The Pitch From Toronto...

It seems all of a sudden, hope has been replaced by ardent confidence. In fact, the same old scare tactic is back with a vengeance with a not so subtle mention of 'buy now...or..."
It might be the final hurrah before the ultimate demise, but going by the fervor in the following pitch, it seems a lot of people will get sucked in. A friend of mine who has some interest in condos in the Toronto area sent this mail:

Prices are rising fast. JUNE MLS SALES HIT ANSTONISHING HEIGHTS!

We have been pounding the table since January that all the signs were clearly pointing to a fast real estate recovery in Toronto.

At that time, we were starting to see growth month-over-month in sales, but the “chicken littles” in the media and financial community were still promoting the doomsday scenario with an apocalyptic fervor. My advice had been for buyers to enter the market as soon as possible.

With some leftover motivated fall ’08 sellers and crazy interest rates - it was a great time to buy, a fleeting setback in a rising,long-term, bull real estate marketplace. My prediction was for the real estate market to settle down and start rising again, represented by a strong

seller’s market by fall ‘09. I also indicated that Toronto’s development sites, which buyers have avoided like the plague for the past year, were going to get very busy by the fall. Well, I was 100% correct about all of it, except that the real estate recovery happened a little faster than I predicted back in January. June ’09 MLS sales were nothing short of spectacular. Almost 11,000 (10,955) homes were sold. This represents an all-time high. Keep in mind that June is

typically the 4th or 5th strongest month of the year. We are smack dab in the middle of a seller’s market. Most properties sell in a few days, many with multiple offers. Prices are rising fast. I expect that for the balance of 2009, we are going to see strong numbers. Currently, the time to sell, or number of days on the market, has fallen to an average of 33 days. Chronic inventory shortage exists in most areas.

What is now going to happen is a surge in new development sales. July and August will set the tone for a busy fall when I predict that over 1000 units per month will sell for the next several months. Buyers still have a great opportunity to purchase at rock bottom prices at most of the city’s new sites.

The inventory of ‘leftover’ suites is shrinking. Pricing at all of the city’s developments are going to start to rise. New development prices are currently 10-15% lower than

resale prices. This margin will close to nothing in 3-4 months with the strengthening new development marketplace. I predict that some new developments will be launched

in the fall and several will come to market next spring. It appears to me that our economy in mending quite nicely and by late fall we will be back to business as usual.

Despite what some doomsdayers still predict, the U.S. and the world is in a better place economically. We are now in a recovery mode. By 2010, the negative prognosticators will be

safely trotted back to their dark little holes where they spend the majority of their lives, having enjoyed their fleeting 9 months in the sun. “June ’09 MLS sales were

nothing short of spectacular... Most properties sell in a few days, many with multiple offers.

View from Bangalore

As I had alluded in the past, the severe cost escalation in pretty much everything in Alberta strongly dissuaded us from expanding our business in Alberta. Even after 20 to 25 per cent fall in housing and real estate prices and significant jump in unemployment, the Alberta advantage has not yet been restored. That is, Alberta advantage for companies that are not dependent on their physical presence in this province. Just 5 years ago, Dell had chosen Edmonton as one of its favored low cost locations. And just 3 years hence, it closed its operations.

So I’ve been visiting India for the last several weeks trying to establish our back office here. Despite all the bullish talk of the Indian economy’s miracles and the sustained 7 to 8% growth for decades to come, the mood here is somber. There is massive overcapacity in pretty much everything. The commercial real estate is massively over built, all in the anticipation of thousands of companies that would want to setup their back office operations here. Not that many companies have not done so or won’t do in the future- it’s just that the actual demand has been way less than the projections. Not unlike the real estate in the US, Spain, UK, China or dare I say, Alberta. The loose credit policies of central banks worldwide have transformed normal economic booms into massive manias. First the technology boom, which was a genuine economic phenomenon was masqueraded as the beginning of a new golden age. It was indeed golden age, but for those who were early to cash out their stock options and for the investment bankers who fooled the public by underwriting crap IPOs. Similarly, the genuine investments in Alberta’ oil sands and energy industry should have resulted in some uptick in the real estate. Instead, the massive credit bubble worldwide created party times for somewhat different constituency this time- home owners, flippers, mortgage brokers and of course the investment bankers.

Back to Bangalore. This place seems over populated, with roughly a quarter of the Canadian population in an area less than a fifth of the GTA. Everything should be in demand here, especially housing. Except for the fact that the current inventory of housing stock is unaffordable to majority of residents, even with generous financing. Software engineers, who were once princes and princesses of the ‘silicon valley of India’ are no longer the most desirable matches in the ‘marriage market.’ Not that the firms here don’t employ hundreds of thousands of such professionals, it’s just that the way too many of these professionals have been trained than there is real work. Once again, over capacity.

We found space in a world class business center at 40% of the rate that was given to customers last year. The reason- a major financial institutions fired its 150 employees who used to work in that office space. The business center is now desperate for any customers, and little fish like us have finally found the ‘value’ we had been seeking all this time.

On the employment front, a few ads on the popular job posting sites have yielded hundreds of resumes. Initial interviews have been fairly positive. If we are successful in hiring good candidates, we’ll be able to get 5 good people at the cost of 1 good equivalent Canadian resource.

We’d have loved to do this in our home province but alas, the Alberta economy has been severely disadvantaged to anything that is non-Energy based. Our competitors have all moved to lower cost locations and if we want to survive, we have no option but to do something similar. We figure that rather than closing down our operations entirely, it's better to remain incorporated in Canada and at least contribute something to the economy here in the form of taxes.

Before the reckless oil sands developments severely impacted all other non-dependent industries in Alberta, the province had a good shot at competing in so many industries. Housing was cheap, labour was skilled, high quality and affordable. A single wage earner making $50k could live a decent life since everything was so cheap. But all that is long gone. Once the inevitable end to resource driven boom occurs (just look at the UK), what will our economy be like? But who has the time to think about 10 or 20 years down the road when the priority for everyone is to milk the current setup for their own benefit? The recent rerun of the housing mania in Alberta and rest of Canada proves that unless it hits people directly, they won't learn anything from it. And that too, if they are really intelligent and observant.

We tried our best to not relocate our business out of the province. But the choice was simple-relocate or perish. Thousands of more businesses in this country will face similar choices in the coming months and years. The answers won’t be very healthy for the long term prosperity of our country. But who has time to think about all this when you can get rich just by buying and selling homes to each other?