Why is real estate so expensive in this city?

Gawrsh, I mean, come on!  We all “should” be able to live here, and “should” be able to afford our own home, and the powers-that-be “should” make that happen.

In an unrelated story, can you guess my most-hated word in today’s society?

Let’s turn that on it’s head, for a moment.

There shouldn’t be over $200,000 of government charges, on average, for every unit of new housing, but there is.

It shouldn’t cost $950 per square foot to build B-level condos in the downtown core right now, but it does.

And upon speaking to a rep for one of Toronto’s largest developers yesterday, I learned that this $950/sqft figure is real, and it’s spectacular!

Imagine that?

$950/sqft for construction costs.

So even if you’re successful at assembling land for $100/sqft, unzoned, and even if you can rezone that land from “neighbourhoods” to “apartments,” at a significant cost, and even if you can convince buyers to take on a large percentage of the development charges, HST, and associated fees and costs paid to all three levels of government, just how easy or difficult will it actually be to turn a profit?

This is why so few developers are buying land right now, and even fewer are building.  Er, I mean, many are selling, but how many are actually going to build remains to be seen.

In the meantime, I’ve been monitoring pre-construction condo prices just to see what developers think they can charge, and by association, just how much they might need to charge in order to make a project viable, and I remain absolutely astounded.

Does anybody want to add some colour here?

I know that a lot of the TRB readers dabble in pre-construction condo investing and many of the agents who read this blog sell projects as well.

Over the last couple of years, the well has run a little dry.  More and more people are waving the same flag as I am, saying, “These prices make no sense.”

But what happens when the real estate market slows down?

What happened to all those people who were fine to pay $1,500 per square foot for downtown condos in pre-construction, when comparable resale was selling for $1,200?

Where are they now?

Lots of questions, lots of answers, but that’s not even the topic du jour.

Today, I want to show you a handful of pre-construction projects that have hit my inbox in the past month, and we can weigh the pros and cons of each project.

As I said, I’d love some colour commentary to anybody that is:

a) Still active
b) Formerly active, currently on the sidelines
c) Never active

Shall we?

The first project I want to look at is called “Four Me.”

fourme

All lowercase, and I’m not sure it’s a form of word play, but it might be because it’s a 44-storey building comprised of 440 units, or at least it was when they applied for their zoning by-law amendment earlier in the year.

This is located at Markham & Ellesmere in Mississauga.

The developer is the Lash Group who built both condos at the corner of St. Clair & Bathurst, among others.

This project is currently selling and they are hosting an “event” on Wednesday night.

This was in the email I just received:

This is one of your final days to secure suites before one bedroom condos increase by $20k and two bedrooms increase by $30k.

A story like that’s gotta be true!

As for the prices, any ideas on what you’d expect to pay for a pre-construction condo at Markham & Ellesmere?

On a per-square-foot level, or on an absolute basis, give it a think.

Then when you’re done, look at this:

I’m not sure how well that loads for you, but you can probably click to enlarge.

I often judge a project by the price per square foot of its cheapest condo.  In this case, that’s the 594 square foot, 1-bedroom, 1-bathroom, priced at $709,990.

That’s $1,1995/sqft.

Of course, there are cheaper units.

You can get a 3-bedroom, 956 square feet, for $945,990, or $989/sqft.

Then again, the cheapest “tower unit” checks in at a whopping $1,382/sqft.

Their “incentives” include:

-right to lease during occupancy
-reduced assignment cost
-development caps
-free flooring upgrade
-discounted parking

I laugh when I see “right to lease during occupancy” since it underscores everything I think is wrong with pre-construction (ie. that you start paying before you “own” and have rights, among other things…) and there really shouldn’t be a cost for assignment, but I digress.

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Next up is “The Bedford” at Bedford & Davenport.

The developer, Burnac, seems to be into wholesale produce as well as real estate, but those go together like peanut-butter and……………..feet?

Nevertheless, this is a self-described “luxury project,” in an upscale location, with an extremely well-done website, if I’m being honest.

The website reaffirmed what I already know about myself, namely that I’m not very classy.  Otherwise, I’d have loved this Picasso-like drawing of the building, which looks like a child drew it in J.K., and I wouldn’t be amused by the oxymoron in the caption below:

Alright, so let’s get to the pricing.

