P 202026Z NOV 08
FM AMCONSUL TORONTO
TO SECSTATE WASHDC PRIORITY 2667
INFO ALCAN COLLECTIVE
DEPT OF TREASURY WASHDC
USDOC WASHDC

UNCLAS TORONTO 000361 
 
 
TREASURY FOR INTERNATIONAL AFFAIRS (NEPHEW) 
COMMERCE FOR 4320/ITA/MAC/WH/ONIA (WORD) 
 
E.O. 12958: N/A 
TAGS: ECON EINV CA
SUBJECT: Toronto's High-Rise Condominium Market: 
Cooling, But Not Yet a Meltdown 
 
¶1. (U) Summary:  Toronto's market for high-rise 
condominiums has begun to cool down in what was 
North America's busiest condo construction and 
sales market in 2007.  The global credit crunch 
and slowing economy has created worries for 
Toronto developers with projects currently 
underway, and even more so for developers with 
new project proposals still in need of financing. 
Market analysts believe, however, that factors 
unique to Toronto such as a steady population 
influx, relatively rigid lending practices prior 
to the credit crunch, and favorable local 
government policies will help developers survive 
the economic downturn.  End Summary. 
 
-------------------------------------- 
Building Frenzy Beginning to Slow Down 
-------------------------------------- 
 
¶2. (U) For the past three years, Toronto has 
experienced a condominium building frenzy.  In 
2005 and 2006 a total of 220 condo projects were 
launched, while in 2007 alone the total leaped 
to a record-breaking 295 projects.  Despite the 
slowing real estate market, in the first three 
quarters of 2008, another 290 condominium 
projects were launched.  [Note: These include 
condo projects that started sales and/or began 
construction.]  Of the over 38,000 condominium 
units under construction in Ontario during this 
same time period, 33,919 were in the Toronto area. 
 
¶3. (U) The market is now showing signs of a 
slowdown, however.  The value of building permits 
requested in Toronto in September 2008 fell 34% 
below that of a year earlier, clearly signaling 
a slowdown in new construction planned for 2009. 
Moreover, amid global economic uncertainty condo 
buyers are more cautious about purchasing at the 
pre-construction stage or are putting off real 
estate purchases all together. 
 
------------------------- 
Downturn May Be Moderate 
------------------------- 
 
¶4. (U) Although both developers and analysts here 
agree that the market will see a downturn, they 
also believe that it will be moderate.  Toronto 
does not exhibit the negative indicators present 
in the real estate market meltdowns seen in 
Vancouver or Miami, Florida.  Toronto has only 
a 2.5-month inventory, for example, compared to 
Miami's 75-month inventory in February 2008. 
Toronto pre-construction buyers also have yet 
to abandon their deposits.  Additionally, while 
Canadian cities like Calgary and Vancouver had 
overheated housing markets caused by local booms, 
housing prices in Toronto did not increase as 
dramatically. 
 
¶5. (U) Because Canadian banks typically require 
that a project be 60-70% pre-sold before a 
developer can qualify for financing, this leaves 
a less of a burden for builders to find buyers 
after construction.  Toronto's demographic trends 
will also continue to drive demand for high rise 
housing.  Nearly half of Canada's 225,000 annual 
immigrants settle in Toronto.  Greater Toronto's 
population is expected to grow from about 5.5 
million to 6.9 million people by 2016.  Because 
of this, analysts expect that high-rise sales 
will continue to account for more than half of 
all new home sales, leading to expectations 
that the market's drop in Toronto will be less 
dramatic. 
 
--------------------------------------------- - 
Local Government Policies to Push Construction 
Vertically 
--------------------------------------------- - 
 
¶6. (U) With an estimated population growth of 
some 28% over the next 24 years, the Ontario 
government has moved to protect some areas 
from construction and development.  In 2005, 
it created an 800,000-hectare "Greenbelt" 
area around Lake Ontario to protect the 
forests, wetlands, and farmland surrounding 
southern Ontario.  The result has been a 
concentration of development around established 
cities, as well as an increase in vertical 
construction. 
 
¶7. (U) The Toronto municipal government also 
has taken action to encourage development 
within the city.  In December 2008, the City of 
Toronto will review a proposal to freeze the 
implementation of development charge increases 
for one year, given the current economic climate. 
The charges normally levied on developers go 
towards services and infrastructure (sewers, 
water mains, government facilities, etc.). 
City leaders have estimated that 87% of new 
infrastructure costs incurred through new 
development will be subsidized by the city, 
creating a significant incentive for the 
developers.  For 2008, new infrastructure will 
cost some C$308 million. 
 
¶8. (U) Comment: While high-rise projects 
currently under construction appear to be 
relatively safe from global economic 
uncertainty, future developments remain 
vulnerable to financing difficulties. 
The credit crisis has Canadian banks more 
cautious in their lending, and large 
condominium projects tie up more money for 
extended periods of time owing to the practice 
of maintaining mortgages within the bank. 
[Note: According to a new report from RBC 
Capital Markets, Royal Bank of Canada and 
Bank of Nova Scotia had the largest share 
of residential mortgages among the six 
largest Canadian banks, based on balance 
sheets at the end of the April. RBC had a 
 26.7% market share and Scotiabank had 22.9%.] 
 
¶9. (U) Developers may have to turn to 
alternative mortgage options such as 
mezzanine financing, which blends elements 
of debt and equity financing, but tends to 
be more expensive than secured-debt financing 
(i.e., a mortgage loan).  According to a 
contact at a market research firm, developers 
have already encountered more stringent equity 
and presale requirements, as well as higher 
costs of borrowing and increased bank fees. 
At the same time, some industry analysts point 
out that one possible positive outcome of the 
economic slowdown may be lower prices for 
construction materials caused by the recent 
drop in commodity prices.  Overall, analysts 
foresee a short-term market correction that 
will bring prices back to pre-2007 boom levels, 
which were still attractive enough for developers 
to embark on their building spree.  Although, 
analysts are reluctant to make long-term 
predictions on the condo market, as of yet 
there is no perceived sense of panic among 
developers and buyers.  End Comment. 
 
NAY