For investors, presale condo units trump resales

The premium paid for resale units in downtown Toronto condominium buildings registered in the last 10 years has declined because of their market proliferation, but there’s a key advantage to investing in preconstruction condominiums.

“The main advantage is time. An investor is able to lock in the price at presale launch and not have to actually close until completion, which can take roughly five years, on average,” Shaun Hildebrand, president of Urbanation, wrote in an email to CREW. “And because they are only initially investing a deposit (typically 15%), their returns are magnified through price appreciation that can occur in the market during the course of development. Having a long delay between presale purchase and closing also allows time for rents to grow to a level that can offset carrying costs. Historically speaking, this strategy has worked out very well for most investors, which isn’t to say that all presale investments have been home runs. Proper due diligence on the market and the project itself is always required.”

The risk, he added, is that anything can happen in a half-decade—Hildebrand used 2020 as an example—but the reason investors haven’t shied away from is its track record speaks for itself. Moreover, that housing demand vastly outpaces supply bolsters investor confidence.

Newer condominium buildings were priced at a 35% premium in 2020—$888 per square foot (psf) versus $657 psf—but, according to Urbanation data, the premium decreased from 64% a decade ago as stock expansion gave buyers more choice. Nevertheless, the five- and 10-year averages for price growth in newer downtown Toronto condos is 15% and 8%, respectively. GTA-wide, the 10-year average is also 8%.

As rental properties, Hildebrand says newer units generally reign supreme, “Mostly due to qualitative factors associated with new units and project features, and also often location. But there is a resistance point, and demand will start gravitating towards older units when the market gets too expensive, which is something we have witnessed in the past couple years.”

Neil Sharma

Neil Sharma is the Editor-In-Chief of Canadian Real Estate Wealth and Real Estate Professional. As a journalist, he has covered Canada’s housing market for the Toronto Star, Toronto Sun, National Post, and other publications, specializing in everything from market trends to mortgage and investment advice. He can be reached at neil@crewmedia.ca.