What will one of these units run you?

I hope you’re sitting down for this, folks…

Starting again with the lowest-priced one-bedroom, we find a 734 square foot model on the 8th floor for a mere $1,499,900.

That’s $2,043/sqft.

The highest-priced unit in the building, Lower Penthouse, is priced at $2,237/sqft.

However, parking spaces are $125,000 each.  That increases the price, assuming only one parking space, to $2,340/sqft.

I will applaud this developer, however, for including their “development fees” in the marketing material.

They are as follows:

-1 Bedroom & 1+Den: $16,000 plus HST
-2 Bedroom & 2+Den: $18,000 plus HST
-3 Bedroom & Up: $20,000 plus HST

So on the one hand, you’ve got to shell out more money.  But on the other hand, your fees are capped, and God only knows what the city of Toronto is charging!

The deposit structures are interesting:

CANADIAN RESIDENTS:

$20,000 on signing
Balance to 5% in 30 days
5% in 180 days
5% in 540 days
5% in 900 days
5% on occupancy

INTERNATIONAL:

5% on signing
10% in 120 days
10% in 270 days
10% in 365 days

While I know it might be more interesting to talk about the “international” deposit structure, whether it’s the whopping 35% they want inside the first year or the fact that there’s actually an advertised “international” deposit structure, I found the “residents” structure more interesting.

Why?

Well, I think this is the first time I’ve seen 900 days followed by 5% on occupancy.

They’re not even going to joke about an “estimated occupancy” of the fall of 2024 like most developers.  They’re being honest, which is nice, but it’s also quite depressing.  Especially when we’re so accustomed to seeing developers lie about estimated occupancy…

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Last, but not least, let’s look at something other than condos.

How about townhouses in Pickering?

This project piqued my interest for a few reasons.

First, the location.

Their marketing material shows the following:

I don’t know Pickering, but this seems to be a batch of trees in between two retail areas, just on the other side of Highway 401.

Is this area up-and-coming?

Inquisitive minds want to know.

They are offering four models in their current email blast:

“Starting price” has an asterisk, just saying.

But what I found most helpful about this email blast was that it included the following:

They have whited-out the MLS#, the “days on market,” and the seller’s last name, but we know his first name is Dan…

But do you want to know the really fun part?

This “comparable” is 1,324 square feet.

The units they’re selling range from 1,028 square feet to 1,115 square feet.

Their $809,900 model, measuring 1,115 square feet, is priced at $726/sqft.

The “comparable” model, measuring 1,324 square feet, is priced at $668/sqft.  Oh, and it’s built by reputable developer, Daniels Corp, and not some one-off.  It’s also finished, as in you can walk through it, touch it, and feel it, unlike the pre-con being offered at Central District Towns.

What about incentives?

Oh yeah, there are incentives!

Per the marketing:

-Permission to lease during occupancy*
-development charges capped at $10,000**

Those asterisks are in their marketing, but there is no explanation of what they are.

But there’s also a “Special Limited Time Bonus Package” as follows:

You had me at “air conditioning.”

What an upgrade, wow!

How about the deposit structures?

RESIDENTS:

$20,000 on signing
Balance to 5% in 30 days
2.5% in 90 days
2.5% in 180 days
2.5% in 270 days
2.5% in 365 days
5% on occupancy

INTERNATIONAL:

$20,000 on signing
Balance to 10% in 30 days
10% in 90 days
10% in 180 days
5% in 270 days

So they want 20% deposits for “residents,” whereas The Bedford wanted 25%, but both want 35% deposits for “internationals.”

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Well, folks, I don’t know what conclusions you drew from today’s blog, but I’m happy to compare notes.

Developers are going to get creative in their efforts to lure both buyers and buyer agents, and I think the pre-construction industry is about to show some collective humility that hasn’t been shown for quite some time!

I also think that a lot of projects aren’t going to get built, so it will be interesting to see how the Ontario government’s crackdown on “condo cancellations” will take shape in the coming years, since developers are still launching projects and taking deposits even though there are zero certainties down the road.

If you’ve got a pre-construction “worksheet” or price list that you think I should see, and which perhaps we need to analyze on TRB, email me!