Toronto has always been a place for the rich to enjoy their spoils by buying up luxury condo’s that even a King would envy. But in the last two quarters of the previous year the market for luxury condos has flat lined. The number of new condominiums sold in the last quarter was a full 18% lower than the previous year. In fact, even the number of condos built was considerably lower (at least 1,000 less) than last year. But what is fueling this loss of growth, and what does it mean for the real estate market in general?
While the downturn in the Toronto condo market has taken hold the number of condos being built hit an all time high, 35,000. The oversupply of luxury condos has created a serious situation for both condo builders and the city of Toronto. It is possible that the rising number of condo vacancies will spur current condo owners to sell off their properties thus flooding the market with even more unwanted luxury homes.
Banks are also getting in the mix. Obviously, banks are the sole financiers of any real estate market and unfortunately the cap between them and condo developers has widened to about $3 billion currently. That is a serious investment issue. If banks are nervous about the currently luxury market their credit line will decrease significantly. Factors on the world stage don’t help the market either. The United States and Europe have experienced drastic economic instability over the last several years, and world banks have taken note of that and are preparing themselves in other markets. Canada is no stranger to recessions either. During 2011-2012 the country experienced a housing market bubble that it won’t soon forget, and banks certainly haven’t forgotten either.
Of course, not all is bad news. Experts are not rushing out with doomsday fliers just yet. Investors and banks alike remind us that the luxury condo market is just one sector of real estate in Toronto and should be looked at separately. According to Sotheby’s International, condos listed and sold for more than $1 million have seen a 4% gain in the first six months of 2013. This shows that a possible upswing in the market could be upon Toronto. In reality, even though investors are flooding the market it shows that the potential for luxury real estate sales is still positive. But investors tend to be skittish and if the market doesn’t make a sharp upswing soon things could start to look awfully hairy for the city.