Developers Rolling Out Incentives
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There has been such a crush of new condo launches in the past 6 weeks that developers are now actually being forced to compete with each other for buyers! Who’da thunk it! There have been so many launches (or at least soft launches to the Realtor community), representing thousands of units of inventory that even though most of these developments are selling very well (Tableau reportedly received ~1000 worksheets submitted for ~400 units), they are not selling ‘enough’ units in the eyes of the people responsible for selling them. When this happens, incentives start rolling out for buyers (developers are loathe to actually reduce adjust prices.)
Over the past few years, prices have risen dramatically on a per square foot basis. I was just talking to an investor today who bought at the Ritz Carlton for $650 PSF about 5 years ago. Now that is pretty much the going rate for mid-market condos in the same area. But while price on a per square foot basis have been soaring, the actual prices of the average 1 bedroom, 1+den, 2 bedroom etc. have remained somewhat flat. Developers have been shrinking suites and getting creative with their floor plans. A $300K 1 bedroom is a lot easier to sell to the masses than a $450K 1 bedroom is. But we’ve reached a point where suites can’t really get much smaller and so the average investor off the street is starting to get downright scared by the prices that they see: $400K+ for 1 bedrooms, $500K+ for 2 bedrooms, $45K for parking etc.
Incentives are starting to roll out even for projects that are still in the VIP selling stage, which is not something you usually see. Incentives that I have personally seen are something like $5-20K in rebates at final closing, or slightly discounted parking spots, or 15% deposits instead of 20% (up front). Nothing earth shattering, but these did not exist 3 months ago. Still, I don’t see this as a fundamental problem with the market, or a pre-cursor to some sort of market correction, but rather I think it’s due to 3 factors:
- Timing issue (too many projects launching at the same time all vying for the same investors)
- Perception problem ($400K 1 bedroom units)
- Lack of differentiation. So many of the developments that have launched lately are very ‘vanilla’. Nothing about them really ‘stands out’.
Contact me with any questions or to find out which developments are offering the best incentives downtown!