# CBC - The Condo Game



## Cal (Jun 17, 2009)

I thought some of you would find this video of interest.

http://www.cbc.ca/doczone/episodes/the-condo-game


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## Mall Guy (Sep 14, 2011)

wow, yes thank you. The next St Jamestown . . . woo . . . all RE investor should watch this ! ! !


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## kcowan (Jul 1, 2010)

You really have to be prepared to spend the money to make your condo livable long term. They are all glitz and often lacking in substance. Look at how the garage is finished before buying. That will be a better indicator than how the lobby is finished. And always avoid pre-construction...


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## Cal (Jun 17, 2009)

I found the perpetual tug of war interesting in regards to investors/sellers wanting to beautify the condo with the condo fees, and the people who want to stay there long term who really want the condo fees to be put towards structural maintenance.


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## Causalien (Apr 4, 2009)

Just waiting for Toronto's condo market to crash so I can have my pick of the best condos.


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## andrewf (Mar 1, 2010)

The scale of the malinvestment is breathtaking. One wonders what the shoddier condos will look like after 10 or 15 years. Units that are near worthless due to sky-high maintenance fees? I wouldn't be too surprised.


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## Sherlock (Apr 18, 2010)

But most investors don't buy condos with the intention of holding them long term, but rather for flipping them for a quick profit. They think they're smarter than everybody else and they'll be out of it before it all comes crashing down.

A lot of people made a lot of money during the 2000's by buying pre-construction and then selling in a few years, sometimes after it's built and sometimes the assignment. But I don't think it's possible to make money this way any more now that the prices have stopped climbing as they were for the past 10 years. Anyone buying a condo today in the GTA for investment purposes is a fool. You cannot flip it for a profit in a few years because prices have stopped climbing. You cannot rent it out for a profit because the market rent rate is too low. Even if you buy it outright and have no mortgage, the return on your money from renting it will be something like 2%.


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## kubatron (Jan 17, 2011)

Causalien said:


> Just waiting for Toronto's condo market to crash so I can have my pick of the best condos.


Don't hold your breath cuz you will die twice over waiting.


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## james4beach (Nov 15, 2012)

I suspect that the Toronto condo market (like Vancouver in general) is being propped up by the massive Chinese credit bubble. Once the Chinese credit bubble bursts, it's bye-bye Toronto condos.


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## Causalien (Apr 4, 2009)

kubatron said:


> Don't hold your breath cuz you will die twice over waiting.


Not holding my breath since I don't need it. I will only buy if there's a crash and all the problems comes to the forefront. Money has the side effect of hiding the problems.


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## HaroldCrump (Jun 10, 2009)

james4beach said:


> I suspect that the Toronto condo market (like Vancouver in general) is being propped up by the massive Chinese credit bubble. Once the Chinese credit bubble bursts, it's bye-bye Toronto condos.


We do not need a Chinese bubble - we have our own, thank you very much.
Why do we need the Chinese to create a bubble for us, when our very own Carney and Jimbo are masters at that game.

For over 6 years, this bubble has been carefully incubated and inflated.
A variety of measures have been used - right from ZIRP to direct action in the R/E market by constantly increasing the CMHC's balance sheet, allowing 0% down and 40 year mortgages (prior to 2009).
Up until last year, we still had 5% down, 35 year mortgages.
It is only since 2013 that has been changed down to 25 years max.

The secondary guarantees for MBS offloaded to the CMHC by the banks is _still_ continuing.
Minister Flaherty has made noises about it, but the fact remains that the practice is still continuing.


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## andrewf (Mar 1, 2010)

I don't think the ZIRP was used specifically the prop up housing. If interest rates had not been cut, Canada would have fallen into a severe recession.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> I don't think the ZIRP was used specifically the prop up housing.


Sure, maybe between fall of '08 and spring of '09.
But the fact that it has stayed in force for 5 years now has helped inflate the R/E market a lot.

Perhaps ZIRP _per se_ would not have done so, but when combined with other policies like expanding the CMHC's balance sheet annually, guaranteeing the secondary MBS market, allowing 0% 40 yr. mortgages, etc. the combined effect is clearly a _deliberate and conscious R/E pumping policy_.

There have been no net new factors in our economy that can justify near doubling of home prices in the last 7 - 8 years or so.
Our immigration quotas are the same (if not reduced), unemployment levels are at historic highs, manufacturing industry is on its death-bed, O&G sector depressed - where is the growth?

How can residential R/E grow 50% in 7 years when 2 of those years are officially recession, and the other 5 are sub-2% GDP growth.


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## andrewf (Mar 1, 2010)

I think some of the policies shortly after the recession were designed to inflate housing demand/construction industry. First time homebuyer credit and home reno tax credit being too large examples. But everything else was designed to mitigate the bubble that already was. Allowing the CMHC balance sheet to expand was, if anything, negligence on the part of the government allowed by a CMHC board stacked with housing industry types. Since then, the board has been replaced with people that have a background in financial risk management. I think the government belated realized the problem they were creating and have for the past 2 - 3 years been taking steps to mitigate the problem without causing a sudden shock. I'll admit that I'm surprised that they have managed to cool the housing market somewhat without causing a panic (not to say that a panic won't happen). The difficult part now is that we have a very mixed housing market, with Ottawa, Montreal, Quebec City, etc. well off the boil and not requiring additional tightening, while markets like Toronto and Vancouver are proving to be still a bit too bubbly. Country-wide policy changes are not well suited to dealing with this situation, so the only measures I can imagine are limits on how much can be insured varying by market, along with different DSRs and minimum downpayments. These are tools that CMHC should use to put the brakes on markets that have excess demand leading to rapid price rises and risk to financial stability and the CMHC's balance sheet. CMHC has a right, or rather an obligation, to vary its policies across the country in proportion to the level of risk in each market.


