Busy builders unfazed by talk of Toronto condo bubble
From his office, the chief executive officer of real estate developer Diamondcorp looks south toward the towers of the Toronto skyline. But what Stephen Diamond sees is the extended expanse of tree tops between his office and the downtown core. The houses beneath those trees are the reason the developer is comfortable making big bets on the city’s condo market. Unlike downtown Tokyo or London or New York, Toronto has a plethora of single-family homes in its core, he points out.
So although it is true that there are more condos under construction in Toronto than anywhere else in North America, he doesn’t see it as worrisome: It’s just the next phase of the city’s development.
His view sets him apart as fears grow about the health of the condo market in Canada’s most populous city, where developers are building at a record pace. But Mr. Diamond is confident enough that he has raised a new $130-million fund that will be used to build more condos.
“From an urban fabric point of view, Toronto is unique in the world,” Mr. Diamond said in an interview. “It’s one of the few cities that has both a very healthy core and low-rise single-family homes almost within walking distance of the core.”
He believes that what is occurring is a necessary switch from building outward to building upward. “We’re not supplying too many units, we’re supplying them in a different form,” he said in an interview.
More than 6,000 newly built condos sold in Toronto in the first quarter, the highest number ever for the January-to-March period, research firm Urbanation said Monday. But the average number of sales per project was down, as builders unveil more new projects every week. There were 338 active condo projects in Toronto in the first quarter, a record high.
Urbanation has identified the rising amount of unsold condo units as a factor that could derail the market. There were 15,554 unsold units at the end of 2011 – 27 per cent more than a year earlier.
Finance Minister Jim Flaherty recently suggested that developers in Toronto are prepared to build until sales evaporate, a scenario that he said could lead to a condo market crash.
Twelve years ago, most of the new housing in Toronto was low-rise homes. Now most of it is high-rise towers. Construction of single homes is at all-time lows.
Immigration trends suggest that the Toronto census metropolitan area will need between 42,500 and 52,000 new dwellings a year. Only 28,500 were delivered last year, Mr. Diamond noted. Vacancy rates remain low.
“Every market is cyclical,” he said. “But Toronto has a great, great future. Unless something that emerges that’s going to throw this city completely off base, we have a lot of confidence.”
Mr. Diamond (whose father was A.E. Diamond, a founder and the first chairman and CEO of Cadillac Fairview) was a municipal and planning lawyer for most of his career.
He has spent the past three years investing Diamondcorp’s first real estate investment fund, which raised $70-million from RioCan Real Estate Investment Trust, Sterling Silver Development Corp. and the Diamond family’s venture capital firm. It produced about 2,500 condo units in seven projects.
Mr. Diamond said all levels of government should change tax incentives and development fees to encourage the construction of larger condo units, such as three-bedrooms, rather than the smaller units that are dominating the current developments.
“If we did that, then I don’t think there’s any bubble in the city of Toronto at all, because we need to accommodate the population,” he said.
From Tuesday's Globe and Mail