There’s a theory that whenever someone plans the world’s tallest skyscraper—whether it’s the Empire State Building in the late 1920s or the Burj Dubai in the mid-2000s—a financial disaster can’t be far behind. But could the same be true when it comes to over-the-top condo projects in Canada, a country many believe is in the grips of a massive real-estate bubble?
Barely a month ago, the developers behind the proposed E Condos in Toronto released a set of stylized renderings of the project, scheduled to be completed in 2017. They depicted two slender towers with glass-walled swimming pools that will partly overhang the sidewalk a dozen-or-so floors up, granting bathing-suit-clad residents “amazing underwater views of the city.”
It may just be a coincidence, but the eye candy appeared around the same time Toronto’s blazing real estate market finally began to lose steam. Sales in Toronto slumped 13 per cent during the month of June, with the biggest decline—18 per cent—coming in the city’s frothy condo sector, which Finance Minister Jim Flaherty has identified as a key source of concern.
The unexpected pause gave further ammunition to housing bears who suggest the Canadian housing bubble is set to burst—particularly since it comes on the heels of a drop in Vancouver, where sales recently hit a 10-year low. Moreover, the decline in activity in both cities (although not yet in prices) came before changes Flaherty recently announced to mortgage insurance rules came into effect this week. They include a maximum amortization period for government-backed mortgages of 25 years, compared to 30 years previously.
Garth Turner, a former MP and noted housing market critic, wrote on his blog that it all adds up to the arrival of a “Bre-X moment,” where Canadians suddenly realize the housing market is built on sand, not bedrock. CIBC deputy chief economist Benjamin Tal was less dire. He suggested a “softening” market followed by falling house prices, despite the continued existence of ultra-low interest rates. Either way, it promises to be a lot less fun than a swimming pool in the sky.