As we approach 2012 there have never been as many new project launches in Toronto. With over 143 currently in pre-construction or just about to launch the city has no shortage of options. That being said, who’s buying these units, how much are they and why aren’t there any small (investor friendly) units left when you walk in to a sales centre?

 

Who’s buying these units?

A lot of my clients ask me: “There are so many new condos going up! Is there enough demand to support them?” The answer is quite simple. YES! The main reason why the Toronto Real Estate market is so strong, and why it has been so strong over the past decade is the massive number of foreign purchasers. These overseas buyers/investors are gobbling up pre construction condos in record numbers.

Most developments are funded or owned by foreign builders & investors.  As such their friends, family and top investors have priority access to these developments. It is not uncommon for 75% of a building to completely sell out before any public announcement is made. Only top producing sales reps, brokers and true developer insiders have access, and of course, their clients all buy the 300-500sqft investor suites.

If you are able to physically walk in to a sales centre, you’ve missed the boat by up to a year. Some developers open sales centres shortly after their initial launch but local ones like Lamb Development Corp (Developer of: Theatre Park, Parc, Work Lofts, Flatiron, Glas) launch to insiders up to 18 months before the project is even approved. For example, Theater Park was one of the most successful launches of 2011, even with a $650-800/sqft price tag it sold very quickly. When I was interviewing for a position with Brad J.Lamb Realty in 2009 I already saw deals on the board for Theatre Park; that’s two years before any public announcement was made.  They hadn’t even purchased the website address yet!

How much are they?

With prices at $600/sqft for your average development and up to $966/sqft for something “higher end” like Yorkville Plaza at the Four Seasons it’s hard to envision making any significant profit on occupancy. The main concern is with the unknown Development Charges, Land levies and other municipal charges passed on to the buyer via the developer. Even with builder standard “closing cost caps” it could cost up to $25,000 to close on a Jr. One bedroom or One bedroom investor unit. That’s not including legal fees and potentially a Land Transfer Tax.

Some Numbers:

These days new developments ask you for 15 – 20% within the first year of the purchase. What this means is, on a $300,000 (for a 450-500sqft unit) you’re putting down $45,000 – $60,000. This money isn’t earning any significant interest and is just tied up for up to 4 years while the building goes up and then registers. My argument is, couldn’t you put that same $45,000 down on a resale property now (and there are many to choose from), begin collecting rent immediately and the sell in three years? This makes much more sense to me.

That being said, if you’re buying to occupy, new developments can be a great option. You can select the perfect floor plan and even customize finishes and modify layouts to suit your specific needs. It just no longer makes sense solely as an investment in my opinion.

If you are interested in learning more about pre construction developments and the purchase process please contact us. Spring Realty has all of the latest floor plans and prices.

 

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