What Goes into Pricing a Condo

If you love life in the city like I do, the convenience, amenities and services that condos provide make them a preferred choice, especially for first-time homebuyers.

But at an average of $1,000/sq. ft. for a new condo in the downtown core, the dream of home ownership is still out of reach for many.

I’m often asked - particularly when it comes to pre-construction condos - why are condos so expensive?

It’s easy to think that developers are just greedy and are taking advantage of a higher real estate market. This isn’t the case. As a realtor that specializes in the condo market, including pre-construction, I’ve worked with a lot of developers over the years. It might surprise you to know what goes into the pricing of a condo.

Let me outline it here:

Years ago there were many building sites available to developers downtown. Take a quick look around today and you can see that availability is no longer so abundant. This lack of supply means higher prices are being paid for land as developers fight to get good locations.

The cost of the land alone can account for 25-35% of the condo price.

The cost to build a condominium has been steadily increasing over the past few years. According to Stats Canada, new residential construction costs in Toronto have increased by 8.3% each year for the past few years.

Tariffs imposed by the Trump Administration on critical materials such as steel, aluminium, rebar, concrete and soft lumber are having a significant impact on costs. According to Normac , it is estimated that these tariffs will add more than $10,000 to condo and home prices.

Labour costs have also been steadily rising over the last number of years - mainly due to a skilled labour shortage.

Then there are all the other costs associated with building, outside of the hard costs of land and construction. These include costs such as:

• Architectural - designs, blueprints, floor plans, schematics, etc.
• Legal, zoning, permits. Planning application fees alone are significant.
• Sales and marketing
• City of Toronto development fees have a big impact. For example, effective November 1, 2018, the development fee for a 1-bedroom apartment unit is $24,150. Here’s a direct link to the full fee breakdown: https://www.toronto.ca/wp-content/uploads/2018/09/98f6-DC-Rates-Effective-Nov-1-2018.pdf
• Plus additional costs for city parks, schools, tieback payments for neighbours affected by construction and a 1% Public Art Program contribution.

In addition to all these costs - which we can calculate at any point in time - developers must take into consideration future costs. The time from planning to the actual completion of a building can be several years. Developers pre-sell units to ensure they have enough funding to completion and therefore need to factor in the future cost of materials and labour.

This can be a significant risk for a developer (and buyer!) if this is not done correctly or economic circumstances change dramatically.

While condos may not be the cheap alternative they were years ago, the fact is they are still a more affordable option to houses in the city. And while new construction condo prices may be rising, there are lots of resale condos available to get you in the market.

And there is good news on the horizon. According to the Toronto Star, the Toronto condo market is expected to moderate in 2019 as a record number of condo completions brings more supply, helping to slow down price growth.

The bottom line is it will always cost more to live in the heart of a big city, but affordable options are out there.

Get in touch with me today and I will help you find the perfect condo in Toronto.