It's Still Condo Mania in Canada

Written by Posted On Wednesday, 13 June 2007 17:00

Nearly half of all new home sales in Toronto in April were high-rise condominium suites, lofts and stacked townhouses. Across Canada, from 2001 to 2005, condo starts have posted an annual increase of more than 16 per cent, accounting for almost one-third of new home construction. Despite the amount of new product available, in most parts of the country, it's still a sellers' market.

A recent survey by Ipsos-Reid for TD Canada Trust, and a follow-up report by TD Economics, says both the short and long-term outlook for condos in Canada is good. It says Canada's healthy labour market, low interest rates and an aging population will contribute to brisk condo sales.

"The hottest markets, notably Calgary and Vancouver, will see some cooling off from dramatic and unsustainable highs last year, but overall conditions will remain healthy and activity will be high," says Craig Alexander, VP and deputy chief economist for TD Economics, and author of the study.

He predicts that during the next 18 months, the pace of condo starts will decline by about six per cent and resale prices will "cool out, while still remaining quite elevated." He expects Calgary will see price growth drop from 26.6 per cent last year, to 10.5 per cent in 2007/08. He forecasts Edmonton prices to drop from 16.6 per cent to 12.5 per cent, and Vancouver prices to go from a 16.3 per cent increase last year, to 10.5 per cent this year.

In the more stable central and eastern markets, Alexander calls for Toronto condo prices to increase by 4.2 per cent this year, while Ottawa price gains rise from 3.6 per cent last year to 4.5 per cent. Montreal price increases are expected to drop to 3.5 per cent from 6.4 per cent.

The survey found the top two reasons for preferring condos were lower maintenance costs and greater affordability. Alexander says that condo prices are almost half of the average price of detached bungalows in Vancouver, and roughly one-third less than the average price in Calgary and Toronto. "Given the rapid price increases in detached dwellings sustained over the last few years, condos may be the only option for some potential homeowners -- and many first-time buyers -- in selected markets," he says.

Other reasons for preferring condos are good building security, attractive design and environmentally friendly design/energy efficiency. Proximity to public transit, retail outlets and entertainment are also important factors for those looking for a condo.

The survey found that 39 per cent of Canadians would consider buying a new or resale condo, an increase of four per cent from a similar survey taken in June 2006.

"Looking beyond the near-term outlook, there is fundamental support for condos in the major Canadian markets from structural economic trends, including the aging population and the continued urbanization of the country," says Alexander in the report.

Older Canadians are attracted to condos as they downsize and look for less maintenance in their homes. The median age in Canada was 37 in 2001 and is expected to be between 45 and 50 by 2056. "This could create headwinds for real estate, which is influenced by demographic demand for housing, but the aging population could prove positive for condos," Alexander says.

While the demographic trend suggests slower population growth, Alexander says it is evident that cities will continue to grow faster than rural communities. In 1901, 37 per cent of Canadians lived in urban centres. By 1951 it was 62 per cent, and by 2006, 80 per cent of the population was living in an urban centre.

Rising traffic densities has led to urban renewal in the cities, which is expected to intensify in the years to come, Alexander says. "While condos are not solely located in cities, as evidenced by their presence in some resort settings, the bulk of condos are concentrated in urban centres, making them highly likely to benefit from the urbanization trend."

Despite the generally rosy outlook, Alexander says there are some risks for the condo market.

"The explosive price growth and the presence of speculation in the west have been sending off warning signals," he says. "But, if price growth moderates as new supply comes on the market and as eroding affordability dampens demand, a boom-bust cycle can be avoided.

"Meanwhile there is significant additional supply in the pipeline for Toronto from projects that are already underway, but are not yet completed. This could impact price growth, but so long as employment remains solid and interest rates do not rise significantly from current levels, there should be no problem absorbing the additional units," Alexander says.

Rate this item
(0 votes)
Jim Adair

Jim Adair has been writing about Canadian real estate, home building and renovation issues for more than 40 years. He is the former editor of Canada’s leading trade magazine for real estate professionals, as well as several home building, décor and renovation titles. You can contact him at [email protected]

Realty Times

From buying and selling advice for consumers to money-making tips for Agents, our content, updated daily, has made Realty Times® a must-read, and see, for anyone involved in Real Estate.