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## the-royal-mail (Dec 11, 2009)

The house price increases in the larger centers has been nothing less than insane. None of us have had the sorts of salary increases necessary to pay for these increased costs.


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## Mall Guy (Sep 14, 2011)

Causalien said:


> Just waiting for Toronto's condo market to crash so I can have my pick of the best condos.


Careful what you wish for . . . pretty sure this is what they were suggesting in 10 or so years . . . asking $59,800 with $535 in condo fees . . . 

http://www.realtor.ca/propertyDetails.aspx?propertyId=13692581&PidKey=-2055617322


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## sags (May 15, 2010)

When a chart shows real estate prices and wages over a period of time.........it shows how badly they have split.

Real estate goes north and wages go south.

The gap is growing and prices are unsustainable with a mediocre 2% interest increase, because of three factors.

1) People are already mortgaged to the maximum of their income.

2) Interest rates are low and 2% would mean almost doubling their payments.

3) The amount of mortgaged debt on an individual basis is a large amount, and an 2% of a large amount is a lot of money.

I think it is easy to see what is going to happen to home prices in the future, especially when considering all the baby boomers who may be forced into selling, but what I think will be interesting to watch..........is what happens to secured HELOCs if home prices fall.

If what happened in the US is any indication, in the geographical areas where home prices were falling, banks lowered the borrowing limits or eliminated them altogether. 

I remember reading a lot of anger and angst on US forums when it happened. People were saying things like.......it is my kid's college fund, or that is my savings and emergency fund. For those who were buried in HELOC debt........it meant a big debt they had to pay.........without being able to "re-borrow" the funds.

A lot of people are "getting by" paying and re-borrowing, paying and re-borrowing.........and according to TransUnion a lot of other people are using their HELOCs to pay of mounting credit card debt.

When the "re-borrowing" is removed from the cycle...........all that is left is paying and a world of financial pain for a lot of people.


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## sags (May 15, 2010)

Post removed.


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## Cal (Jun 17, 2009)

Harold you forgot to mention cash back mortgages, rrsp home buyers plan, and that 30 year mortgages are still available for those who put down more than 20%.

All of these, combined with low rates has made the new normal for Canadian RE to be higher than the historical norm. Until some of these rules are reversed further, or rates rise, nothing will change in regards to RE here.


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## HaroldCrump (Jun 10, 2009)

Cal said:


> Harold you forgot to mention cash back mortgages, rrsp home buyers plan, and that 30 year mortgages are still available for those who put down more than 20%.


Yup, that too.
I figure when the US R/E estate crash happened in late 2007 - 2008, the Harper administration said among themselves : 
_We will not let that happen here. We will do whatever it takes to keep R/E up, no matter the social cost_.

All those policies, along with several tax credits like the new homebuyer's tax credit, home renovation tax credit (both of which are now decommissioned) helped in keeping the market pumped up.
But the unintended consequence of all of this has been the most expensive R/E market in the G8 world right now.

I agree that the purpose of the BOC overnight rate (1%) is not primarily R/E pumping, fine.
But there are many other things that can and should be done to deflate the R/E market.
Some piecemeal changes have been made since 2012, but it is too little and too late.

And as a side note, I am not sure why we still have the RRSP HBP program kicking around.
That program should have been decommissioned 5 years ago, at least.
Get rid of it, geez.


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## Siwash (Sep 1, 2013)

Condos are crappy "investments" now, if they ever were… In the building where I sold my unit (a quality low-rise close to good transportation and amenities) prices have dropped at least 10% this year.. New condo sales have dropped 50% since 2011 in Toronto…

This is gonna get ugly… and I'm not talking about the buildings (they too are mostly really ugly and cheap)

A relative from Europe visited this summer. He's an engineer who's traveled and worked all over on all types of commercial and residential structures - he was appalled at the poor quality (materials) and design of these new condos in Toronto… said they'll be run down in a coupe of decades… 

Toronto isn't developing a legacy. It's a city that will always remain mediocre on a world scale.


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## Cal (Jun 17, 2009)

My guess on the RRSP HBP was that it got some people to actually contribute to their RRSP, an then they are forced to pay it back or pay taxes on it. Helping reduce the retirement burden of the future.

IMO, 30 yr mortgages should go, that would be a somewhat minor hit to RE. And IMO buyers should have 10% down, I think that owners should have more equity in the game, but doing that would absolutely kill the RE market. I mean even with 10% down, the homeowner is still 90% leveraged, not unreasonable.


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## HaroldCrump (Jun 10, 2009)

Cal said:


> My guess on the RRSP HBP was that it got some people to actually contribute to their RRSP, an then they are forced to pay it back or pay taxes on it. Helping reduce the retirement burden of the future.


The HBP was always a sop for the R/E building industry.
It was created at their behest, and all it has done is drive hordes of first time homebuyers into the market for over-priced, highly leveraged investments into R/E, precisely what the R/E industry wanted.

It does not put the individual/family any further ahead than using non registered savings to buy the home, and leaving the RRSP funds inside the registered plan to compound over the 15 year period.

It is also based on the assumption that residential home prices always appreciate in the long run, and can be leveraged later in life to fund retirement vis-à-vis traditional RRSP-style investments comprising of GICs, stocks, bonds, etc.

Here is an article by Rob Carrick that presents a similar POV:
http://www.theglobeandmail.com/glob...ers-plan-should-be-wound-down/article8211010/


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