If you’ve been looking into buying a condo downtown Toronto, you may have noticed a few things that could be perceived as concerning or even bewildering. Maybe the prices are too high and you can’t figure out why or how that could be. Or perhaps you’re finding that every condo you’re interested in is gone before you even have a chance to give it a second thought.
When looking closer into the current condo landscape, the current challenge facing the condo market in Toronto is primarily a lack of ‘first time’ buyers, which prevents ‘move up’ buyers and the usual cycle that entails. Another part of the problem is that condo prices have increased by 20 percent over the last two years.
While prices in all markets are determined by demand versus supply, when you have a shortage of product (and believe it or not, we do need new condos to fill the gap), you have to look at the cost of this new supply to determine where prices are heading.
The only reason why pre-construction sales are down this year is because there has been a lack of new projects. The ones that are selling out are in the $1100 per sq ft range. At the end of last year over five (sold out) condo projects were cancelled because developers sold them at $600+ per sq ft and they cannot build at that price.
Here’s why: development charges from the city are now $120 per sq ft. Land costs that used to be in the $100 range are now at $250 and building costs are up by about 25 percent (labour shortages and trade tariffs for reinforcing bar).
The end result is that total costs are pushing $900 per sq ft. So there seems little room for any price correction. Good units, priced at market rate are still attracting multiple offers, and thus moving quickly. But a miss in either category and the unit will sit. Period.
-With files from Re/Max Condos Plus