The number of real estate developments currently in the pre-construction stage in Toronto is increasing rapidly. There are new and significant condo developments regularly coming in almost all neighbourhoods of the city. But, why is it that the cost of pre-construction condominiums touching the sky?
Is it because the developers are seeking to get more money from the investors, or is it because of the rising cost of the land in the city? As accurate as the questions seem, these are not the only factors. There are plenty of other variables too that go into consideration for building a condo in Toronto.
Are you wondering what the average cost of building a development in Toronto is? Well, you’ll be surprised to know that it is $102,000 per unit. Let’s check out the various factors that increase the cost of building a condo.
What is the developer’s profit margin?
In the ever-growing real estate industry, you must be wondering what do developers get? To the surprise of many, the developer’s profit margin is an unbelievable 12 percent. The actual figure is between 12-20 percent. However, can the margin be so low, especially when the market has been on fire for more than a decade? Well, the figure is correct, and there is a reason behind the same.
Consider the best real estate developers in the city and the number of developments and phases they are constructing. Most of these developers are still in the business because they offer the residents and investors with a place which is loaded with amenities.
On top of that, the neighbourhood is ideal and has all the necessities of the residents. These places meet the demands of every resident and all of this at a cost that they are willing to pay. Therefore, one thing that is undoubtedly clear is that the reason for the increase in the condo costs is certainly not due to the greed of developers.
The typical costs included
For simply building a condo complex of only two units, there are plenty of costs that need to be included. A condo complex with all the luxury and high-class material with branded appliances, full basement, windows, and turnkey finishing would cost an average of $102,000 to 240,000 per unit. Moreover, this cost does not take the acquisition of the land into consideration.
As per the above figures, the cost of developments and phases would cost an average of $85 to $200 for every square foot.
However, the average cost around the nation is $125 per square feet. These costs include the following as well:
- Carpenters, excavators, and masons – $70 per hour
- Electricians – $65 – $85 per hour
- Painters – $20 – $35 per hour
- Plumbers – $45 – $65 per hour
However, taking all of these into consideration, these sorts of buildings would not cost a mere $85 per square feet. The interiors take a huge chunk of money when it comes to building a condo. A condo development of two storeys with two condominiums would cost around $484,500 in total.
This includes all the costs, such as land acquisition, painting, play areas, amenities, etc. The cost of labor and material alone would cost $238,200 and $238,000, respectively. Moreover, even the contractors would charge around $67,000 for the condos.
Breakdown of costs
We have already seen the total cost of building a condo. However, a proper breakdown of the cost of building a condo in Toronto would provide a better analysis. The cost is broken down into three major factors:
- Land cost
- Hard cost
- Soft cost
Let us consider each of these in detail to find the reason that is increasing the pricing of condos.
Cost of Land
One of the major reasons behind the increase in the cost of land is the parking area. Previously, there were a lot of surface-level parking lots in Downtown, and developers used to pick these locations for the building sites.
However, today, the developers are fighting to the same building sites every year. They are trying to outbid other developers and reducing the profit margin to get the best site possible. Due to this, a lot of commercial spaces are being used for condominium developments.
The cost of a site in Vancouver is similar to that of Toronto, $200 per square feet. However, that is the average cost of land in GTA. But the cost in Downtown Toronto is much higher than that.
Moreover, this cost is the buildable square footage but not the selling price square footage. The cost in Downtown Toronto would easily end up in the high $200s. Also, the cost is for a floor of one square foot of condo space, which is available for $200. This cost would easily increase and even double when we consider all the points mentioned above.
The hard costs in terms of the number of storeys in a building would be as follows (per square feet pricing in GTA):
- Hybrid construction of up to 6 storeys – $195 -$265
- Up to 12 storeys – $215 – $280
- 13-39 storeys – $215 – $290
- 40-60 storeys – $235 – $290
- 60+ storeys – $275 – $330
- Premium for high quality – $75 – $200
Most of the construction in Toronto, especially in the Downtown area is over 40 storeys. So, how is the cost of condos in the Downtown area for pre-construction condos over $1000 per square foot? When it simply comes to hard costs, the costs are going over $330 per square foot, and the cost of premium quality is extra.
