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© Copyright 2006 Work-4 Projects Ltd.

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


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