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Listings up, sales down in slow GTA high-density land market: Myers

Bullpen Research & Consulting Inc. president and owner Ben Myers. (Courtesy Bullpen)
Bullpen Research & Consulting Inc. president and owner Ben Myers. (Courtesy Bullpen)

The Greater Toronto Area (GTA) condominium market has softened considerably since April 2022, especially during the past six months. Bullpen Research & Consulting Inc. president and owner Ben Myers thinks the situation could worsen before it improves.

“I think it's going to be a pretty depressed year in terms of how many transactions ultimately occur,” Myers told RENX. “I think the new condo market is going to be soft, if not even slower than last year.”

The author of the new Bullpen and Batory Management Q4 2023 GTA High Rise Land Insights Report said the land market continues to face uncertainty due to interest rates that haven’t yet come down, high carrying costs and significant gaps between what owners want and what purchasers are willing to pay.

“I'm seeing a lot more listings happening than sales happening,” Myers observed. “There's certainly a decent amount of listings coming on the market that are either not getting offers or not getting reasonable offers, so those sales are not happening.”

High-density land sales dropped sharply in 2023

Myers tracked 33 high-density land sales in the amalgamated City of Toronto (including Toronto, North York, Etobicoke and Scarborough) last year, down from 62 in 2022.

The average price rose to $33.8 million from $30.9 million.

The overall GTA estimated cost per-buildable-square-foot of a new condo or purpose-built rental apartment was $93, down from $98 a year earlier. The cost was $118 in the city and $52 in the suburbs. 

“The big comparison is going back to 2019, which was kind of the peak of the market,” Myers said. “The land price that year was $190 per-buildable-square-foot in old Toronto.”

The land-to-revenue ratio, the report’s estimate of the relationship between land value and new condo prices, was seven per cent in the GTA in 2023.

That’s down from 7.5 per cent in 2022, 9.8 per cent in 2021 and a high of 12.5 per cent in 2018. The respective 2023 city and suburban averages were 7.9 per cent and 4.5 per cent.

The decline in land-to-revenue ratios can be attributed to a combination of escalating cost factors, including: construction expenses; material inflation; increased government fees; anticipated changes to planning policies; and higher and longer monthly mortgage obligations resulting from a surge in interest rates and prolonged approval timelines.

“Shrinkflation” has also impacted per-square-foot revenues. A higher number of studios under 400 square feet and one-bedroom units under 450 square feet are being built in response to buyers wanting lower down payments and more affordable end-selling prices.

This has consequently driven up new condo prices on a per-square-foot basis, but driven down the average end-selling price.

The role of zoning status

The average pre-zoning application site in the old City of Toronto sold for $138 per-buildable-square-foot last year, down from $156 in 2022. The 2023 price for zoning-submitted sites was $125 per-buildable-square-foot, up from $121. 

“Many developers feel that they can create their own value by their own expertise in managing the entitlement process,” Myers noted.

Zoning-approved properties sold for $191 per-buildable-square-foot in 2023 compared to $179 a year earlier.

“The planning process is convoluted and difficult, and developers are willing to pay a premium to buy lands that have zoning in place,” said Myers.

New condo unit premiums

In a typical market excluding boom years, a new condo unit has been priced at a premium of about 15 to 20 per cent above a recently completed resale development.

However, in periods of tepid sales activity, this premium often drops below 15 per cent.

Some developers can reduce their pricing, but many can’t lower revenue substantially and make a financeable return, especially those that purchased land at 2019 peak values.

Despite the market slowdown, new condo projects launched in the amalgamated City of Toronto in 2023 carried a weighted average premium of 32 per cent.

Some came to market at premiums of 50 to 60 per cent, with many selling less than 30 per cent of their inventory.

“Some of them unfortunately had a little bit of a rude awakening and had to either readjust pricing or pull their project from the market and decide to come back at a later date when they feel a little more confident in the sales velocity in the marketplace,” Myers said.

“I think there's more confidence in the larger developers because they have a much greater chance of securing construction financing, but I think it's really just about pricing. 

“There was no discrimination among the buyers. If a project was overpriced, people were not buying it.” 

Union City was 2023’s condo success story

The report said the most successful recent condo launches in the GTA have come to market at summer 2021-level pricing with price premiums of 10 to 15 per cent.

The most successful GTA condo launch of 2023 was at Metropia’s Union City master-planned community in Markham’s Unionville area, which sold more than 400 of its first tower’s 440 units in the first three days of sales and more than 1,200 overall in three towers in less than three months.

“There has been a lack of launches in Markham during the peak of the marketplace and this was extremely well-located,” Myers said of Union City’s success.

More condo developers could turn to rental

Myers is conducting many studies for traditional condo developers to enable them to do due diligence and see if they can apply and qualify for Canada Mortgage and Housing Corporation financing programs for rental apartment developments. 

“We had very slow new condo sales in the GTA last year, with about 13,000 sales,” Myers said. “So that's going to cause a significant undersupply of housing in 2026 and 2027. 

“If developers can get in the ground with a rental right now, they will have the opportunity to complete in an undersupplied marketplace in those years and maybe allow them to get the type of rent that they need to justify doing a rental project.”

Although the removal of sales tax on new rental apartment construction is positive, many developers remain reluctant to shift away from condos. Further tax incentives could change their minds and add more momentum to rental construction.

Myers expects average annual residential rent growth of 2.5 to 3.5 per cent in the GTA over the next five years.

He thinks last year’s approximately 20-year high in new purpose-built rental apartment starts could be exceeded in 2024.

“But, it's a pretty low number in comparison to the typical number of condo starts that you get,” Myers cautioned.

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