In my last post I attempted to shine some light on the discrepancy in the number of condominiums listed for sale this year versus 2011 in a CBC Ottawa News article published last month - I invite you to read it here, if you haven't done so already. Due to the apparent increased number of condominium listings, the author concludes that prices will be dropping. In fact, according to the article, not only will prices be dropping but in some cases entire condominium projects are shutting down due to lack of sales.
In today's post I'm going to focus on some of the specific condominiums the CBC article used as examples to illustrate this supposed failing market.
The first example mentioned in the article is Ron Hu. Who is Ron Hu? - I have no idea. All I know about him is that he purchased a condo "close to the By Ward Market" with his wife, who is a real estate agent, and they put $40,000 of renovations into the condo that they haven't been able to sell in 6 months. At first glance this certainly sounds like quite the horror story - the couple have not only been unable to recover their $40,000 of renovation costs, but their also incurring more and more costs every month the property doesn't sell; definitely not the most pleasant situation to be in. But there are a lot of details missing in this story:
Have either of them invested in real estate before? This can make a huge difference. Like trying anything new, if investing in real estate is foreign to you, you're more likely to make mistakes. Being mentored or advised by an experienced or professional investor is something I recommend all novice investors should seek. Even if you're licensed to sell real estate, it doesn't mean you have the necessary knowledge to be a savvy investor, it only means you have easier access to such knowledge.
Have they ever renovated a property before? As I mentioned above, if renovating is new territory for them, they're more apt to make an error. And when you make a mistake renovating, it can usually end up being quite costly. Again, this is an area where expert advise is priceless.
Where was the $40,000 of renovations spent? Anyone who has ever renovated a property with the hopes of flipping it for a profit can tell you that spending money is the right or wrong places and make or break your real estate investment. You need to know which areas to improve and which areas to leave as-is before taking on such a project. You also don't want be guilty of superadequacy - also known as over-renovating; although some additions may look great, if the market place isn't demanding such a feature the cost may not be recoverable.
And where exactly is this condo located? "Close to the By Ward Market" is quite ambiguous. For those of you unfamiliar with Ottawa, the condo could very well be located in Vanier, Centretown, Ottawa U campus, Chinatown, Mechanicsville, Gatineau (the closest Quebec city to Ottawa), or a number of other neighbourhoods near the By Ward Market - some of these neighbourhoods are great and would yield a great return on your investment, while others are just starting their gentrification process and it'll take more time to turn out a profit. As the old saying goes, the three most important factors about real estate investing are: location, location, location.
If the author of this news piece had chosen to use a subject that was a known or experienced real estate investor, this story would certainly have had much more impact. But just as they hand-picked a random "investor" who didn't get the return he was looking for, I could easily find you a successful real estate investment story where, with the proper guidance and knowledge, they were able to get the results they wanted.
The author then moves on to some of the new condominium sites in Ottawa - The Bowery (being built by Richcraft Homes formerly known as The Edge. It was recently re-branded and hosted a pre-launch last weekend - as of Nov. 14 over 15% of the project reserved), Claridge Icon (being sold by Claridge Homes at the corner of Carling Ave & Preston St. - as the CBC article states, they have only sold approximately 10% to date), and The Rhombus (a cancelled project that was to be built by Tega Homes and was recently sold to Quebec builder Brigil). I will agree with the author - these are definitely signs that the condo market in Ottawa is changing. Five years ago it would have been unheard of to see a new project cancelled or re-branded. Back then, after a condominium project was released, the most change you would see were new floor plans or new specifications introduced - but even that was relatively rare.
Why are these projects re-branding, re-designing or closing up shop? After 10 years of steady growth, are people in Ottawa suddenly rejecting condos? Were they just a fad or a trend-du-jour? Or is there something else contributing to the lack of sales? One fairly important fact that the article failed to mention was that within 3 kilometers of all the aforementioned new condo sites, there are other condo sites that have sold very well and some have even already started and completed construction.
- A few blocks east of the Bowery, the Slater (being built by Quebec builder Broccolini Construction) has already reached its sales quota and construction will be starting later this year - this 22-storey condo has only been on the market for less than a year.
- A short drive from where the Rhombus was planned, you will find the Eddy, a small 6-storey, 53-unit condominium by Windmill Developments located on Wellington Ave. in Hintonburg. It has been slightly over a year since it was released and construction on the project has already reached the 3rd floor.
- One kilometer to the west of the Icon you will come across two new condo developments - Soho Champagne (by Mastercraft Starwood) and Hom (by Domicile). Soho Champagne is a two-phase project comprising of 20 and 24 storey towers; they are pouring the concrete for the 5th floor for the Phase 1 this week. Hom, a 12 storey condo, is already built and most residents have already moved in.
It's clear that people are still buying new home condos in the same areas where you find sites that have struggled with sales - so it's not the neighbourhoods or areas that the marketplace isn't responding to. And after speaking to some of the sales staff and analysis old and new price lists from the Slater, the Eddy, Soho Champagne and Hom, they didn't have to dramatically reduce their prices to attract these buyers as the CBC article suggested. In fact, in some cases, such as Hom and the Slater, they actually increased their prices substantially; upwards of $25,000 on some units - which adds support to the argument that it's not their prices that are the cause for the slowing sales. In my opinion, buyers are seeking condos that suit their life style, and not the other way around. And once they find some that do, they look for the best value - and value is weighed different by each buyer.
If you take a close look at some of the successfully-selling new condominium sites that I highlighted above, you'll notice that they have all been marketed, designed and created to appeal to a specific demographic. With their competitive and affordable pricing combined with its downtown location, the Slater attracted a tonne of first-time buyers and young professionals. The Eddy, being one of the smallest new condo buildings in the city and having LEED (Leadership in Energy and Environmental Design) certification, fit in very nicely to an already-environmentally conscious neighbourhood. As Soho's past two projects, Soho Lisgar and Parkway, have proven, buyers looking for a little more pampering and hotel services have naturally gravitated towards the Soho hotel-inspired brand.
Contrarily, the other condos whose sales have struggled were marketed to attract all potential condo buyers - investors, first-time buyers/young professionals and down-sizers - and by doing so they lost any type of unique identity making it problematic for would-be buyers to relate to the projects. The Bowery/Edge seemed to realize this and on their second attempt of selling, looking at the success of their neighbour, their latest marketing campaign was aimed at a specific demographic - young professionals. It's still a little too soon to analyze the results, but thus far the response has been positive.
If you are in the market for a condo, but haven't found something that has fit your needs, my advice to you is to be a patient and keep looking. There is a multitude of options out there, and as more developers realize that the business model of "one condo fits all" is broken you'll see more unique projects offering different life-styles. But if you're waiting on the side lines for the prices to drop significantly, I'm afraid you'll be waiting for some time, as a few builders have demonstrated already they're more willing to re-design, re-brand or close up drop before they heavily discount their prices.
Thanks for reading.
Taylor Bennett
Sales Representative - Bennett Property Shop Realty
www.BennettPros.com
Taylor@BennettPros.com
@OttawaTails
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