Toronto condo prices are about to shoot up with a proposed 49% increase in development charges!

Toronto’s condo market has shown slowing down after years of rapid growth in the last few years. But that’s about to change with the City of Toronto’s recently-proposed development charges (DCs) increase. DCs are a Toronto municipal tax that developers pay on new condo developments and are based on the unit’s floor area (FAR), a measure of usable area on a building’s floor space that buyers can occupy barefoot.

The DC rise would also mean higher water and sewer bills, parking fees, and other utility charges. Developers would pass these costs on to consumers at higher prices for condos.

If approved by the city council, the new fees would increase the charges developers pay for building in the city center by 49%. This would create a ripple effect that changes the market for all condo projects. The resulting price spike will drastically affect condo homebuyers, including those in Toronto’s suburbs.

This post will highlight some of the most important things you need to know about the new development charges and their potential impact on the city’s condo market.

What’s the current state of Toronto’s condo market?

After almost non-stop growth, the Toronto condo market cooled down in 2017. Multiple reports have attributed this trend to many new condo projects hitting the market simultaneously. With so many new condos developments, the supply of new homes quickly exceeded the demand.

This oversupply caused the average sale price of a downtown condo to drop by around $50,000. Although the price drop did not last long, many condo homebuyers worried. The fear was that the same thing would happen to the market again if the city council approved the new fees.

Is the new stream of money from development charges the only way to improve Toronto’s condo housing affordability?

Proponents of the new fees argue that its necessity is the real issue facing Toronto’s condo market. The market’s imbalance between supply and demand makes it impossible for buyers to get a good deal in the city. To fix this problem, proponents of the new program propose to dedicate almost all development revenues to housing affordability programs and improve the city’s public housing stock, which is notably low compared to other Canadian cities.

Proponents argue that replacing developers’ lost revenue with high parking or even higher water bills would cause many new homes to become “defective” and not get built. In contrast, proponents also point out that developers can easily pass added costs on to buyers by pricing them higher than necessary.

For example, some have stated that if multiple increases in development charges are not maintained at a real-time interval (no more than once every five years), it will create a barrier for investors eager to build new condos developments in Toronto centers.

What do we expect this proposed rise in development charges will do?

While some condo homebuyers are optimistic that the new fees will help cool down the Toronto condo market, many homeowners have expressed concerns over increased monthly condo dues and a lack of clarity about what they can do if they reject requests to pay the fees. The city is currently reviewing 139 of the 3,000 projects it received applications on by mid-October. However, the city says that there’s no time limit for developers to complete negotiations and approve their applications within this period.

Should owners struggle with negotiation questions, awarding building permits may take longer than usual. Will any downtown condos become “defective?” For now, no downtown condominiums that hold an occupancy permit can be canceled or objects seized by Internal Services concerning parts of their leasehold ownership.

This means that following a string of defections (at least 13 proposed by 40 percent) could be considered in a later court ruling on whether specific classes use program funding.

Why does the proposed development charges increase matter?

Residents of Toronto are paying more for their water and sewer services every month, thanks to increased home values. Accompanying these increased costs are new utility fees like parking. This is an unfortunate outcome since it will reduce spending power amid the city’s significant financial and moral challenges. The short-term expenses must be balanced against long-term affordability and sustainability decision-making.

Looking at the long term doesn’t mean forgoing today’s growing housing pressures driven by market pressures, increasing numbers of condos, absentee landlords, and other stresses. The new proposed development charges might increase the condo prices in Toronto.

What does this mean for you?

Condo prices in Toronto are expected to continue their upward trajectory over the next few years. So, is it a good time to buy a condo in Toronto? According to figures from Urbanization, the city’s condo market will see prices increase. This growth will continue through 2022, at which point prices are expected to increase by another 8.9 percent. In the long run, the condo market in Toronto is expected to continue growing.

