3 Reasons Why Luxury Condos Are the Biggest Bargain in Toronto Right Now
The condo market has undergone significant changes over the last year. Average prices for average condos have shot up dramatically with many buildings experiencing 20%+ gains in the last 6 months alone. Whenever there are changes in the market, new opportunities emerge. Possibly the biggest opportunity right now is in the luxury segment. Find out why this segment is the biggest bargain in the market in this episode.
Andrew la Fleur: I never thought I would say this, but luxury condos are now the biggest bargain in Toronto. Find out what I mean on today’s episode.
Speaker 2: Welcome to the True Condos podcast with Andrew la Fleur. Thee place to get the truth on the Toronto condo market, and condo investing in Toronto.
Andrew la Fleur : Hi and welcome back to the show. Thank you for listening as always, and on today’s episode as I mentioned in the intro, I’m going to be talking about the luxury condo market. What do I mean by luxury? I mean true luxury. Now, every condo building out there will define itself as a luxury building, or have some kind of luxury, the word luxury in it’s marketing somewhere. I’m talking about true luxury, I’m talking about, specifically in this case I’m talking about small boutique exclusive buildings that have very high end finishes, and are in very exclusive locations. Primarily the Yorkville market. The Yorkville market is still the epicenter of the luxury condo market. The neighborhood around Yorkville, Rosedale, Forest Hill, these kind of neighborhoods. As opposed to up and down Young Street, King Street, East King Street, West.
We’re not talking about high rise buildings, we’re not talking about nice upgraded units at the top of towers, penthouse units, sub penthouse units. I’m talking about buildings where there are a very few number of units, usually less than 100 units. In many cases, far less. 20, 30, 40 units kind of thing. Every single unit in the building is large, sort of over 1,000 square feet, and every single unit in the building comes with a standard finishing package that would be considered much better than even an upgraded package in most condo towers.
That is what we’re talking about when I’m referring to the luxury condo market. I want to give you three reasons why these type of luxury condos right now are, I believe, to be the actually the biggest bargain in Toronto real estate. You might, at first glance you might think, “How can a luxury condo be a bargain when they’re so expensive? That makes no sense.” Well, let me explain further.
I’ve been watching this trend develop over the past few months, especially as the condo market is just really flying, and things are, price records are being broken every single day. Realtor colleges in the resell market are just hammering me with all kinds of just unbelievable stories of price thresholds being broken all over the place, numbers that they thought just a few months ago, or a year ago would be considered crazy are now normal, and happening all of the time.
Regular condos have appreciated, sort of regular, mid level, average, typical condos, however you want to describe it. The typical condo tower downtown, these condos have appreciated, I would say in real terms, probably around 20% in the last six months in many of these buildings. Around 20% in the last six months. It was appreciation, and the six months before that was in the single digits range, and then just in the last six months things have really, really heated up, and everything is just about 20% more than it was. That number is accelerating as I’m speaking, as you’re listening to this podcast. That number is growing, currently.
Basically you’ve got a $1,000 per square foot. A $1,000 per square foot used to be sort of the threshold for the luxury market. It was a rare event if a condo sold over $1,000 a square foot anywhere in the city. That was getting into the four digital PSF territory, putting us into the similar category as big cities around the world where … New York, and Paris, and Hong Kong, these types of places where 4,000, 5,000, six, seven, $8,000 per square foot does happen regularly. For us in Toronto, a $1,000 per square foot has always sort of been that number for the past few years, certainly the last three, four years I would say. If you’re getting something over $1,000 per square foot, that must be something very unique and very high end.
On the other hand, the regular sort of run of the mill condos, they have been trending around six to $700 a square foot. That’s sort of the typical price for downtown product over the past year or two. What’s happened the last six months? Well, now you’re seeing condos all over the downtown core hitting $1,000 per square foot, but these are not luxury condo buildings. These are regular, run of the mill, average, typical mid range, whatever you want to call it. These are just normal condos hitting $1,000 per square foot.
Just to give you a sample of some of the buildings that, where units have hit $1,000 per square foot. I’m trying to sort of collect a list here. Let me know if you know of any as well. Here’s a few. Index condos, Karma condos, One Blur, assignments at One Blur, the buildings not finished yet. 75 Portland, Head One, apparently just in the past couple of weeks. Five Condos, Casa Two, Casa Two, You Condos, Lumiere Condos, Theater Park, Charlie Condos, shall I go on? You get the idea. There’s many, many condo buildings now that have joined the $1,000 per square foot club. Again, these are just regular condo buildings. They typically have several hundred units in them, some of them have five, 600 units in them, 700 units.
