2) Because the pre-construction condo market In Toronto is a buyer’s market. For most of the last decade it was seller’s market. Before it was pretty much a given that prices would rise by around eight per cent every year and therefore if you bought a little above current market values you would not worry because you knew that in a couple years, prices would be much higher. Today there are no guarantees. Buyers are more cautious and recently, prices have been more or less flat.
Always buy a preconstruction condo that will be cash-flow positive Generally speaking, if you follow rule #1, then rule #2 takes care of itself because a condo priced below current market value is cash-flow positive 90 per cent of the time. So, back to the original question: Why would a condo developer sell a pre-construction condo below market value? There may be a number of reasons why a condo developer in Toronto would take this approach to pricing, but I need to emphasize that this type of pricing is not a given when it comes to pre-construction condos. In fact, I would say that most new condo projects out there are priced higher than comparable resales. This was certainly true for the better part of 2010 through 2012 during the last condo boom. Now the market has shifted back in favour of buyers as the number of new condo sales are down and inventory is up. Here are three reasons why some developers are pricing their buildings this way now: 1) To keep condo investors happy. Developers realize that if they want to sell out a building with 300 or more units – one that will not be completed for several years – they won’t do it by marketing to end-users alone. They need investors to buy suites so they can get construction financing to get the project out of the ground. So how do you attract investors, and more importantly, how do you ensure they will be repeat buyers that keep coming back every time you launch a new building? Simple. Offer them something worth investing in. Something with a huge upside potential. And that is the primary reason why they price their buildings below current market resale values.
3) To sell out the building quickly. Momentum is so vitally important when selling a condo building with hundreds of units. Developers can save millions of dollars in marketing and ‘soft costs’ if they are able to sell out a building in a few months rather than dragging things on over a few years. They have a strong incentive to reach 70 per cent sold as quickly as possible and the best way to sell out a building quickly is to price it low and generate as much ‘buzz’ as possible especially during the first 30 days after launch when buyer interest in the project is at it’s peak.
Andrew la Fleur is an awardwinning realtor with Re/Max. Andrew’s expertise is in helping investors make money in the Toronto Condo Market. Visit TrueCondos.com/ NewCondoGuide for a free gift. Contact Andrew at 416.371.2333 or andrew@truecondos.com
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