These premium quality condos could be the ones that are being constructed in Yorkville or King West. Moreover, the finishes of these buildings in Downtown would vary a lot as compared to those to Calgary structures.
All the cost of land, hard cost, and soft costs are increasing drastically. However, as per the recent trends, the cost of labor has never been higher. Most of the unions are taking a large piece which they consider the right cost. These costs can still vary a lot over 3-5 years and depending on the building. However, the average hard cost for a condo could be taken as $330 per square foot in Toronto.
First all, let’s try to understand what are soft costs? Soft cost is the cost of anything that is excluding the cost to acquire the site and the price for constructing the same. These include sales and marketing, commissions to realtors, architectural, permitting, zoning, legal, etc. Moreover, in Toronto, there is a substantial cost that is added. The development fees!
For a single bedroom apartment, the cost of development is $17,644.
For example, a simple condo development of 450 square feet, which would sell for $900 per square foot, would include the development fees at 4.4 percent.
Even though this might look like a small percentage, it is a huge chunk of money.
Aside from these development charges, there is also education DC’s, cost of parkland (which can be around 5-10 percent of the site value), permitting fees, and a lot more. Even though the education charges are around $1,500 per unit, it will all add up to the cost.
The cost of parking would also come around $10 – $40 per square foot as per the pricing of the site discussed earlier. The total soft costs are around $150 per square foot for an average condo in Toronto.
Breakdown of costs on the basis of roles
An average architect and contractor in Toronto charges around 10-17 percent of the total budget for the building.
But, is this figure really worth it, or are these people charging an absurd figure? Here is what an architect does:
- Decide the scope of the project along with a preliminary budget.
- Make an outline of work, plans, and budget
- Create a design along with drafting floor plans
- Finalize the drawings after incorporating all the finishes and appliances
- Review the plans
- Serve in an advisory capacity
- Finalize the construction documents
- Overlook the creation
As per the above roles, the architects receive around $48,500 – $82,400 for their work.
A contractor, on the other hand, would do the following:
- Provide the material along with services
- Hire subcontractors
- Suggest ideas and plans to meet goals
- Deliver final cleanup
- Handle all the permits
For these tasks, a contractor gets around $85 per square foot. In total, they will take around $66,600, excluding the indirect fees involved.
How Much Does That Make Up?
So, the developers aren’t taking in all the money that the residents are paying. The city requires money, and there needs to be some proper taxation or measures taken to reduce these high costs for the building of condos. So, what is the total cost of building a home in Toronto?
- Land Costs: $200 per square foot
- Hard Costs: $330 per square foot
- Soft Costs: $150 per square foot
This comes out to be a total of $680 per square foot, and that is considering the lower ends. The cost of land acquisition in Downtown Toronto is as high as $300 per square foot. Add the cost of building a luxury condominium on top with high-end finishes, and the total pricing would be close to $850 per square foot.
So, what is the average price for a Toronto home? Around $1000 per square foot. It is fair to say that the developers aren’t making a huge amount.
There are a lot of contractors who are collaborating with the best engineers and architects to develop some of the best homes for residents in Toronto. However, the skyrocketing prices is one of the biggest concerns for investors as well as residents of the city. Where everyone is looking for affordable housing options, the scope of cutting down on pricing seems an issue. Where can you cut down? The profit of developers is the surely bare minimum, and anything lower than that would just not be fair.
The price of labor is one of the highest in the city, and that is where the margins should be less. However, that price is not only for condo developments but for every real estate development. Also, that is a decision of the unions.
Keeping aside these prices, the quality of developments and unique designs that are upcoming is unparalleled and sure to provide a quality living to the people of Toronto.
The number of amenities included along with the infrastructure and nearby accessibilities and attractions makes it a complete home and provides a better living standard.
It is a perfect time for the people who own a pre-construction development in Toronto. However, for those who are looking for new affordable developments, it might be a hunt. All these factors considered above will add up to the total cost of building a condo in Toronto.
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