If It Wasn’t For Our Government Propping Up Interest Rates (to the tune of Billions!) Our Real Estate Market Would Look Like 1989 All Over Again!

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I am a big believer in government staying out of the “propping up” business.  I have studied the “Quantitative Easing” measures implements by our neighbours to the south and quite frankly lost confidence in the concept before it ever even got going.

I know that my concept of solid investing conflicts with those believers in “leverage” (a more sexy name for building mounds of credit) because I don’t believe in credit  .  .  .  .  at all!

Last week’s headlines from HSBC (“‘Titanic’ Global Economy May “Collapse” Warns HSBC” did little to steady my confidence and, quite frankly, reinforced everything that I’ve always thought about the concept of “credit“.

The article went on to say “The world economy is like an ocean liner without lifeboats“.  I found the use of the word “Titanic” quite appropriate as we are all aware of where that left those unfortunate souls that trusted in big money.

Our (Canada’s – that’s you and me) deficit came in last year 10% over budget, a budget that proudly announced that we were $50 Billion in the hole, which took us to $55 Billion in red ink!

How does a country with just over 30 million people run up deficits of $55 Billion when we are such a resource based nation?

For those of you that have been reading my various blogs (I took them down when I decided to retire last year but I received so many requests to continue blogging I’ve decided to blog only at simplycharles.com and cover the condo market, the investment markets, the upper end housing market (in Toronto any detached house these days qualifies as “upper end” as even scary properties are fetching multiple bids escalating prices upward of a million)!

Does anyone legitimately believe that the condo market in Toronto can justify price increase of 300% over the past decade or so?

Back in the early 2000’s I brought lots of my global investors (48 actually) to The Hudson in Toronto’s Entertainment District.

Back then condos came with carpet flooring, laminate countertops, etc., but Great Gulf (one of the city’s reputable developers in a city where there is a dire dearth of reputable developer) introduced nicely upgraded condos that were running at about $300/square foot.

They were nicely appointed with granite counter tops, stainless steel breakfast bars, engineered hardwood flooring, granite counter tops and a list of amenities that just kept on keeping on!

Last week a condo investor contacted me asking if I could sell (actually “Assign”) her condo unit at The Yorkville Condo (don’t you love when developers attach a name to a building to suggest it is something other than what it is).

The building is close to but nowhere near located in Yorkville but the name adds sex appeal to an otherwise nondescript location (Davenport at the top of Bay St. has never been considered Yorkville other than by developers stretching the envelope for marketing purposes).

I went to lengths to explain to her that I am a “Buyer’s Agent” meaning that I accept the responsibility of “representing the best interest of my clients  . .  .  .  . Buyers“.

She had seen me profiled on CBC’s “The Condo Game“, (available on UTube) and just felt that if anyone could come up with a buy, I could.  Well, she was right and wrong as I would never recommend to any client buying an “Assignment” that carried positive cash to the original investor/speculator who had tied up the suite at one of those phoney “Priority Pre-Launch Sales Events“.

Bottom line  .  .  .  .  she had bought a 643 square foot unit for over a half million dollars in an other-than solid location.  The total price for this tiny unit came in at $841 per square foot!

Just a few years ago I remember Brad Lamb writing about the fact that Assignment were “Illegal” as the original buyers was selling something that they did not own.

Today the single most significant driver of the condo market in Toronto is developers giving investors/speculators “the Right to Assign The Unit”.

Oh, they are not stupid as they don’t give you the right to advertise the unit but if you can find a buyer without advertising it this Addendum to the Agreement of Purchase and Sale would allow you to see what wasn’t yours!

What possible benefit could such a perk give to a legitimate consumer trying to buy a place to live in.  The answer is obvious . . . . . NONE!

The past few years have shown us the introduction of what I see as an underhanded way to sell condos.  Developers send out invitations to the entire Toronto real estate brokerage community (40,000 registrants on TREB) identifying every Realtor as a “Priority Broker” and inviting them to bring in friends, family and acquaintances to a “one day only (ha!) event where premium units can be purchased at discounted prices“!

Now I want you to just think for a moment about the dysfunctional logic of buying into a concept where a seller would give away their premium suites at discounts.  I needn’t say more if your mind is working at all.

The entire Toronto condo market has evolved into an unregulated “Futures Market” where speculators stumble into show rooms (apparently believing that there are ‘deals to be had’) and amidst a chaotic orchestrated sales event (I know as I helped manifest and orchestrate this selling approach) that can only lead to what I call “hysteria buying” (driven by the fear of not being able to get one).

The industry has become a speculators market where there is little education or awareness of what is really taking place.

Well, what has taken place is that prices has sky-rocketed to over over $841/per square foot for a product that is not superior to The Hudson (I talked about earlier) which sold a $300 per square foot!

And the true nightmare is that over this period of time absolutely nothing has changed with respect to protecting consumers (speculators are consumers too).  Legitimate home buyers are left to fend for themselves while everyone else involved (Municipal Government included) makes out like bandits.

The quality of Toronto condos is so shoddy that I’ve given up recommending that anyone buy into a reconstruction condo in Toronto.

I have one client who bought into a recent Cresford development who immediately upon occupant contacted me telling me they would have to sell as cigarette smoke in her unit (she does not smoke) was so bad that “you’d think there was someone smoking beside her in bed“.

The Building Code has not changed over the four decades that I’ve been doing this.  The Condo Act is a bad joke and Tarion is a nightmare (for consumers – great for Developers and Property Managers though).

Today’s floor plans are even a worse joke!  Today you get to walk through your kitchen to get to the living area and bedrooms no longer have windows!

And what does someone who pays $841 per square foot think that they will do with the unit.  Rents in Toronto no longer allow for positive or even break-even cash flow so if you rent out your unit you will end up supporting it yourself with monthly cash injections.  This is called “negative cash flow” (a term that I originated back in 1989 when the market crashed and I was selling Minto Plaza amidst the crash).

My job was to sell the developer’s condos so this kind of dysfunctional logic worked and became a major weapon in my “closing” arsenal.  For the record, “negative cash flow” means you are losing money every month!

I don’t have anything against Assignments as I’ve bought a couple for myself but never with additional money to the original purchaser.

So what’s the sum total of today’s thought?  Well, if it wasn’t for the artificially (propped up) mortgage interest rates feeding that appetites of speculators our market would have died three or four years back (when I started blogging about the conundrum that is Toronto condos).

Today I work with end-user buyers looking for a home and I stay completely away from pre-construction offerings, especially those in the $800 range (that’s pretty much all of them).

I know all of the quality buildings (as few as there are) and I continue to place my clients in them when units become available.  I don’t post a list of them here or every Realtor and buyer instantly become my client’s competition as there aren’t many “quality” condos here in CondoLand!

So if you are looking to speculate in reconstruction condos in Toronto you probably don’t want to work with me as your buyer’s agent because I would tell you to “get a life”!

I actually have some investors who still want to play and I put them into these resale buildings as well as I have nothing against investors.

You can still find quality condos in quality resale buildings in quality locations running in the low to mid $600’s per square foot (including parking) and with these you get respectable room sizes and a product that you can see and touch before plopping down those hard earned dollars.

If you are an end-user buyer looking for a home, the smartest first step that you can and should make is to Register with me for my buyer agency services.  My services are still absolutely FREE to you and I don’t list properties for sale so I have no agenda but to protect you best interests!

I’m Charles

 

 

 

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