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Why did this sold out Toronto condo get cancelled?

This next article is from the Toronto Star and the headline is “Cancellation leaves buyers of pre-construction condos priced out of the market”. It’s talking about the cancellation of Museum Flats, which was a building in the Junction area. It was about 200 units or so. This building was pre-sold. It was 100% sold out but the builder canceled the project in the past week told everybody, “We’re giving you your money back”. A lot of articles have been written about this and how unfortunate the situation is. Now, a couple of things that I want to point out about this article: Number one is that this is a reality of buying pre-construction condos is that it’s not without risk. There are situations occasionally, extremely rarely but occasionally where you will invest in a pre-construction condo project and the building will not actually get built.

This is maybe 1% or 2% of the time at the most. But this is a reality. You need to understand that when you’re buying pre-construction. But the bigger point that I want to make is one of the main reasons that is speculated in the article, why the project was actually canceled, is because the project is not very profitable and so they’re actually going to need to sell it at a higher price and the market has moved up significantly since the time that they actually sold the project. So they’re going to re-launch it. It sounds like they’re insinuating, the developer’s not commenting, but basically they’re it sound like they’re going to re-launch the project at a higher price.

The key thing that I got from this article was that the developer had said that construction costs have risen 13% while the company has been waiting for approvals and everything to come in to actually start building their project. We are seeing this trend more and more and more of rising costs of construction have been significant over the past couple of years in particular. Projects that were selling at $400, $500, $600 per square foot range, in the past few years is going to be very, very difficult for those projects to actually get built because construction costs have gone up so much.

All of this to say that again, as condo investors, as people buying hard assets like real estate, this is good news for us because we are protecting our money from inflation. Inflation is creeping in all over the place, all over the economy. The government is doing its best to, as I’ve said many times, to increase inflation through various taxation forms and other things. As costs continue to rise, it just makes more and more sense to actually own hard assets like real estate because the price of building real estate is just going to continue to go up and that’s going to be again, upward pressure on pricing in the future.

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