Suburbs Appreciation in GTA: Are people rushing to take advantage of interest rates?

Let's do some quick analysis on the data in the article in The Star (Suburbs the big winner for price appreciation)

So E12, and E11 did well for appreciation. Why? Well, you would assume because interest rates are so low there were a lot of first time home buyers taking advantage of the times to buy a home. Well let's do some quick analysis with data from TREB (note this is for overall sales including semis, towns and condos - TREB doesn't break down totals for each housing class).



Both e12 and e11 had listings go down a significant amount. In e12 in particular, sales remained the same while listings went down 21.65%

It should be noted that both in 2008 and 2009 there was only 232 sales.

In e11 listings went down and sales went up, again showing a supply shortage. Following the trend, it only represented a total number increase of less than a 150 sales.

So it seems more of a listing crunch that is causing the appreciation - as opposed to a mad dash of "sub-prime" buyers teetering on the brink of insolvency.

LA GANG TOURS..making the 'hood hip!

You liked Boyz N the 'Hood and Training Day? Love Snoop Dogg and Dre? Well a company called LA Gang Tours is offering a great opportunity to check out street life in person.

The first tour on January 16th was sold out! Passengers received a discount of $35 on the regular $100 per head ticket and signed waivers that they were aware they could become crime victims and agreed to put themselves in the hands of ex-gang members who had negotiated a cease-fire in the most violent gang area in the U.S.

The tour stop includes:

• The Los Angeles County Jail
• The Metropolitan Detention Center
• Birthplace of Black Panther Party
• Firestone Sheriff Station

While I don't see real estate prices going up in the area because it is more attractive to baby boomers (see my previous blog on Rochester) these folks at LA GANG TOURS seem to have their heart in the right place.

The objective of these tours, which are scheduled to run once a month, is to create jobs for residents of South Central and to inject money back into the community. It also promotes the continuation of a cease fire in certain designated areas in exchange for the tour operators hiring some of their youth for employment and training opportunities. Designated routes and times are being honored by participating gangs.The objective of these tours, which are scheduled to run once a month, is to create jobs for residents of South Central and to inject money back into the community. It also promotes the continuation of a cease fire in certain designated areas in exchange for the tour operators hiring some of their youth for employment and training opportunities. Designated routes and times are being honored by participating gangs.

Population Increase: South Asian Factor

According to the City Mayors Website, many of the fastest growing cities in the world are home to south asians (see here). No surprise to those in Toronto, as now South Asian's represent the single largest visible minority group (just edging out Chinese Torontonians).


Since there are more South Asians taking post secondary education than the population of Canada, this represents a great opportunity for Toronto businesses if immigration can be fast tracked and education/experience abroad would be better recognized. US's tougher immigration laws would lead Toronto to be a beacon of skilled labour for large US corporations looking to set up shop in Canada.

These initiatives were something close to the late David Pecaut, who saw skilled worker immigration as one of the tools to a prosperous city.

Real Estate Development in Toronto

Happy New Year to all, two weeks ago I had a chat with Pat Berne of the Pemberton Group.

I found it extremely insightful to see how financing works from a developers perspective. In Canada, a developer receives construction financing to build a project based evaluating the following criteria:

1. Equity - How much has the developer invested into the land where construction is to take place
2. Track Record - Has the developer displayed a history of completing projects on time and on budget
3. Valuations - What they plan on selling the units for
4. Buyers - How much deposit have they invested, the structure of the deposit, credit situation, who the are (i.e. close relatives, family and friends vs actual buyers)
   

What has separated Pemberton from other hi-rise developers is their specialization. They understand their craft, and they don't just hire a general contractor to build and have free reign on managing the construction budget or don't allow the marketing side have the final say on how the condo should be built.

There are rumors in the city where fantastic marketers having trouble completing projects because of huge cost over runs and changes, and examples where great construction companies mess up their marketing and have troubles getting sales off the ground.

According to Berne, "you have to understand the impact of changes, and what they will have on the entire project." That is why on a daily basis, Berne and his people are on top of all costs, changes to design, construction, and marketing of a project.

The challenges facing Berne are two fold: Affordability and Acquisitions

Back in 1989, condo prices were about $400 psf in 1989 real money, they quickly fell to $180 psf because of affordability. While Berne doesn't see a crash up coming because this recession is a bank/finance recession rather than a job loss recession...he does see problems for land owners trying to sell to developers for unrealistic prices.

Land owners been approaching developers to buy their land as if it was already zoned to build a hi-rise, not realizing the tremendous zoning risk to developers.

"We've had owners calling us and saying that you should buy our property at our price because the property down the road had 20x coverage...which was completely false, " says Berne. "We won't buy anything that doesn't make sense to build today, we won't spec that appreciation will still occur to bail us out, otherwise it would make our (homes) less affordable"

While not expecting appreciation to bail us out, Berne constantly monitors immigration, incomes, unemployment, interest rates when planning their next steps, and his research is showing that we are going through an period of price stability.

What's his advice to investors? keep on top of the market and know it inside in out to find value (continue to shop around), understand how much you will spend on financing now and in the future..and most of all, keep writing those offers.