We might be in an uncertain time but when it comes to the Toronto pre-construction condo market it’s actually quite a predictable segment of the Toronto real estate market. The Toronto pre-construction condo market will remain strong and prices will remain steady amidst the Covid-19 pandemic. We’re constantly getting asked, “Should I buy a pre-construction condo in Toronto now or should I wait?” We figured this question was more relevant than ever. So, to keep you informed, we’ve written an update on the Toronto condo market for those thinking about buying a new condo. We explain why pre-construction Toronto condos will continue to remain a good investment and why you shouldn’t expect — or wait — for prices to drop.
An Update on the Toronto Pre-Construction Condo Market
Residential Condo Construction Will Continue At A Slower Pace
As the COVID-19 pandemic continues to have an impact on the economy, many businesses have either shut their doors for the time being or have enforced strong work from home policies for an indefinite period. Residential condo construction however, remains an essential service and many condominium developers and their workers are continuing with their business, working hard to add much needed housing supply to our city.
Although many construction sites are still operating during this pandemic, builders have implemented significant changes and safety precautions to their workplaces in order to adhere to public health and safety recommendations. It should be noted though that not all construction sites remain open and the ones that do may be operating with less workers and at a slower pace.
Demand Will Continue to Outweigh Supply
Forecasted condos that were slated for a sales launch of April and May have chosen to push back their launch dates. For example, 28 Eastern Condos in Corktown is a Platinum launch that we are very excited about, however the date has now been pushed back and the only update is that it is “coming soon”. Delays in both construction and launches will slow the condo market supply. However, the demand for housing — especially condos — will remain. Although buyers thinking of buying a new condo may be currently side-lined waiting out the real estate market amidst Covid-19, but the demand will remain strong and ‘pent up’. Once things get back to ‘normal’ though, demand will outweigh supply once again, prices will rise and entry level condo units will become increasingly harder to secure.
We explain why you shouldn’t wait for prices to drop and why you should take advantage of the pre-construction market’s current standing inventory below.
Why Pre-Construction Toronto Condos are Still a Good Investment
Pre-Construction Toronto Condos Let You Leverage Your Deposit Structure
One of the enticing things about pre-construction Toronto condos is their deposit structure. Unlike re-sale condos when you’re buying a new condo you actually get to space out your deposits.
Currently, the leverage of the deposit structure is the real advantage of pre-construction. Purchasers are only required to put down 5% of their purchase price in 30 days after signing, 5% four to six months after, 5% one year later and the remaining 5% in one and a half to three years. And of course, there are no immediate closing costs, you don’t pay these until three to four years down the line upon final closing date and registration of the building.
The leverage of the deposit structure allows the purchaser to start making equity early on, while investing less funds. Pre-construction purchasers also do not have to worry about the burden of financing or worrying about having to pay their deposits and closing expenses all at once like you normally would in resale.
Lower upfront costs also make it easier to invest today amidst Covid-19. For those who don’t want to hold off investing, a lower deposit can be easier to swallow in comparison to re-sale Toronto condos that require a full 20% downpayment upfront.
You Don’t Need To Worry About Tenants Amidst Covid-19
The rental market has temporarily stalled with many rental units sitting vacant while would be tenants chose to remain at their current address to avoid having to move during a pandemic. There has also been a lot of news lately about tenants avoiding paying rent during Covid-19. Unlike a re-sale investment property, with pre-construction Toronto condos you don’t have to worry about rent or tenants for another 3-4 years.
Pre-Construction Prices Won’t Drop
Developers have no issue waiting to launch their projects until the market has subsided and they can strategically release their inventory in phases to not overwhelm the market. This is because developers don’t NEED to sell their projects at any given time. If a developer has purchased a site, they have to sell it at a certain price in order to be profitable. If they cannot attain that price, they will not be able to sell the project as there would be no point in building and declaring a loss. When developers come out to launch and aren’t able to sell their inventory as quickly as planned, they will just leave it to sit on the market for the time being until they eventually sell out.
