find it at oba.org/en/pdf/lawyer1.pdf), examining the brochure often gets moved to the B list of priorities in the frantic rush before closing.

The Financial Services Commission of Ontario also has an excellent brochure called “Understanding Title Insurance” on its website (fsco.gov.on.ca). It explains that for a one-time fee, or premium, a title insurance policy may provide protection from such losses as:

 • Unknown title defects that would affect clear ownership.

 • Existing liens against title.

 • Encroachment issues, such as a structure on the land that needs to be removed because it sits partly on a neighbour’s property.

 • Title fraud, before or after closing.

 • Errors in surveys or public records.

 • Any other title-related issues that would affect the ability to sell, finance, or lease the property in the future.

Although title insurance is never a substitute for a current land survey, it provides coverage for losses suffered as a result of failing to have an up-to-date survey.

Is This a Good Time to Buy a Pre-construction Condo in Toronto?

John Pasalis in Toronto Real Estate News, Condo Buying

I have received a number of emails from readers recently asking me if this is a good time to buy a pre-construction condo in Toronto.

The pre-construction market is very different from the resale market. Buying a pre-construction condo is a much more speculative decision.

Buyers are speculating that the pre-construction condo they are buying today will be worth significantly more when it is completed 4-5 years from now. That is the principal reason for buying pre-construction.

This is very different from buying a resale condo. Buyers of resale condos are using the condo either as a principal residence or as an income property and as a result are deriving some utility from the condo beyond just the potential appreciation in value.

Five years ago the pitch for pre-construction condos was a pretty easy one. The resale market was very competitive with prices on the rise and pre-construction condos were selling for less than comparable resale condos.

Today’s market is a bit different. The resale market is now leaning towards a buyer’s market as the number of resale condos on the market for sale has tripled in five years while the demand has remained the same. Furthermore, pre-construction condos are selling for more than comparable resale condos.

Condo Board Cannot Ignore Democratic Process

Bob Aaron in Legal, Condo Buying

A recent decision of the Superior Court of Justice in London, Ont., carries a powerful message about the consequences that can result when a condominium board refuses to comply with the democratic process set out in the legislation.

Middlesex Condominium Corporation 232 in London is governed by a five-member board of directors. Back in March, the board consulted an engineer to determine the work that was necessary to remedy outside water leaking into the building. The report recommended an expensive strategy, which the board decided to implement without seeking a second opinion.

In order to pay for the repairs, the board scheduled a general meeting of owners to seek their approval to borrow the necessary funds.

Many of the owners were unhappy that the board refused to get a second opinion. So, before the general meeting was held, these owners filed what the Condominium Act calls a requisition to call an owners’ meeting for the specific purpose of voting on the removal of the existing board members.

Why Toronto Condo Prices Are Falling

John Pasalis in Toronto Real Estate News, Condo Buying

The Toronto Real Estate Board released their August sales statistics yesterday and while there are a couple of interesting stories behind the numbers, I’ll focus today’s blog post on the statistics behind Toronto’s condo market.

Sales in the GTA continued to decline in August showing a 15% drop over the same month last year.

When we zero in on the Toronto market (vs GTA) and look at the change in sales by house type we see that the decline in sales was pretty consistent across the four main house types.

While a 20% decline in sales may seem worth discussing in more detail, I don’t think it’s worth spending too much time analyzing this drop. The decline in sales last month has more to do with the fact that Toronto had a very strong spring market so by the time the summer came around the market had lost a lot of its steam. New buyers typically enter the market early in the new year to buy in the spring or late in the summer or early September to buy in the fall. Expect to see sales pick up again in September as more buyers enter the market.

Now if we look at the change in inventory (houses available for sale) by house type in Toronto last month, we see an interesting story emerge.

Condo Act Doesn’t Need Major Revamp

Bob Aaron in Legal, Condo Buying, Toronto Real Estate News

In June, the McGuinty government announced a public consultation process to “modernize” the 1998 Condominium Act to meet the needs of owners, residents and other stakeholders in the rapidly-evolving industry.

The announcement came on the heels of repeated attempts by NDP MPP Rosario Marchese to introduce his badly-flawed Bill 72, the Property Owners’ Protection Act, 2012.

In an interview last month with the Toronto Star’s NewInHomes.com, Marchese provided some background on why he introduced the new legislation and his goals for the act.

He explained that he created the concept of a condo review board tribunal to protect consumers against “shoddy construction.” I may be missing something here, but Ontario already has a superb program in place which gives consumers the best warranty protection in the country. Why waste time reinventing the wheel?

Since 1976, the Tarion Warranty Corp. (tarion.com) has operated under the authority of the Ontario New Homes Warranty Plan Act. As a past board member and current chair of its consumer advisory panel, I believe Tarion is working well to protect consumers. It has a multi-million dollar warranty fund, and its annual consumer surveys indicate a very high degree of approval by new homebuyers.

Smoking Issues Plague Condo Corporations

Bob Aaron in Legal, Condo Buying

Condominium corporations have a duty to accommodate residents who have sensitivity to second-hand cigarette smoke, according to a recent decision of the British Columbia Human Rights Tribunal. Corporations who fail in their duty may well be subject to penalties.

The case involved Melanie and Matthew McDaniel, who lived in a 39-unit condominium in Langley, B.C. Shortly after the McDaniels took possession in March 2008, they experienced second-hand smoke entering their unit as a result of other residents smoking tobacco and marijuana on the patios and decks below their unit.

Enforcement of Declaration is a Condo Board’s Duty

Bob Aaron in Condo Buying, Legal

Peel Condominium Corp. 108 is an attractive townhouse development built in 2002 on Central Park Dr. in Brampton.

Back in April 2009, the board of directors became aware that Donna Young, one of the owners, had installed in her unit a tankless water heater that vents through the outside wall of the townhouse. The exterior walls are common elements and no alterations may be made without board approval.

Eventually, the board began a court application for an order requiring Young to remove the vent and restore the wall to its original condition.

Young objected saying that the board was selectively enforcing the requirements of the project’s declaration and it would be unfair to enforce it only against her.

Revised purchase agreement could ease ‘sticker shock’

Bob Aaron in Legal, Condo Buying

In a landmark consumer protection initiative, the Tarion Warranty Corp. has proposed a requirement that builder purchase agreements set out in one place all the extras that can be added to the price of a new home. (Tarion regulates the home-building industry in Ontario and administers the warranty program for new homes.)

If enacted, this initiative would mark a significant departure from the current practice whereby extras (euphemistically called “adjustments” by developers’ lawyers) are scattered through purchase agreements. It often requires the skills of a legal Sherlock Holmes to ferret them all out and calculate the total cost implications.

The proposed changes arose out of concerns expressed to Tarion about inadequate disclosure of the myriad of different items that are often charged on closing, resulting in “sticker shock” to buyers — and worse, an inability to raise the necessary funds.

When the regulations become law, a new Schedule B will be attached to the Tarion addendum in each builder purchase agreement. The schedule will be divided into two parts.

The first part will contain a list of fixed additional payments, fees and adjustments to the purchase price which the purchaser will be required to pay on closing.