Sep 3, 2014
If you are thinking of buying a pre-construction condo in Toronto for investment purposes, new research from Condos.ca shows the average pre-construction unit is overpriced by up to 10% compared to brand new resale condos in the city.
Average Price per SQFT of Pre-Construction Condos in Toronto
Currently, the average price per SQFT of remaining pre-construction condo inventory in the GTA is $575*. This amount does NOT include parking, lockers or development charges, which need to be factored when analyzing investment opportunities.
Average Price per SQFT of Brand New Resale Condos in Toronto
To do this fairly, Condos.ca calculated the average price per SQFT of new resale condos less than a year old (TSCC 2300 or newer), and found the answer to be $558 per SQFT – including parking and lockers (resale condos do not have additional development charges).
If we remove a nominal $35,000 fee for parking and $4,000 for lockers from these resale figures, it equates to $524 per SQFT. This means that the average new condo is overpriced by up to 10% ($524 / $575 = 9.1%), and even more so when you factor in development charges.
Want more proof that pre-construction condos are overpriced? Below are 4 new condo buildings where pre-construction investors have seen little-to-no growth:
Other Factors to Consider
On top of this pricing imbalance, another reason to buy resale is the immediate rental income vs. interest argument. If you purchase a resale condo today and start renting it, you will immediately start paying down the principal on your mortgage.
For example, in the same 3-year period that a $400,000 pre-construction condo could be being built, a resale condo owner who purchased at the same price could use rental income to pay down approx. $24,400 of principal (assuming a 30% down payment, 3-year fixed rate of 2.74% and $1,288 monthly mortgage payment). On the other hand, the pre-construction condo owner would pay down $0 in that time, and instead collect a low interest credit from the developer in the range of $2,400.
Financial reasons aside, when you purchase a resale condo, you can see and touch your unit, so there are no surprises. With a pre-construction condo, you have to be prepared for numerous risks, such as construction delays, project cancelations, disappointing views or finishes etc. There should be some reward for taking on a risk. It’s the basic risk vs. reward rule of all financial investments. Are we the only ones who want some meat on the bones for our clients?
None of this is to say that the Toronto condo market is crashing. We’re just passionate about showing condo buyers what’s happening in the pre-construction condo market, in comparison to the resale market, so they can make a more informed decision. Condos.ca has profiled 1,730 condo buildings in Toronto to help investors make the right purchase.
*Unsold inventory, according to REALNET Canada and Urbanation.
Royal Lepage Real Estate Services Success Team, Brokerage, Independently Owned & Operated