PROP 6200: Development Prototypes
Zara’s Dillema Write Up

Sumeet Sohal 213299268

The Plan: Live at home until 2018 to save enough funds for down payment and avoid mortgage insurance. Have at least $75,000 for the down payment, closing and transaction costs, new furniture and other unexpected costs. Get $50,000 assistance from parents for down payment.
Monthly Net Income: $90,000 Gross, $65671.50(After Taking Out Personal Taxes: $21,754, CPP 2,480, EI $931)
Assets (Present): None .Liabilities (Present): Student Debt ($25,433) + Credit Card Debit ($5,064)
Based on the evaluation of Zara’s criteria, current financial situation and overall circumstances, Zara should purchase a one bedroom + den unit (574 sqf) in SQ2 located at Queen Street West and Spadina Ave. The condo, situated in Alexandra Park neighbourhood, is home to several retail stores and home to young professionals which fit Zara’s criteria fairly well. Zara is concerned that she will be “house poor” if she purchases a condo at the present time. However, after a closer look at her savings for initially staying at home until the possession date in mid 2018, she will have enough funds for a decent size condo unit and not be house poor. To ensure that Zara was making the right decision, a closer look at relevant facts including the macro environment, personal financial situation and preferences, and options would be appropriate.
Experts are predicting that the Toronto condo market will crash in the upcoming years due to vast supply of units as more condos keep coming online. The news has created fear in Zara’s parents of a real estate bubble that influenced them to conclude its best to wait for a market correction. However, Zara must reinforce the fact with her parents that she is not buying the condo as an investment or a rental property but rather as a residential place for herself. Continuing to stay at home for a prolonged period of time will mean unnecessary time spent commuting to work and time that could be spent for career building and networking activities. Moreover, buying a home Zara could afford at the present can be beneficial since it allows her to start building equity and the payments can act as a disciplinary tool on consumption behaviour. If Zara is planning to hold the property for at least five years, any market correction that will take place can be substantially offset by the equity built from the monthly mortgage payments. To further support her decision, Zara can review the report provided by IBIS World that states “demand for multi family dwellings will continue to increase in the next five years to increase as migration to metropolitan areas continues” (IBIS World , 2015).
Cars can contribute to personal debt levels and inadequate saving. Upon relocating to downtown once the SQ2 project is ready for occupancy, Zara will not necessarily need a vehicle. The Alexandra Park neighborhood is a “walkable” community and a short distance away from amenities, grocery stores, parks and dependable transit. If Zara decides to own a car, monthly expenses for gas, lease payments, parking can easily rack up to $1,000. Owning a car can destabilize her finances that will provide no added benefit to her. Studies have shown that millennials don’t care about cars as much as previous generation have (Globe and Mail, 2015) . This lack in demand is turning developers in building limited parking stalls and offering them exclusively to purchases of two bedroom units.
To make sense of which condo to ultimately purchase, it is essential to analyze each of the projects by looking at some pros and cons. (See Table on page 4 for financial analysis for each)
Yonge and Rich by Great Gulf on Richmond Street East and Victoria Street
The Yonge and Rich project is located within close proximity to Zara’s work and a short walk away from major retail centres, professional centres, grocery stores, etc. The condo will be minutes away from the subway station and from the Eaton centre. The future area also seems promising as more retail stores and entertainment centre, such as the Luminato, open to the public. The builder is also known for several vibrant projects in Toronto including One Bloor, Toronto’s future skyscraper, and X2. The one bedroom + den will cost Zara $401,990 with a square footage 608 sqf that is enough to house an overnight guest. Despite all the promising features, the area does not give a “home” ambiance due to high concentration of commercial buildings and high foot traffic until about 7 pm. Zara can also find a slightly better deal than the Yonge and Rich project if she can compromise on the proximity to her work. The extra funds saved can help Zara payoff her student loan and other personal debt.
Pros: Close proximity to work, shopping centres and amenities. Decent condo size and near the subway.
Cons: High concentration of commercial buildings and high foot traffic during commercial hours leading to the lack of “home” ambiance. The demographics of the area is more mature professionals who tend to socialize within their own age group.
Massey Tower by MOD Developments on 197 Yonge Street
The Massey Tower is situated within close proximity to the Yonge and Rich project with the same features. The one bedroom unit including den will cost Zara $460,000 with a 565 square footage. MOD developments has a good reputation and an award holder for its architectural design for a condo in 2011. However, Massey Tower lands the same issue as the Yonge + Rich project due to the lack of “home” ambience caused by high foot traffic and commercialized neighborhood. Moreover, the bigger issue is that almost 50% of Zara’s disposable income will be going towards paying household expenses including mortgage, insurance, etc. If she attempts to do this with her present financial situation, she will be house poor with very little breathing room if interest rates rise in the future. Finally, Zara will have to settle for a smaller unit due to financial constraints should she further consider Massey Tower as her residence.
