A few months ago a brand-new condo owner in Toronto’s sexy distiller district saw her balcony explode. Seconds later hunks of tempered glass were raining down on the hopelessly-trendy streets below. Hours later a city building inspector ordered the property maintenance company to replace the glass – with more of the same glass. Duh. Days later City Council passed a motion forcing buildings to be checked for kamikaze suicidal balconies and come up with a long-term solution.
Add one more nail to the condo coffin. Do all those new owners have any idea where this is headed?
“Tempered glass is the standard of the industry,” a spokesman for the developer said at the time. “ It’s been that way for 23 years. It’s come off buildings in the past but it’s never been a newsworthy event.”
Well, times have changed. And the issue is not just acres and acres of glass cladding scores of Toronto high-rises. It’s also glass-wall construction with short-life seals, questionable quality cement, slap-dab plastic tube piping, plus condensation and mold. Not just Toronto, either. In recent weeks condo owners in Alberta have made headlines complaining about deck drainage mistakes, windows set improperly, leaking roofs and wafer-thin stucco.
As Calgary architect Tang Lee says, “It’s not going to fail in the first couple years, but it will fail five, 10 years, 15 years down the line.”
Why is this happening, and what does it mean for the broader real estate market?
Demand for multi-unit housing – condos – has never in history been higher. Right now Canada’s the condo capital of the world, with Toronto its epicentre. The reason’s simple: cheap money and lax lending standards pushed real estate prices past the point of affordability. A generation ago young couples would buy ‘starter homes’ – 900-square-foot bungalows on suburban lots. Today those places can command a half million dollars or more, forcing first-time buyers into boxes in the sky.
As a result, there are now 55,000 new condos under construction in the GTA alone, and another 31,000 being marketed and sold. But the construction industry can’t keep pace, turning out only 15,000 units in 2012 – and doing that at a breakneck pace leading inevitably to shortcuts and efficiencies. Meanwhile as sales slow, banks exit financing and prices ratchet back, developers find their margins thinning. Wouldn’t you want to cut a few corners?
So not only are purchasers waiting a long time – as much as four years or more – to get what they paid for, they’re often buying into buildings which could deliver some nasty surprises. Replacing the glass skin on a 35-storey tower, for example, could take a year and cost several million dollars – with every penny coming out of condo fees and special assessments against the owners. If they chose not to pay, they’ll face legal action, and be unable to sell their units until it’s resolved.
How many of those property virgins, shunting into their mortgaged 500 square feet, know that?
According to a new survey this week, not many. When TD asked condomaniacs in Toronto, Montreal, Calgary and Vancouver about condo (strata) fees, almost 70% said they had no idea these things could actually go up. And they certainly can, especially if you move into a new building with no history of establishing reserves against major work.
Scarier still, the bank found about 40% say they “have no confidence” they could actually afford to pay an increase in those monthly charges. Note: that is any hike in fees, let alone a bill for ten or twenty thousand dollars that could arrive in five years when the glass goes Bruce Willis or the parking garage starts leaking.
This is what happens when people without savings, investments or actual money are allowed to buy high-rise units they should actually be renting. Human nature, greed and naiveté being what they are, most of these kids (and amateur investors) mortgage to the max, leaving nothing in reserve. If you were worried what might occur in two or three years when mortgages reset at higher levels, the news that four in ten can’t afford $30 more a month in condo fees should terrify. Especially given the trendy junk they’re moving into.
It seems certain the rush into these cement rabbit warrens will look like a poor decision in the years to come. A lot of people are on the verge of losing all their equity, first to Mr. Market, then to the hype and avarice which led them there.
Exploding balconies we could probably handle. Imploding virgins, not so much.