As such, condo buyers in the city should prepare to fork over more money to purchase a unit. What does this mean for you? Is it time to look into buying a condo as an investment, or should you look elsewhere when it comes to finding a home?

Let’s look at the top reasons you should consider buying a condo in Toronto.

·       The Demand for Best Condos in Toronto is Expected to Increase

As mentioned previously, condo prices will increase by 49 percent in 2022. This growth will continue for a long time. In the long run, condo prices are forecast to rise by 7.2 percent per year. This increases the 5.5 percent growth expected for condo prices over the next ten years. As a result, the demand for condo units is likely to increase over the next few years. The supply of new condo units is expected to increase by only 2,400 per year. This is a slight increase when compared to the demand for those units.

As such, the price of condos in Toronto will increase significantly over the next few years. This increase in demand is likely to push up the cost of condos, both new and existing.

·       Toronto’s Condo Construction Will Continue to Increase

As a result of a 49% increase in development charges, the best condo buildings in Toronto and condo construction are expected to increase.

This is likely to lead to an increase in the supply of condos, which will decrease the demand for those units. This decrease in order will push up the price of condos. As a result, condo buyers should expect a significant rise in prices over the next few years.

·       The Mortgage Market in Toronto is Tight

Toronto is known for having some of the most expensive housing globally. As a result, the mortgage market in the city is incredibly tight.

As of 2017, Toronto had more than 55,000 mortgage loans in arrears. With this many loans in arrears, the city’s mortgage market is terrible. The Toronto Real Estate Board (TREB) has been trying to get the mortgage market in the town under control. They’ve lowered the mortgage interest rate to 13 percent. This has made buying a home less attractive for many Toronto residents. There are some positives to this tight mortgage market.

It makes condos very expensive in the city. As a result, condo investors should see prices continue to rise over the next few years. They’re expected to increase too.

·       Toronto’s Condo Apartment Demand Will Outpace Supply

Condos are becoming more and more popular in Toronto. As a result, demand for condos is expected to continue growing. The need for condos in Toronto will outpace the supply of new units entering the market. As more condos are expected to enter the market, prices are expected to rise.

It would help if you got a condo because of the increased prices and charges.

Why You Should Invest in Toronto Condo Units

Toronto might not seem like the best place to invest your money or generate additional income or boost overall financial security, but these factors may outweigh drawbacks:

More Solid Investment Potential

Compared with popular investments like stocks or mutual funds, those who buy condominium units are likely to earn higher returns over time by investing in Canada’s leading real estate market. That isn’t because units themselves hold value more than average mutual funds do, but instead because as residential property values rise on average, so do unit prices.

Each investor in a condo will receive a steady annual return likely above what is earned when investment activities diversify an individual’s portfolio to include more equity shares.

Living in ‘Terraced’ Amenities

Condo units are like owning your property outright, but with perks. They come with exclusive amenities that are not available to the general public. If you’re looking for something more than an ordinary residence, a condo unit may be the right choice.

Access to Profitable Investments

Investors in condominium units will have access to profitable investments such as rental income and capital gains from the appreciation of their teams.

Higher Cash Flow

There is a higher cash flow when you own your own home because you do not have to pay rent. You can invest this cash flow into other financial products like mutual funds or stocks.

You can sell your unit anytime.

You do not need to wait for the property values to rise before selling your team at a profit. You can trade it whenever you want and collect some money from it.

Longer-Term Investment

It makes an excellent long-term investment if you do not plan to sell your unit anytime soon. You can use the cash flow to invest for other purposes, such as saving for retirement or funding your child’s education.

Lower Expenses

Toronto condo units enjoy lower maintenance costs and are more energy-efficient than comparable single-family homes.

Lower Taxes

If you own a condo unit, you will be able to take advantage of the tax benefits attached to them, like capital gains exemptions, which is not possible in the case of selling a single-family home.

Higher Return on Investment

Investors in condominium units receive higher returns than those who invest in stocks or mutual funds.