These are not considered luxury buildings, but they’re getting that $1,000 a square foot mark where again, just a year or two ago, sort of $700 a square foot was considered pretty high. That was, $700 a square foot was sort of the high end of the typical condo market. $700 a square foot would be considered, “Wow, that’s a fairly expensive condo. What did you get there? Tell me about that, that’s interesting,” if somebody hit over $700 a square foot. That was just a year or two ago. Now, $1,000 a square foot is happening all over the city.
The trend that I’ve noticed is that while the mid market, the typical condo product has shot up like crazy, over 20% probably in the last six months. Now, 800 to $900 a square foot is normal, and $1,000 a square foot is happening quite regularly, what we’ve seen is that in the luxury market, that prices have still remained relatively flat. Yes, they are going up, but they’re still pretty much hovering around the $1,000 a square foot mark. You can still find a lot of quality, true luxury product around $1,000 a square foot.
While the normal average sort of product is getting around $900 a square foot, and many are getting over $1,000 a square foot as well. Where typically the gap has been, again, around say $700 a square foot on the high end for the mid range product, and then $1,000 a square foot is sort of the typical number for the luxury product. There’s about a $300 a square foot gap, now that gap has narrowed. It’s only, it seems to me it’s only around $100 a square foot. I would say that this gap now is at an all time low. The gap between the luxury market and the typical average market, is at an all time low. I see that as a tremendous opportunity if you are looking to buy, if you are looking to invest, that if you are investing in the luxury high end market at around $1,000 per square foot today, I think there’s going to be tremendous, tremendous upside on that market because of what’s happening in the regular market.
There’s going to be a spillover at some point. Buyers will say, “What am I doing paying $1,000 per square foot to live in this average condo building with 500 other people from all economic backgrounds and stages of life, when I could live in a true luxury boutique building in a neighborhood. For example, like Yorkville for only slightly more, or in some cases the same price as that other alternative that I was looking at.” That is going to happen. I truly believe that we’re going to see a big pop in the luxury condo market over the next year, as the gap is now at an all time low. That’s the first reason why I think that luxury condos are the biggest bargain in Toronto.
The second reason is take a look at what’s happening in the low rise homes, low rise homes in the Freehold Home Market. You’ve got, now again, regular product in regular neighborhoods. I’m not even talking about the RoseDale’s, the Forest Hills of the world, the YorkVille’s. I’m talking about the East York’s, the High Park, Roncesvalles, Junction, Beaches, the core neighborhoods of the city, but these are not luxury locations by any means. Houses in these areas are now regularly selling for more than $1,000 per square foot. Many of these homes are not even renovated, and you’re buying it based on more so the lot value, but things are 1,200 square foot homes selling for 1.4, 1.5 million dollars in regular neighborhoods. When you’re getting into the RoseDale’s and the Forest Hills, the high end neighborhoods of Toronto of the world, forget about it. That number can be dramatically, dramatically higher than those numbers there.
Typically, what has been typical in the relationship between condo pricing, and low rise home pricing, well typically low rise home pricing is significantly less on a per square foot basis than buying a condo. That’s just the way it’s always been. You’re buying a free hold home, the PSF has always been lower. But now that has been reversed. Again, I believe that when you’re seeing what’s happening in the low rise home market, you’re going to see a huge pop in the luxury market, especially over the next year or two.
Also couple that with just preferences, and lifestyle changes, and the down sizer market, people having less kids, smaller families, more professionals living and working in the downtown core. Who wants to have all those stairs? A lot of these homes in the city now are on three and four stories as we’re going more and more vertical, and land is getting more and more expensive. Houses are being built on smaller and smaller lots. You got three and four story homes. Not everybody wants to live in a home where they have to climb 50 flights of stairs everyday just on average.
I really believe that the luxury condo market, if you can get a 1,400, 15, 1,800 square foot luxury condo unit, everything’s on one floor, super low maintenance lifestyle, lots of space and square footage for the same price or less than it would cost you to buy a nice home in a decent area of the city. I think, again, more and more people are going to be shifting to that style of home as their choice, as their preferred option. Especially where prices are right now, it just seems like such a bargain in comparison. That’s the second reason why I believe that luxury condos are the biggest bargain in Toronto.