Pros: Close proximity to work, shopping centres and amenities and near the subway.
Cons: High foot traffic at almost anytime that contributes to the lack of “home” ambiance. Condo is out of Zara’s budget after adding additional monthly household costs.
SQ2 by Tridel at Queen Street West and Spadina
The SQ2 project, located in the Alexandra neighbourhood, is within close proximity to the shopping centre in the Queen Street West area and steps away from ground transportation. The neighbourhood also seems promising with certain parts of the area being revitalized into a mixed income, mixed-use neighbourhood through a 15-year 2-phase plan (City Of Toronto). Its close proximity to the King West neighbourhood, a neighborhood that attracts primarily young professionals, will also help Zara to develop her network for her real estate career. Tridel, SQ2’s developer, has a solid reputation in condominium construction and has built over 80,000 units throughout its lifetime. The condo is also well within Zara’s budget that will allow her to pay off her student debt with the extra funds. However, one of the drawbacks to SQ2 is its further away from work compared to two condos located within the Yonge St. Area.
Pros: Excellent neighbourhood with a nice mix of houses and residence, solid builder reputation, well within budget, high location potential in the future.
Cons: A little far from Zara’s work.
150 Redpath by Freed and Capital Developments at Yonge and Eglinton
150 Redpath is located in midtown Toronto that has access to shopping and recreational facilities. The adjacent area and apartment neighborhood is primarily home to mature couples and single families. Capital Developments, 150 Redpath’s developer, has a strong track record with some successful projects across the Canada and Europe. The main downside of the project is its distance to Zara’s work that will require her to spend time commuting. Moreover, the maintenance costs does not include heating, cooling and water expenses which run the risk to increase significantly as the condominium gets older.
Pros: Close proximity to shopping centres and amenities and near the subway.
Cons: Distance from work, different demographics, heating and water costs not included in maintenance costs.
RC3 by Urban Capital Property Group at Queen Street East
RC3 is a project in the West Don Lands neighbourhood and a new development in East downtown Toronto that has limited access to shopping centres and recreational facilities. The neighborhood is fairly underdeveloped with the Village as the first residential project developed. The developer, Urban Capital Group, has successfully developed prior projects nationwide including the phase and 1+2 of the RC3 project. However, Zara would require extra time for transportation to do her chores, go to work, and hang out with friends. Moreover, the price of the condo is only marginally lower than the one in SQ2, which makes the RC3 project less attractive.
Based on the overall analysis of the projects narrowed down, Zara should choose SQ2 as her choice of residence in downtown Toronto. The condo fits Zara’s overall search criteria and has access to public transportation within a few footsteps. Moreover, the area is currently undergoing transformation, including development of urban farms and residential projects leading to strong growth perspectives (National Post, 2015). The one bedroom+ den will also have adequate space to house an overnight guest.
Given that Zara made her decision to proceed with the purchase of SQ2, Zara will pay the 25% down payment to avoid the cost of mortgage loan insurance. Zara will be left with $26,190 upon paying the down payment, closing and relocating costs (See Table for Analysis of Each Condo). Zara should pay part of her student debt and credit card debt first because it has higher interest rates. Next, Zara should start investing in RRSP once she starts earning to defer taxes until retirement to take advantage of tax breaks. Zara’s monthly household budget is around $2,100 that includes all utilities such as cable, electricity, insurance, etc. After these expenses, Zara will be left with $3,100 of disposable income that she can use towards other disbursements including groceries, clothing, hobbies, dining, leisure and travel. Longer term, Zara may want to start saving some emergency funds that should be kept aside for any unexpected costs and any increase in interest rates.
Table 1 Financial Analysis and Breakdown of Each Condo Expense Bibliography
City Of Toronto. (n.d.). Welcome to Alexandra Park. Retrieved September 26, 2015, from http://www.torontoneighbourhoods.net/neighbourhoods/downtown/alexandra-park
Globe and Mail. (2015). Car Loving Calgary Considers a 167-condo - with no parking. Calgary: Globe and Mail.
IBIS World Apartment and Condominium Construction Industry. (2015). INIS World 23611BCA . IBIS World.
National Post. (2015, September 13). National Post. Retrieved September 12, 2015, from Cultivating Community: http://assets.tridel.com/pdf/SQ2_Cultivating_community.pdf