News   Jul 19, 2024
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Baby, we got a bubble!?

Builders in the GTA are purchasing land at a high cost and this justifies the average $500 psf price that they are charging.
So unless there are incentives or discount on purchasing land in the GTA, we will see another great 10 years for the condo market!!!!!!
 
and if builders cant sell at higher prices, then they will stop building........ which in turn squeeze the supply once again until wages are able to match the condo prices!!!!!!!
 
Builders in the GTA are purchasing land at a high cost and this justifies the average $500 psf price that they are charging.
So unless there are incentives or discount on purchasing land in the GTA, we will see another great 10 years for the condo market!!!!!!

I am not so sure that follows.

In other markets and in Toronto in 1989-1991, builders built and due to the delays, ended up with product long after the market collapsed. Given the delays between purchase and construction completion, it is distinctly possible that a number of projects will be bought and even started and could be below their starting prices when finished.
 
and if builders cant sell at higher prices, then they will stop building........ which in turn squeeze the supply once again until wages are able to match the condo prices!!!!!!!

Builders build, and that is what they do. They will not build clearly a project they know will lose money, but they may well put up a building that is sold for less than the current profits. The reality I believe is that builders have been making some "supersize profits" the last few years because they start sales and prices have gone up more than historical amounts and hence they have been able to pass on the increased valuations to end users. That will not necessarily always be the case. I agree they won't build if they can't make a profit but ther eis quite a time delay when the market stops as a rule for when the market shifts from a slow (buyer's) market to a seller's market and vica versa.
 
Builders in the GTA are purchasing land at a high cost and this justifies the average $500 psf price that they are charging.
So unless there are incentives or discount on purchasing land in the GTA, we will see another great 10 years for the condo market!!!!!!


and how much is the land cost?
from what i've read, it's around $500 psf of land for dt core ... not buildable gross square footage, but just land area.

the majority of dt core projects are building 40s-70s high, at about 30x-50x land area.

so if land cost of $500 psf is divided by gross buildable square footage of 30-50x, that's only $10-17 psf ...
let's round up abit to take into consideration of common areas, etc to $12-20 per sqft.

construction costs should have gone down in the past 2 years since the global recession,
and considering the advantage and buying power of Canadian developers, they should be getting a discount as no one else is really building in North America.

there's probably more spent on the marketing with realtor VIP parties and glossy brochure advertising, flashy presentation centres, etc than the actual land costs.

borrowing costs are also at historical ultra lows for consumers, one would surmise that to be similar for developers compared to the 1980's when interest rates were in the high 10+%.

so unless a realtor / developer / etc is willing to provide/disclose some valuations beside the usual PR speech about high land costs, then it's pure BS.
PLEASE ENLIGHTEN US WITH FIGURES ... not conjecture.

what are construction costs?
what are marketing costs?
what R/E commissions are paid out?
what are the interest paid for a project?
 
I can only describe what I was shown as a potential investor on a project in the King West district. About 4 years ago the cost/sq.ft. buildable land was about $30/sq.ft. for the project. I know land went up considerably from when I saw the proformas and the land value to replace would have added about another 50%-60% so probably up to $50/sq.ft. buildable space at the peak before the 2008 meltdown. Note this is not the core downtown where land costs would have been higher but I can't say by how much. In 2008/2009 prices would have dropped but presumably recovered given that projects are able to command more money now/sq.ft. and therefore presumably there is competition for buildable land. Construction/marketing and r/e commissions paid out were to add about another $250-270/sq.ft. as I recall so the total cost to build was in the neighbourhood of $280-300/sq.ft. At that time, expected sales for new condos was running around $360-375/sq.ft.approximately and the project was to be marketed and completed over a number of years.

So the profit for a developer on a 500 sq.ft. 1 bedroom would have been: cost $140 to 150K. Sale price $185K. Profit $35 to 45K/unit but of course there would be risks and the longer the project or financiing delays and profit goes down.

In fact, sales likely have been at higher values and assuming the same construction costs means more developer profit. Remember, a developer could borrow money and invest it and if he got 3% return over and above his borrowing costs on $150K that would be $4500/year x 5 years say would be $22500. There has to be a reason for the developer to take the risk.

My long winded answer cdr is that your estimates may be a bit low, at least based on the project I am referring to. Please do not ask me to identify the project.

I hope this information helps. I am going from memory from many years ago so all my figures may not be accurate.
 
Land is based on 35000 sq.ft. If they build say 15 stories and cover20,000 sq.ft. that would be 300.000 sq.ft. of condos. Then $623 x35000 sq.ft. / 300,000 sq.ft. would work out to $73 of land cost/sq.ft. of condo space. Note it says it doubled in value from 2007 which would have worked out to $37/sq.ft. buildable which is resembling what I was suggesting. Obviously if they can build 30 stories there and cover more than 20,000 sq.ft. of the 35000 sq.ft. land, it will significantly lower the land cost portion.
 
Wow. $22 million for that place.

What's interesting is this "The map on the previous page shows land prices paid since 2004 in the
immediate vicinity. The price of 621 King ... $623/sf ... was almost exactly
double the price paid two years earlier for 650 King ... $312/sf."

Really shows how fast an area can take off.
 
Really shows how fast an area can take off.

7 years ago, the area was a sketchy dump. A lot of the revitalization is directly attributable to Freed developments (the buyer of the site in question). Pretty smart company.
 
7 years ago, the area was a sketchy dump. A lot of the revitalization is directly attributable to Freed developments (the buyer of the site in question). Pretty smart company.

Might see the same thing in other pockets, Regent Park looks like a good candidate.
 

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