Land prices could drive up the cost of a new condo

It was reported recently that approximately $165,000 in government-related fees are paid by a developer and/or buyer for the average new condominium in Toronto. This accounts for about 22 per cent of the overall price. For comparison purposes, I bought a new condo 13 years ago for $215,000!

Later this year, development charges in Toronto are going to go up, so even more fees will be collected by the government.

BILD, the industry association for homebuilders, correctly points out that these fees always get passed on to the purchasers, driving up the cost of new homes. When new home prices go up, affordability often worsens, and investor buyers are forced to charge higher rents.

Economists will argue that the higher fees force developers to reevaluate all of their costs, resulting in developers paying less for land. However, the theory rarely holds true in reality. Many of the land owners in downtown Toronto have owned their property for 20 or 30 years. They are in no rush to sell their lands, and are willing to hold off selling until they get their price. When developers bring up the rising fees or increasing construction costs with the land vendors, their rationale for paying less falls on deaf ears. If the developers want to stay in business, they have to pay top dollar for land.

Bullpen Consulting and Batory Management put together a report on what condominium and rental apartment developers are paying for land. Based on our sample of nearly 100 transactions during the first nine months of 2018, the average site sold for $17.4 million dollars. If we consider the former City of Toronto only, that number jumps to $20.8 million.

Developers like to look at land on a per-buildable-sq.-ft. basis. They want to know land prices for every sq. ft. of space they can build in their proposed towers. In Toronto, the average price has been about $140 per-buildable-sq.-ft. over the past year, which is based on the share that land typically makes up in a new project and means the average condo in Toronto will be selling at above $1,000 per-sq.-ft.!

Some properties in downtown Toronto are selling for upwards of $200 per-buildable-sq.-ft., so on a 750-sq.-ft. unit, that’s $150,000. Add the $165,000 in fees to the government, and the price is already $315,000 — and we haven’t even added in the construction costs yet.

With all of this said, you’re probably getting the picture here. A lot of factors will continue to put upward pressure on new condo prices. If you’re looking to buy, do your own research, hire a broker with a lot of experience with pre-construction sales and buy what you can afford. Good luck.

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