If the small number of zoning-approved, high-density residential land sales in the third quarter are any indication, condominium developers are in no rush to launch new projects in the Greater Toronto Area (GTA).

That’s one of the takeaways provided to RENX by Bullpen Research & Consulting Inc. president and owner Ben Myers from the new “Q3 - 2022 GTA High Rise Land Insights Report” published by his firm and Batory Management.

“The market has softened and we're in a period of uncertainty with resale prices trending down and the potential for even more interest rate hikes in the future,” said Myers. “I think everyone’s being cautious. 

“So it's no surprise that someone would not purchase an approved development site when the advantage of buying an approved site is that you can launch it right away.

"Obviously the entitlement or the planning risk has been removed, but I think at this point in time people that are buying are thinking a little bit more long-term in their buying decisions or they're closing on properties that are part of larger assemblies that they've been working on for several years.”

34 sales analyzed in third quarter

The report reviewed 34 third-quarter high-density residential land sales in the GTA that had an average price of $25.2 million and an average size of 0.9 acres. 

Bullpen reviews current market conditions and the competitive landscape surrounding each land sale.

Then, it estimates an overall average price per square foot condos might sell for at that location if they were on the market at the time of the land sale.

It also establishes a land-to-revenue ratio (LRR) estimation that offers a general idea of how much developers are paying for land based on current revenue numbers.

The average purchaser paid for land at 7.5 per cent of estimated revenue in the 416 area code part of the GTA, the sixth consecutive quarter in which the LRR has declined.

The third-quarter LRR is well below the longer-run average of 10.4 per cent and the lowest rate since the report was created in Q4 2017.

Purchasers paid for land at just three per cent of revenue during the quarter in the 905 area.

That’s the lowest quarterly rate tracked in the report and just above half the longer-run average of 5.8 per cent.

Few transactions in 905 area code

“There were hardly any transactions in the 905 and that kind of builds the narrative that, when the market softens, it will return to A assets,” said Myers.

“And 416 has always been the strongest condo market.”

Previous years saw plenty of activity in Vaughan and Mississauga.

Myers said they were almost considered extensions of Toronto due to improvements in public transit and the development of more defined city centres, and condo prices were reaching levels of $1,200 to $1,250 per square foot.

Things have slowed in those markets due to the economic uncertainty that has emerged this year.

The average land price in pre-amalgamation City of Toronto was $125 per-buildable-square-foot in the third quarter, well below the average estimated land price over the past four years of $167.

Toronto land prices are down eight per cent quarterly and 22 per cent annually.

High-density lands in the former City of North York traded for approximately $102 per-buildable-square-foot in the third quarter, down from $170 year-over-year.

However, the third-quarter results aren’t far from the long-run average of $108.

Scarborough has performed well

High-density lands in Scarborough traded for $68 per buildable square foot in the third quarter, up 36 per cent from the previous quarter and 28 per cent higher than the four-year average. 

There have been several successful condo launches in Scarborough over the last two years along Kingston Road, Warden Avenue and Kennedy Road.

Larger developers are taking notice but, due to a larger supply of potential development sites and Scarborough’s suburban condo pricing, land values have remained relatively low compared to Toronto and its dwindling number of sites.

“Scarborough has been a strong-performing market over the last couple of years,” said Myers.

“Condominium prices were $500 to $600 a square foot three years ago, and now you've got sites launching at above $1,100 a square foot.

“At those price levels, that makes sense for a developer to purchase land there.”

Transactions are expected to decrease

Myers believes the number of transactions will decrease in Q4 and into 2023, as any developers who have capital and are seeking acquisition opportunities are also looking for prices sellers may not be willing to accept.

“We had some reasonable new condo sales data for October and some decent launches,” said Myers. “But I still don't don't think the absorption is quite at the level yet to encourage a lot of launches. 

“Until we see some signs that the market is kind of back to 2021 and early-2022 levels, I don't think we're going to see the same amount of transactions.”