Value key to inner-city success
Influx of young people want to live in downtown
June 5, 2010 Kathy McCormick, Calgary Herald
Calgary has the demographics and the dynamics to attract people to live downtown -- even with the recent slump in highrise activity in areas such as the Beltline, says an expert in inner-city condos.
But it will take some innovation for condo developers specializing in concrete towers to be a success, says Calvin Buss of Buss Marketing.
"The downtown condo towers in the first quarter had just over 100 sales," he says. "That's not many when you consider how many towers are under construction or selling now."
About 10 highrise buildings within the Beltline area have units for sale, he says.
"And if you look at it, two projects had most of those sales. Midtown had about 55 sales and Luna had an additional 20. That doesn't leave much for all the rest of the downtown projects."
The Beltline is bounded by 14th Street S.W. on the west, the Elbow River on the east, the CPR tracks on the north and 17th Avenue on the south.
The reasons for the success of the two projects boils down to price, he says.
Luna, the third condo tower by Qualex-Landmark, re-negotiated prices with suppliers.
The price per square foot was in the range of $390 for the 20 units it sold from Jan. 1 to the end of March, says Buss.
Most other developments were more in line with $500 per square foot or more.
Midtown, the tower that Pointe of View rescued from receivership, has average prices per square foot in the $400 to $500 range.
But the 55 units it sold from January to March were smaller, so prices were lower.
"Some units were just 510 square feet -- so averaging the price per square foot to $450, the price of those condos was just $230,000."
And people were buying. "People want to live downtown and it's a clean, new and safe inner city," says Buss. "If the in-migration numbers are strong, it will have a disproportionate benefit for the inner city because, generally, those coming in are younger."
In-migration refers to the movement of people to Calgary.
Investment continues to be a motivating factor to purchase a condo, says a recent survey by TD Canada Trust. "
Calgarians continue to see the value in purchasing a condo as an investment strategy," says Chris Wisniewski, associate vice-president of real estate and secured lending for TD Canada Trust. "Affordability and stable monthly expenses can make condos very attractive for both first-time buyers and investors."
The remaining units still in inventory within the inner city are larger -- and, thus, pricier.
"Close to 575 units are standing inventory, either finished or under construction and waiting for sales," says Buss. "That will take a long time to absorb and sales have slowed considerably because most are too big and/ or too expensive."
But that won't stop either buyers or developers, he says.
"Buyers today draw the line at how much they will spend -- and how much they can spend, how much debt they are willing to purchase and the price of that debt.
"Those developers who succeed are the ones with the best value. They won't stop developing, but they'll find different ways of creating and innovating to compete against the standing inventory."
As of the end of March, 75 multi-family condo apartment units had been started, says Altus Group -- down from 84 in 2009. And 3,874 were under construction to the end of March -- a number that may seem high, but it compares to 6,225 the previous year.
Four hundred and nineteen units were completed but unabsorbed to the end of March, compared to 165 last year for the same period, says CMHC.
"The number of resale condominium apartment transactions in Calgary and Edmonton remains elevated and the number of units under construction has declined," says the latest Altus report. "Both factors bode well for gradual increases in condo apartment construction this year and next."
In its just-released Spring 2010 Calgary Housing Market Outlook, Canada Mortgage and Housing Corp. is also calling for an increase.
"New multi-family construction is expected to reach 2,300 units in 2010, an increase of 49 per cent from the previous year," says the report. "As the economy improves and apartment inventories decline, multi-family production is forecast to increase 35 per cent in 2011 to 3,100 units."
Buss says CMHC has forecast immigration at about 17,000 for this year, down from a 10-year average at about 18,000.
"If the number of (multifamily housing construction) starts remain around 2,000 for 2010, compared to the average from 2002 to 2008 at about 5,800, then Calgary will need more new condominiums."
When the new inventory is absorbed, there will be a shortage unless new developments are started -- and soon, since highrise towers take so long to build.
Don Campbell, the author of several real estate books, is high on Calgary as well.
"This city is one of the economic world leaders," says the president of REIN (Real Estate Investment Network, which has more than 3,000 investors).
"From an affordability factor, condos will become more popular in Alberta. People moving from other provinces are used to living downtown. They want the vibrancy and the density."