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Real Estate Speculation: Toronto Condo Developers Refuse To Reveal Data On ‘Flipping'

Developers Refuse To Say How Much Speculation In Condo Market
bennylin0724 via Flickr

In the debate about Toronto’s sky-high condo prices, some observers have expressed concerns that real estate speculators may be driving up prices by buying apartments then immediately “flipping” them for a profit.

To understand just how much influence speculators really have, market research firm Urbanation launched a study this past summer to measure the number of “assignments” — condos that are sold by the original buyer even before they’re finished.

But on Tuesday, Urbanation announced it’s cancelling the research project, which was being run with the support of Canada Mortgage and Housing Corp. (CMHC), because the vast majority of developers whom it asked for data did not respond.

The research firm said it recognized “that many developers don't want to release any information that might come back to ‘bite them in the rear,’ so to speak.” It did not elaborate.

Of the small sample of developers who did respond to the speculation survey, Urbanation found the number of “assignments” to be "relatively low." The research firm suggested that may be due to rising rental prices in Toronto, which may have convinced some speculators to rent rather than sell.

The research firm believes that concerns about speculators were at least partly behind the Harper government’s tightening of mortgage rules earlier this year.

For instance, Mr. X from Asia pays $15,000 for the right to buy a $300,000 condo, then, when the price of similar units rise to $400,000, he can assign the right, get his deposit back and make the $100,000 difference. There is a frenzy of this speculation going on which makes prices escalate so rights can be bought and resold over and over again before a building is completed.

Urbanation isn’t the only group pushing for better information about the amount of speculation in condo markets. In January, the Office of the Superintendent of Financial Institutions (OSFI), Canada’s banking regulator, announced it would be spending more time gathering data on speculation.

Pure speculators are very difficult to quantify in the market and [are] not being captured in any typical market data,” OSFI said in documents obtained by Bloomberg and the Globe and Mail. “Additional work [is] needed here.”

Regardless of speculators, Toronto’s condo market is now under severe downward pressure. Urbanation’s most recent data found that new condo sales fell 47.5 per cent in the third quarter of this year, compared to the same period in 2011.

“Rampant media coverage of ‘speculation’ in the condominium market and the recent mortgage rule changes (brought on by the worry of condo flipping) have had a major dampening effect on new condominium sales,” the research group said.

The CMHC forecast on Wednesday that the Toronto housing market will stabilize in 2013, after seeing sales fall in 2012. But the mortgage insurer expects sales and construction levels to be lower than in recent years, and forecasts a slight increase in average prices.

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