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Developers appear to be a little less eager to scoop up land in the Toronto area to build condos on.
If that keeps up, it would be good news for those economists and market watchers who believe that too many condos are going up in the country’s most populous city (in the last year the central bank has highlighted the potential risks that the rising supply of condos poses to Canada’s housing market and broader economy).
The price that developers paid for land to build condos on softened by 4 per cent in the first three months of this year, to $55 per square foot, according to RealNet Canada Inc. (the price was closer to $30 per square foot in 2005 and 2006).
That’s not the first time the price for condo land has taken a little break from its general upward trajectory in recent years, it has done so frequently. But it comes as developers bid up the price of land for detached houses in the Toronto area to a record high of $796,000 per acre.
The amount that developers pay for land to build on comprises a big portion of their costs, and so it has a very large impact on the prices that they ultimately charge for homes. These trends fit with the theory that prices of detached homes in the Toronto area will continue to rise, while condo prices will not keep pace.
At the start of 2013, the total amount of residential land (for both condos and houses) that developers bought dropped significantly, but it then climbed over the remainder of the last year. Not any more. The total volume of land that was bought during the first quarter of this year fell to $539-million, the first sign of a retreat after last year’s rally.
When you ask why less land was bought to build detached homes, people in the industry say it’s a lack of supply because of constraints such as the greenbelt. But when it comes to land for condos, there is still plenty available, and it has more to do with the appetite among developers to keep putting more cranes in the sky.