The third reason, is just take a look at the supply. If you actually look at the supply situation in the luxury market, it’s very, very low. Possible at an all time low. A few years ago, again, we had several new buildings coming on line at the same time, luxury, high end buildings. We had Ritz Carlton, Shangri-La, Four Seasons, and I won’t even mention Trump, but Trump was in there as well. They’re still sorting their mess out there. We had a huge influx of supply three, four years ago. All that supply now is completely gone, and it’s all been completely absorbed into the market. Prices in those buildings have soared, and there’s really nothing available to buy in those types of buildings.
Again, if you look at the luxury boutique buildings around the city, if you added up all these buildings. Remember, these are small buildings, 30, 40, 50, 60 units in them in many cases. You add up all these buildings together across the whole city, it only adds up to a few hundred units in total in terms of new construction available for purchase right now, across the entire city. Just a few hundred units, versus a single home new condo building, condo tower. Again, the average sort of product type building, might have six or 700 units in just one tower alone. If you add up all the luxury product across all these buildings, you’re maybe coming up with a few hundred units across the entire city.
The supply situation is very, very low. It’s not like there’s 50 new buildings, with 50 new boutique buildings with 50 units in them going to be coming out unto the market in the next couple years. It’s not going to happen, no way. They pop up one at a time, very, very slowly, are these types of properties coming onto the market. That’s on the supply side. On the demand side what’s interesting is that these types of buildings, luxury boutique buildings, all the demand tends to be on the resell end of it. There’s a very low demand for the luxury product in the pre-construction stage. What I mean by that is investors are not buying these units. It’s all driven by end users, the people from the Forest Hills, the RoseDale’s, the Annex, Lawrence Park, these types of neighborhoods that are primarily downsizing, or just wanting a place downtown kind of thing.
That is the demand that’s driving this market, and that type of a buyer is not looking to buy something pre-construction. They’re not planning their downsize three years out. When it’s time to downsize, is when they’re downsizing. They’re not out there shopping the pre-construction market, and in that buyers mindset, as we are, as condo investors, and as we’re used to. It’s a totally different mindset. What we see as a pattern over and over again with these buildings, is they are slow to reach their targets to start construction, usually takes a year or two. That’s completely normal, before they get enough sales to start their construction.
Once the construction is underway, and these buildings are built fairly quickly because they’re small buildings mostly, the demand goes up significantly when people can see that they can move on, people can see the building as coming up, and people are thinking, “I’m thinking of downsizing this year, I’m thinking of making a move this year.” I’m not … Again, the people are not thinking, “What am I going to do three years from now?” It’s a totally different mindset from the investor mindset. All the demand we see is on the resell end when the buildings are going up, and when the buildings are going to be completed in a year or less. That is when we see the prices at these buildings, there’s usually a big jump from the pre-construction sales side, to when the construction has started and the building’s almost completed. We see this pattern time and time again with these small boutique luxury buildings, where the prices rise dramatically after the construction has started, because the buyers, that’s when the buyers are truly looking. Again, they’re all end user buyers, not investors.
Okay, so those are sort of the three reasons why I think luxury condos are the biggest bargain in Toronto right now. What do you do with that, what do you take with this information? Well my advice for you, the condo investor, is to go out there and start looking for pre-construction projects in the luxury condo market that are around $1,000 per square foot. I believe in the next couple of years this product will likely be jumping significantly, 1,200, 13, $1,400 a square foot. I believe it will easily be achieved in this category of the market.
Why do I believe that? Well, for the reasons we talked about, but specifically because when you look at what regular, average, typical condo product is selling for today, around, approaching $1,000 a square foot. That product in a couple two three years will be, probably 12, $1,300 a square foot. The upside potential, if you’re buying something luxury today at around $1,000 per square foot give or take, is huge in my opinion over the next few years. Again, this gap between the luxury and the regular market is at an all time low.
I’ll just finish it off by saying, if you found this interesting I do have a specific special opportunity for investment right now that I have located, and I’ve done my research and homework, and I think it’s an amazing opportunity to take advantage of this trend in the luxury condo market. If you want to learn more about this opportunity and see if you qualify, you can go ahead and email me. [email protected] You can call me, text me, 416-371-2333. Look forward to hearing from you and until next time, I will talk to you soon. Have a great week.
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