Traditionally over the last 15 years, the majority of people who have invested in pre-construction Toronto condos have made a lot of money doing so. The ability to leverage a small amount of money over a longer period of time has proven to be a successful investment strategy and we’ve been conditioned to believe that this is the best way to make a great return. But the real estate market is exactly that — a market — and the market is changing. As 2019 comes to a close, where will you find the best condo investment in Toronto in 2020?
In this article we will cover:
- Why pre-construction Toronto condo prices have risen
- Insight into the Toronto condo market
- Why you may need to adjust your condo investment strategy in 2020
- Pre-construction condos Toronto versus resale condos
- How to make the best condo investment in Toronto
- Why investing in condos is still a great investment
The cost to build is more expensive than ever. Labour costs, material costs, city-imposed development charges, and land prices are all driving up the average condo price in Toronto. There’s really not a whole lot of land left to develop downtown. Parking lots around the city are quickly transforming into new condo developments to keep up with our growing population. In the past five years, according to Bloomberg, the cost of land for developers to build has nearly tripled.
But material and labour costs aren’t the only thing driving up prices. Babak Eslahjoub of Core Architects said to the Globe and Mail that “construction costs are going up as a result of the demand being quite high; we’re the victim of our own success.”
In today’s market, the price developers need to charge has nothing to do with whether or not it’s a fair price for the property. In order to make any kind of profit, they are now charging more than resale property values are worth because the cost to build new condos in Toronto has increased dramatically over the last few years.
We as consumers are conditioned to think that investing in pre-construction condos is the only way to make a great investment. In order to find the best condo investments in Toronto, we’re constantly tracking the active market and adjusting our strategies in order to earn our clients the best returns possible.
With that being said, there are many pre-construction condos in Toronto that we are unable to recommend for the purpose of investing because they have prices that far exceed what the current market is trading for. Your 2019 condo investment strategy may need to adjust for the 2020 condo market.
Our condo investment strategy has largely been focused on investing in the Toronto pre-construction market. By remaining in tune with the resale market we look for the best condo investment opportunities by analyzing things like:
- what different neighbourhoods are selling for
- what new developments are in the works for an area that will make prices rise such as transit, infrastructure, new retail
- what external factors, like the economy or new laws that are being implemented, could give us clarity on why something may be a good investment
Pre-construction condos are still a hot commodity and buildings have been selling out in record time but, however from an investment standpoint, it’s becoming more difficult to generate a great return using this investment strategy.
The majority of projects are charging far more than what the current market is trading for in any neighbourhood. The new norm is anywhere from $1200 to $1500 per square foot (psf) and for luxury condos that price can jump to $2000psf. Mind you, this doesn’t even include the cost for parking which could run you an extra $60,000 to $90,000 depending on the project and neighbourhood.
Comparatively, the highest selling resale buildings with premium units are selling for $1100-$1250psf with parking across the city. Take our recent listing at Musee Condos in King West for example. This two bedroom condo is in one of Toronto’s most sought after neighbourhoods, has a very desirable split floor plan and a huge terrace. We sold this unit for $865,000 which equates to $1122psf with parking and locker.
If you wanted to buy a pre-construction condo at a project that launched around the corner from Musee, you’d be paying roughly $1300psf + $89,000 for parking + $10,000 for locker. For the same sized unit, you’d be paying roughly $1,100,000. Along with the higher cost to buy, you have to account for the extra closing costs and development charges that go along with them down the road. In order to break even on this type of investment, you’d need to sell around $1650psf.
In real estate you should be looking to maximize your investment. Why pay a 30% premium to buy something that will be built in the future? You can buy a premium unit on MLS for far less today knowing that new builds will float the value of your investment, providing you with an even better return.
Despite the new benchmark price for pre-construction condos, there are still condos that we believe are a good investment. Read our recent blog featuring six of the best condo investments Toronto has for sale under $1000 per square foot.
The advantage of pre-construction has always been leverage; you’re putting less money over a longer period of time, the deposit structure is staggered, and you don’t have to worry about closing expenses until down the road. But with many pre-construction condos launching higher than current market prices, the benefit of buying new to gain any equity is much harder to do.
With resale condos, you do need to be ready to put all 20% down plus your closing expenses. One benefit of investing in resale is you can have someone start paying down your mortgage right away. You also have the advantage of knowing how a building performs on the resale market.
By making smart and well educated investments choices, you can bank on areas where new builds are selling for a much higher price point than what’s currently trading and reap the rewards. Hold on to that investment for the next 5 to 7 years and you’ll make really great return on your investment.
When looking for the best condo investments in Toronto in 2020, you may need to adjust your condo investment strategy and look to the resale market. We’re always sourcing the best investment opportunities across Toronto and negotiating behind the scenes to get you a great return.
We pride ourselves on advocating for condo investments that we believe are a good deal and that we would buy ourselves. That’s the Honest Broker truth. Register as an Insider to get all of the best investment opportunities sent right to your inbox.