Heading for a soft landing
By Albert Warson
Montreal's skyline has
been redrawn and its urban image redefined with a burst of high-rise condominiums,
much like in Toronto and Vancouver, but housing generally is not an open-ended,
endlessly sustainable commodity. The law of supply and demand inevitably prevails,
until the next boom rolls around.
Residential construction in Greater Montreal, for example, started peaking
early this year, except for a 15 per cent rebound in July (typically a slow
month for housing sales) compared to last year, but it is a blip that isn't
expected to last, according to a Canada Mortgage and Housing Corporation (CMHC)
survey in early August.
Bertrand Recher, a CMHC market analyst, says residential construction in Quebec
is expected to slow down for the rest of this year and in the condominium
segment most of all. If that trend doesn't change course, "2005 will
sustain a first decrease in activity on residential job sites in eight years,"
he predicts.
The CMHC survey also showed that Trois-Rivières was the only other
census metropolitan area (CMA) to have posted a gain in housing starts in
July - 109 per cent over the previous July, but down by two per cent in Sherbrooke,
nine per cent in Québec, 41 per cent in Gatineau, and 51 per cent in
Saguenay in the same comparison.
Not all Quebec home builders expect to be caught in that downward drift. Patrick
Varin, president of St-Luc Habitation Inc. in Montreal, which builds 300 to
350 units a year of different housing types from singe-family to high-rise
condos and only in the city, acknowledges the widespread belief that the Quebec
market is poised to slip.
Nonetheless, he says his company has had record sales over the past six months,
within the larger context of the past eight years of "really good markets."
Perhaps it is because he is catering to buyers who want smaller housing units
- 600- to 1,000-square-foot condos. "We try to avoid the million dollar
condo market," he says, unlike other condo builders who take their chances
on the high-end product.
More importantly, his company has for years been holding large reserves of
serviced land in Montreal, where supply is just about exhausted. One site,
for example, is suitable for 1,000 units and another for 600.
Varin's company is planning to build a 600- to 700-unit condo complex on one
of those blocks of land, which he says is the last development site along
the Old Montreal waterfront. Units will be priced from $150,000 to $3 million
penthouses and he expects to start construction in late October.
Stay
under $250,000
Five years ago the proportion of his product was 25 per cent condos and 75
per cent everything else. Today it's 90 per cent condos, with an average selling
price of $220,000. "If you keep below $250,000 there is a good market,"
he says.
Another Montreal home builder, Jonathan Sigler, a partner in Groupe Prével,
which produces 100 to 200 multi-family, condo and downtown urban infill units
a year, notes that "the high-end, $300- to $500-a-square-foot condo market
is fairly saturated, with a dozen projects being built within a five-kilometre
radius in downtown Montreal. It will be difficult absorbing the large number
of units presently offered." But he says a glut is shaping up even for
affordable housing.
Housing
affordability deteriorating
An RBC Financial Group report issued in June 2005 noted that housing affordability
in Montreal has deteriorated - one of the largest declines in the country.
A standard townhouse took 30.3 per cent of pre-tax household income in the
fourth quarter of 2004, compared to 31.2 per cent a year later. Two-storey
homes require 44.3 per cent of income and cost an average $269,000, while
an average Montreal condo requires 28.5 per cent of income and costs about
$174,000.
Playing
catch-up
Household formation, which drives housing demand, has been strong, with people
moving into Montreal from outlying communities, Sigler says, and some catch-up
from the downturn during the "horrible mid-90s" when very little
housing was built.
Sigler attributes some of the slowdown to a gradual retreat from the condo
and rental apartment markets in Montreal by investors over the past two or
three years. He foresees, overall, a "gradual slowdown, a soft landing.
The demographics and job creation are good, and interest rates are still low,"
he explains, although the market is "getting to be more price competitive
and we're being more careful about new projects." HB