One of our goals at Pierre Carapetian Group is to always source our clients the best investments. Quite often a project will come to market, we will think it’s overpriced (suggesting other pre-construction condo investments for our clients) and the building won’t sell all of its inventory. Three months later though we’ve picked it up as one of the best priced projects in the city because the builders held their inventory and didn’t raise prices. Meanwhile, new launches from other builders have launched at higher prices and those projects we recommended 3 months prior as the best investments had since sold out.
Real estate builders are like OPEC (The Organization of the Petroleum Exporting Countries). Have you ever noticed how two brand new condo projects don’t launch at the exact same location at the exact same time? Builders wait for one project to sell out completely before launching the next project to market. The reason for this is so developers don’t compete with each other, they can control the inventory and they can raise prices as people purchase to not flood the market.
You’re Investing in the Newest And Shiniest Asset
Another important fact to be aware of is that whichever project you invest in today, your final product will be a brand-new building in three to four years’ time, where everything that currently exists will be one to ten years old already. Therefore, you’ll have the newest product which commands a higher premium when you go to sell the asset.
You May Be Able to Negotiate Extra Incentives
Builders may not be lowering their prices but it is possible that they may offer extra incentives like extended deposit structures or additional discounts during this unprecedented time. Although developers rarely offer price reductions we know they still want to make sales, so they may be more amenable to discussing additional incentives right now.
Our team works hard all year long to get you the best priced projects. We regularly work with certain developers to negotiate off book discounts that we are able to pass along to our clients. We are still able to get you these deals, just book a call with our team and ask us about them. As always, we’ll work to get you the highest discounts and best pricing possible.
Predictions for Re-Sale Toronto Real Estate After COVID-19
When the COVID-19 crisis subsides, our predictions are that we will see the resale market sky rocket. We are currently closely watching the market every single day and there is about 5-10% of the regular inventory that we would be expecting at this time of year. This tells us that sellers are waiting until this pandemic is over to list their homes which means there is definitely a demand of buyers. This week alone, we lost out on two multimillion-dollar properties in a multiple offer situation. This proves that even though there aren’t a lot of active buyers out there, there are even fewer listings.
Once the resale market commences in the Fall, we will see what the typical ‘norm’ will be at that time. Most likely it will be just like what we were experiencing prior to this virus taking hold – an insane seller’s market with multiple offer scenarios. During the first half of the month of March (before Covid-19 took hold) we actually saw a 50% increase in transactions.
Predictions for Pre-Construction After COVID-19
Once the barriers are lifted and people feel comfortable to get back into the market, you will notice that developers will also come back to market and launch their new projects. As always, entry-level units like studios and 1 bedroom suites will sell out almost immediately.
Over the last 5 years, developers have sold out their projects in a day. This will likely not be the way things move forward as developers will have to attain certain price points in order to build. This means they will have to pass along these increases to purchasers. As the price per square foot increases, larger units become even harder to move.
Due to this trend of increasing prices we expect developers will start building projects with more smaller units as they’ll be able to charge a higher price per square foot and still move inventory.
Why You Shouldn’t Wait to Buy a Pre-Construction Toronto Condo
If you’re asking, “Should I buy a pre-construction condo now?” I must preface the below answer with a note that you shouldn’t wait to buy a pre-construction Toronto condo if you can AFFORD to buy today. When it comes to pre-construction projects that are selling now, prices have already been set, and we believe they are not going to increase or decrease, for now. We say this to highlight the fact that now is not the time to “wait and see”. Once everything is back to normal, everyone will be out and buying again, likely at a greater rate since there will be a ton of pent up demand and the need for housing will remain.
If you are trying to avoid the competition and increasing prices, skip the “wait and see” strategy. Pre-construction Toronto condo prices won’t decrease but you may be able to take advantage of today’s market and negotiate some great incentives. Now is the time to buy a Toronto pre-construction condo and you can even do the entire process online — fully abiding by the stay at home recommendations.