You can quickly sell your unit if you choose to

Unlike with most other investments where one may have to wait years before they can sell their property at a profit, you can quickly sell your unit whenever you want.

Greater Financial Security

You can also use your home equity loan or mortgage equity line of credit (HELOC) to improve your finances and enhance overall financial security in Toronto.

What’s the new proposal for Toronto’s condo market?

A large part of the increase in the city’s development charges is due to the rise in the minimum size of a condo project that must pay the fee. The city council wants to increase the minimum unit size for condo projects from 65 to 120 square meters. This means that even projects that don’t set aside 120 square meters of sales floor will be charged the upgraded development charges.

In addition, the city council is proposing to increase the fees charged to developers based on the size of their project. For example, 500 square meters or larger projects would have a DC of $34.05 per square foot. This is a staggering 49% increase from the current $19.50 per square foot.

Impact of the new development charges on homebuyers

With a proposed increase in development charges, condo homebuyers in the city center will pay more upfront. This applies to all new condo projects, including those in the city center, suburban neighborhoods, and the rest of the Greater Toronto Area. Although many condo homebuyers assume DCs are applied only to new developments, it also applies to renovations, significant additions, and land assembly. This means that homeowners who add a second story to their condo will also pay more.

The impact of the new fees also increases significantly with the size of your house. Here’s an example to show how the impact of the new fees increases with the size of your house. Imagine you want to buy a pre-construction condo in Toronto or buy a condo in downtown Toronto and the imagined price is $500 per square foot (perhaps the average cost for a new condo in midtown Toronto).

You impact this down to $350 per square foot by purchasing additional units on your building (such as three bedrooms). When you buy with a $50,000 down payment and mortgages for $250 per month rent, you pay about 30% of your mortgage payment to property taxes. The amount of taxes associated with this new floor space calculation is significant: $278 if you try to calculate whether your initial condo purchase would be affordable based on DCs – No!

With an outrageous 48% increase in development charges, your budget is squeezed.

But if the proposed development charge system goes ahead as expected, it will make it even more difficult. Homebuyers must take note of the significant impact these new charges will have on their potential purchase price.

How will the new development charges affect the condo market?

Homebuyers in the city center who are considering buying a new condo project will have to factor in an extra $200,000 when they decide to buy. The development charges are an upfront cost that developers have to pay before getting building permits. Homebuyers will have a narrower range of projects if the city council approves the new fees. The average price per square foot will drop in line with the average sale price in the city center.

This trend will make it harder for homebuyers to find the best place to buy a condo in Toronto. Homebuyers in the suburbs looking to buy a new condo will have an even harder time finding a project that fits their budget. They’ll also have to wait longer for their new home than homebuyers in the city center.

This means that this is the right time you should buy a condo in this great Toronto area.

Buying a condo now instead of waiting will save you considerable money. For example, if a couple wanted to buy a condo in downtown Toronto and a 150-square-foot unit costs $1,200 (the first-year market rent), the total market value would be a little more than $900,000. If the current government does not approve the new fees for new development anywhere in Ontario, it could take 15 years to hit this mark, or less than eight years if you’re buying now.

We all hate to see tax increases. Most people like to see savings or free services. In Toronto’s case, higher taxes impact sales tax on purchases and gas prices via higher P3 taxes on public-private partnership projects. This means fewer projects are getting approved now, hence more minor construction and higher costs.

Conclusion

Toronto’s condo market will get more expensive with a proposed increase in development charges. If approved, the new fees will cause a ripple effect that changes the need for all condo projects. The resulting price spike will drastically affect condo homebuyers, including those in Toronto’s suburbs. That’s why buying a condo in Toronto is a significant investment. With prices expected to increase significantly over the next few years, now is an excellent time to buy a condo.

The demand for condos in Toronto will outpace the supply of new units entering the market. This will cause prices to continue rising. Those looking to buy a condo should do so now before prices increase.

 

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