We are putting together notes as we formulate our 2013 forecast for the market, but figured we might as well share a few of the points with you:
1) Between 2002 and 2011, the new condominium apartment market in the Toronto CMA sold 17,100 units on average annually. In 2012, the market is expected to absorb approximately 18,000 units.
2) Between 2002 and 2011, the average quarterly sales rate has been 78% in the Toronto CMA new condominium market. At the end of Q3-2012, 80% of the active units were sold (68,926 of 86,108).
3) Of the 17,182 units of unsold supply at the end of Q3-2012 in the new condominium market in the Toronto CMA, 60% of those units were in projects that have not started construction. The ‘standing inventory’ or unsold units in occupying projects or projects registered for less than six months (that are still developer owned) was at just 562 units, or 3% of the overall total as of the end of the third quarter. The typical project is between 90% and 95% sold at occupancy, and many developers choose to keep several suites until occupancy because the feel they can sell them for a premium at that time (prospective buyers can view the completed suites) and avoid the additional cost of keeping a sales office open once the development has achieved a certain sales threshold.
4) How does the unsold supply of 17,182 units break down by project? Often the assumption is a lot of higher priced, larger product in the big downtown developments. In reality nearly 1/3 of the unsold units are in projects with average unsold index prices of between $400 psf and $499 psf! The majority of the projects in this price range are suburban projects, or are larger scale ‘416’ projects in less desirable locations. By comparison, there is less unsold supply in projects with unsold pricing of $600 psf to $800 psf. This makes sense, as the boom in condo sales resulted in developers bringing on bigger projects in “B” locations than they would in a less successful market. When the market normalizes, future projects in B locations are cut down in scope, or launched as ground-oriented projects, such as stacked or traditional townhouses. During these ‘normal’ sales periods, buyers and investors tend to gravitate towards A locations closest to transit, employment and amenities.
5) How does this peak in unsold supply compare to the previous peak? In Q4-2008 there were 17,610 unsold units in the Toronto CMA new condominium market of 65,186 active units. In Q4-2008, 28,776 units were in pre-construction (44% of the 65,186 active units); at the end of Q3-2012, 28,820 units were in pre-construction (33% of the 86,108 active units). Although there are an identical number of units in pre-construction projects in Q4-2008 and Q3-2012, 43% of the units in 2008 were in projects that were less than half sold, compared to just 25% in 2012. In addition, in Q3-2012, there were 14,000 units in projects that had sold 70% of their suites or more, in comparison to just 11,000 in 2008.
6) The average annual sold index price increase in the Toronto CMA between 2002 and 2011 was 6.4%; annual price growth in Q3-2012 was 6.8%. The highest rate during that 10-year period was 12.4% in 2007, during the peak sales market of 2011, the highest annual appreciation recorded was 8.4%. In Q1-1989 the annual appreciation in the new condominium market was 41.9%.
During the next three weeks, we hope to share more of our notes with you as we prepare out market forecast for next year.