Will the shoe soon drop on Toronto Condo projects?
Consumers in parts of Florida, Washington D.C. and California are seeing foreclosures and bankruptcies of new Condo projects according to the Wall Street Journal. The reason is purchasers are finding it more difficult to obtain financing when it comes time to close their new Condos.
Like Toronto, buyers sign contracts to purchase a Condo about three years before their project is finished and the unit is paid for on completion. Now on completion, these purchasers are finding it difficult once construction begins to finance their unit when it is appraised at a much lower price by the squeezed lending institutions.
New U.S. Condominium units completed in 2006 jumped 145 per cent to 102,800, from 41,900 in 2003, according to the U.S. Census Bureau.
According to Reis Inc, a New York research firm 48,354 units have been built and 72,000 units are presently under construction in 2007.
San Diego will have 2,900 Condo units on the market for 2008 and its estimated that it will take 18 to 24 months under a strong economy to buy up this surplus inventory according to Marcus & Millichap, a real-estate investment Brokerage.
Miami added 4,549 Condo units in 2006 and 3,276 more, so far this year with another 7,985 completed at the end of 2007. New Miami Condo projects will add another 8,260 units planned for 2008 to 2011. This makes a grand total of 24,070 new units between 2006-2011.
Some of these Condo developers have found the sales of Condos have stalled and are now defaulting on their loans, creating headaches for real-estate funds and banks that have financed these projects.
Chicago’s Corus Bankshares, a large Condo lender, has seen its portfolio of Condo loans deteriorate in quality. Its non-preforming assets has jumped $242 million in the quarter ended June 30 from $620,000 a year ago.
These Condo projects defaults are blamed on loosening of lending standards and non bank lenders such as hedge funds, private equity and community banks all throwing cash into the U.S. Condo frenzy.
Prior to the U.S. Condo boom there were only a dozen major sources of the riskiest but most rewarding equity or mezzanine debt. Now it appears new players in the real-estate finance world are finding it difficult to pay back loans.
The Toronto Condo future is different from our neighbours south of the border. We have large experienced Canadian Banks and reputable Condo Developers that are knowledgeable in the local real estate markets.
Condo sales are the most important factor in our Toronto market and fortunately the price and the selling of these units is moving in an upward direction.
My Toronto Real Estate website has current available Toronto Condo listing and information on new projects as well.
