Although their intentions are muddleheaded and based not on good information, Toronto investors are actually great for our local real estate market. Keep reading. This is not a ‘we are great’, feel good story. This is a look inside how Kitchener Waterloo is changing.
Like many things in life, what you see is not what you get. You have dive deep and you have to step back. You have to get beyond the sales BS and the broad statistics to get to the heart of the matter and you have to look broadly at the histories and the trends. This is what realtors do, well this is what we should do if we want to help our clients make good decisions. As far as I am concerned, this is where the rubber hits the road. The proof is in the pudding. You get the idea. (The idea is realtors should not think of themselves as salespeople but as trusted advisors and knowledge knowers.)
When I first became a realtor, I worked briefly for a property developer. I went through a course on how to sell pre-construction condos. Essentially, it was all about selling dreams and lifestyle. There was a lot of smoke and mirrors and a little bit of truthiness. “Everything is going to be great. It’s dreamy”, and if you are an investor, “you are going to make money so fast and easy, you won’t believe it. Register here to reserve your spot. We are 60% sold out”.
It is easy to buy when they tell you everything you want to hear.
It is easy to get misled when you get your information from newspaper articles.
It is easy to buy if you are put into a situation where buying is psychologically your only option. Excitement. Urgency. Social pressures. Greed. Avarice. Famous TV celebrities and flashing lights.
Those Toronto investors never stood a chance
Condo buying frenzy in Waterloo as Google moves in
In my opinion, there is so much wrong with this story that came out last week in the Toronto Star newspaper that I don’t know where to begin.
So, let’s begin at the beginning – the headline
Condo buying frenzy in Waterloo as Google moves in.
The frenzy was held in a banquet hall in north Toronto, not Waterloo. Google is not in Waterloo. It’s in Kitchener and has been for many years.
Here are the top ten things wrong with the article that follows:
1. The project is nowhere near Google, and has nothing to do with Google.
2. Calling these ‘condos’, though technically correct is misleading. They are purpose built for students. Implying that downtown Kitchener tech workers will live there is a stretch.
3. We already have an over-supply of living accommodations for students and that is predicted to get worse. I wrote about that here. And, there are more links about this at the bottom of this post.
4. These investors do not understand our local real estate market.
5. These investors do not understand our local geography.
6. 40% return? Really? How dumb are we?
7. This sentence: With a population of about 140,000 people, a third of them students and 20 per cent working in the technology industry, Waterloo has been billed as Canada’s Silicon Valley. Home to BlackBerry Ltd., Open Text Corp., and dozens of startups, Waterloo and Kitchener are so in-demand that condo development is surging.
8. Rent guarantees. Yeah that is great for the first two years and then what? Real rents at real rates.
9. The vacancy rate for a bachelor unit was 1.5%. So what? These are not bachelor units. They are purpose built student accommodations. It is a different market. What is the vacancy rate for student housing? That would be relevant. That goes for the rest of the real estate statistics in the article. This project has so little to do with Waterloo real estate (and nothing to do with Kitchener) the only reason I care at all is that, actually I don’t really care. But I do like to blog about and podcast about scams.
10. There is no 10. Just like the rest of the numbers in this frothy and frenzied sales piece, it does not add up.
“Think of how stupid the average person is, and realize half of them are stupider than that.” — George Carlin
Bait and switch
It is not all bad news, in fact developments like this are good news for Waterloo. It isn’t necessarily bad news for the Toronto investors either. They still may make money. I just think that they have been manipulated and sold something different than they thought they were getting. In sales, we used to call this bait and switch.
How is this good for Waterloo?
Here is why Waterloo is supporting this kind of development.
1. The students want to live near school. The city wants the student to live near school. The city wants students out of houses and into high-rises. We are quickly creating a student bubble, a student district, a district like our civic district, or our innovation district.
2. We have a shortage in Kitchener Waterloo of resale single family homes, (houses and townhouses). The neighbourhoods that are close to the universities are slowly reverting back to family neighbourhoods. This is good for our local real estate.
According to KWAR, our condo market is doing pretty well. Prices were up last year by over 7%. However, the average price of ‘condos’ sold last year was less than $240,000. That seems pretty low to me.
When I think about condos (and like this Toronto Star article likes us to think about condos), I think about the Bauer Lofts. I think about Seagrams and Kaufman and Arrow Lofts. I think about the Red Condominiums and 144 Park. I don’t think about 155 Caroline because that builder went out of business before completing the first half of the project – 144 Park. But all the same, those units median selling prices are well above the average price of condos sold last year.
What conclusion can we draw from this?
Actually, I’m not sure and although I’m tempted to say something negative about our condo market, I’m temped to say that units have not seen the appreciation that owners expected. I’m temped to say that supply is leading demand. I don’t know how this will all play out, especially with the LRT coming next year. I’m tempted to say that a lot of low value condos came online last year and this is skewing the price statistics down. But I don’t know. So the conclusion I will draw is that things are much more complicated than newspaper articles, statistics and marketing events lead people to believe.
A quick look at the condo market statistics
There are currently 476 condos listed for sale through the the Kitchener Waterloo Association of Realtors. Last year, 1180 condo units sold. 1440 condo listings expired, were cancelled or suspended. Hmm.
I was recently quoted on a real estate portal saying that the KW real estate market is stable with the outlook for sustained growth. Stable with sustained growth.
I also agree with the realtors and mortgage brokers quoted in this CTV story.
“I wouldn’t consider it a condo boom” and …”the bulk of the condo activity is being fuelled from outside the region.”
All in all, our non-student condo market is doing well and lots of condo units are coming online over the next few years.
However, I am a little concerned about two things:
- That investor owners will be able to achieve the rents they need to have positive cash flow.
- That investor owners selling as soon as they close will be able to achieve the selling price they expect.
If I was a pre-construction condo investor, I would do a little bit of research about
- Current rents for similar units
- Current time to sell and sold prices for similar units