Image: LancerE / Flickr
RealNet Canada Inc released its data for Toronto in January a few weeks ago, and what it suggests is both good and bad.
The news is good because sales for new high-rise condos were 1,017 in January 2010. This was the best January the industry has seen since 2005. However, low-rise homes didn’t fare as well. They saw 1,145 new homes sold in January, which was one of the worst Januarys in the last five years. Even worse, the inventory for low-rise homes is very low – about one-third lower than what would normally be available.
The basic reason for this drop in inventory is obvious: when the recession first hit in 2008, builders held off on starting new developments. However, for low-rises, the story gets even more complicated. Although developers of low-rises started to see increased interest in their product in the middle of last year, many of them held off on starting new developments for several reasons.
First of all, the cost of pushing through new low-rise developments has risen enormously since the middle of the decade. For instance, municipal development fees and charges have risen more than 130%. The cost for meeting energy efficiency standards has jumped 20%.
Even more important is the fact that most of the municipalities in the Greater Toronto Area have moved toward intensification plans. This means that they prioritize developments that support intensification. A 100 unit condo will move to the top of the line faster than a 100 unit low-rise subdivision.
The push toward intensification has also scared some developers, and they are trying to broaden their playbook to be able to play in the new market. This means that rather than try to get applications for a new low-rise division off the ground, they are instead testing the water with new high-rises.
The demand for high-rises has also been greater. In the GTA, this is likely supported by the fact that the average high-rise unit price is around $400,000, which means that many of the units offered will avoid the HST. In contrast, the average low-rise price is about $470,000. As well, with high-rises simply being cheaper, more people are likely able to buy into one, and the lower price means that they face potentially lower mortgage payments when interest rates begin to rise.
However, the high demand among high-rises and the low supply among low-rises is driving up the price of both types of units. And this is what these figures can definitely guarantee us: that prices will continue rising in the near future.
Nelson Goulart
Broker of Record with Signature Service GMAC Real Estate
www.ssgmac.ca
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