Madonna Plugs Toronto Condos As Market Slows

Bloomberg

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Madonna
Madonna

Who better to promote Toronto's slumping condo market than the Material Girl.

Madonna, whose 2012 tour was the top-grossing act of the year worldwide with $296.1 million in revenue, will lead an "Addicted to Sweat" dance class next month at her Hard Candy Fitness studio inside Aura, a new 78-story condo tower in Toronto. The luxury development will also feature a sculpture-studded public gallery, a marble-lined lobby and a five-bedroom penthouse priced at $17 million.

Aura, Canada's tallest condo, is a monument to Toronto's 10-year building boom. The glass tower, with 985 apartments, is contributing to the 20,000 units set for completion in 2014, a record annual surge. And a total of 60,000 units are under construction in Toronto. The building spree that began in 2004 has already created at least 125,105 units and about 600 high-rises, including conversions, transforming the skyline of Canada's biggest city.

Now, as condo sales tumble and price gains slow, supply may soon outrun demand. New condominium sales in the city of 5.6 million people fell 8 percent to 3,049 during the third quarter of last year from a year earlier, about 25 percent lower than typical third quarter totals over the past decade, according to Urbanation Inc., a Toronto-based real estate research firm. Prices rose 2 percent in the third quarter compared with the same period in 2012. That's the slowest annual growth in eight years, according to Urbanation.

Overshooting Market

"It is very likely that we're overshooting," said Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce. "When you have this extra supply entering the market, that's when it will be tested."

While Toronto's condo market cools, property prices for the country are poised in 2014 to continue their upward tear. The International Monetary Fund called Canada's housing market the most overvalued among countries belonging to the Organization for Economic Co-operation and Development in a Nov. 26 report. Prices in Toronto have risen 39 percent from December 2008 to the end of 2013, according to Canadian Real Estate Association data.

Average Canadian home prices, including houses and high-rises, gained 12 percent in December 2013 compared with the year ago period, according to data compiled by Bloomberg from regional real estate boards. Prices in December advanced 8.9 percent in Toronto and 11 percent in Vancouver. That compares with a 4 percent gain in New York in the third quarter, according to the city's board.

"The average selling price in Canada will be up again in 2014 and by more than the rate of inflation," Jason Mercer, senior manager of market analysis at the Toronto Real Estate Board, said in a Jan. 6 data release.

Low borrowing costs and a scarcity of single-family homes have driven Canada's market to record highs. The country's benchmark interest rate has been at 1 percent since 2010, the longest pause since the 1950s. The weekly three-year conventional mortgage has been below 4.05 percent since Sept. 26, 2012, according to Bank of Canada data.

Investors don't expect the country's overnight rate to rise this year, according to trading in overnight index swaps. Canadian inflation is projected to remain below the 2 percent mid-point of the Bank of Canada's 1 percent to 3 percent target range through 2015, according to analysts' estimates compiled by Bloomberg. The overnight index swap shows the market's expectation for the one-year average central bank rate beginning in one year's time.

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