GTA luxury condos a good buy in the long run

Luxury-CondosFor consumers looking to buy luxury condos in the GTA, you’re about to catch a break: affordability has never been better.The less-than-good news is what’s causing this development – stagnant pricing. On the surface, it might sound like reason for concern, especially with some talk of oversupply and under-performance in the segment.But fear not, experts say. Luxury condos in such a popular market will do well in the long term.A “tale of two markets” is at play here, says George Carras, president of RealNet Canada Inc. Lowrise home prices in the GTA are rising to record highs, while highrise prices are flattening and in some cases falling.For example, RealNet’s price index for a lowrise home reached $645,854 in July 2013, up 5.3 per cent from a year ago. The highrise index was $430,930, down 1.6 per cent. The $214,924 gap between the two is the highest on record.Further, consider that the two main categories of luxury condos range from 800 to 1,300 sq. ft. and are priced from $650,000 (midtown offerings in Yorkville such as 133 Hazelton), and those measuring about 2,500 sq. ft. and priced at about $2.5 million (downtown buildings such as the Ritz-Carlton or Shangri-La Toronto).As lowrise home prices continue to rise, then, and condo prices – even for luxury condos – stagnate, the price gap between the two housing types narrows. This is significant because, for homebuyers who may have been willing to part with the $645,854 it would take to buy a lowrise home, buying a luxury condo is suddenly a realistic option.“From a price perspective, changing from a lowrise to highrise form of housing may become increasingly more attractive,” says Carras.In addition, while buyers do have choices in luxury condos, reports of oversupply have been greatly exaggerated, according to Shaun Hildebrand, senior vice-president of condo research firm Urbanation Inc.“It’s such a small segment of the overall market to be considered having a ‘glut’ of units,” he says. Sales of luxury condos priced at $1 million and higher represent less than one per cent of the GTA resale condo market, “so the absolute number of units available for sale in these buildings is pretty minimal. At the end of the second quarter of 2013, there were 21 active unsold listings at the Shangri-La, equal to about five per cent of its total suites.”Market conditions for luxury condos have actually begun to stabilize, he says, and sales are increasing. In the second quarter of 2013, a total of 61 units sold for more than $1 million in the resale market at an average price of $1.7 million, with 15 units that sold for more than $2 million — which was three times higher than the number of $2 million-plus sales in the same quarter last year. The strongest segment of the condo market through 2013 was in the $500,000 to $1-million range.It’s this latter part of the market for luxury condos that Hildebrand expects to do well – especially units with a second bedroom.“The droves of first-time buyers who have purchased in recent years will soon be ready for larger condo suites, as will downsizing baby boomers accustomed to larger living spaces,” he says. “At the same time, the mix of units currently under construction has shifted decidedly to smaller suites. As a result, supply growth for two-bedroom and larger suites will be relatively muted, which, combined with rising demand should push prices higher for these units in the years to come.”Translation: buyers would do well to purchase two-bedroom units in the $500,000 to $1-million price range. And even though much of the new luxury product is concentrated in Yorkville, Carras points out that a variety exists across the GTA – including penthouses in certain 905 projects.And don’t underestimate the value of a name.“Branding in this segment of the market is pretty important,” says Hildebrand. “Having a recognizable developer, architect, designer, project name or address can provide a premium that tends to hold its value.”


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