According to Realnet, since January 1st 2000, buyers have purchased over 545,000 new homes. These new construction homes equate to over $206 billion in real estate transactions. From these figures alone we can see that new homes have played a massive role in the Toronto market. New condo sales represent a large percentage of the market, particularly in the last 5 years. Over 13,700 new condo units were sold in 2013 and a stunning 28, 000 new condo units were sold in 2011 according to Urbanation. These figures depict just how significant the Toronto new construction market is. Today we’re looking at condo launches – A vital part of the condo buying process and we explain how condo launches work. This will be the first of a series of topics that describe the condo launch process in its entirety.
The Toronto new construction condo market is dependent on developers. Developers purchase land then construct on the land thus creating what we refer to as a condominium. In order for a developer to receive construction financing for a condo, they must pre-sell 65-80% of units in a new project. Much like how a private company goes public to the stock market using the IPO, condos have stages before they’re launched to the public, we’ll call this the condo IPO.. For every project you see constructed in Toronto, over 65% of those units were sold prior to construction beginning.
How do developers sell 65-80% of a project that does not exist? This begins and ends at the condo launch. They first finalize things such as renderings, floor plans, pricing, and amenities. Renderings and virtual tours are a way to demonstrate exactly what the building will look like and companies like Aareas Interactive provide these services. Sales then begin to occur off site while a sales centre is being constructed. This is a unique opportunity for anyone associated with the project to buy units first. Those close to the developer traditionally have access to purchase units before anyone else at the Family and Friends event.. Around the same time as this event comes “Platinum” agents; someone who has sold high volume of units for multiple developers.
After family, friends, and platinum agents have all purchased units, VIP agents are next in line to have a chance at the pre construction condo inventory. Unlike Platinum agents who have sold a high volume of units for multiple developers, a VIP agent has sold a high number of units for one specific developer. After VIP agents have had their opportunity to snag condos,developers then open the door for all pre-registrants to purchase units. This means that anyone who registered for the project on a developer or project website has the opportunity to purchase units. Finally, developers hold a grand opening where they unveil a completed sales centre and any prospect can now visit the sales centre and purchase units.
It should be noted that all developers approach condo launches differently. In some cases there is never a grand opening as agents have purchased 100% of the building and there is no need for a developer to sell any units to members of the general public. In other cases, the general public will snag as much as 70% of the building before construction begins.
After developers have sold around 65-80% of the condo, construction begins. The final stage of a condo launch is the occupancy stage where the building has been completed and buyers have moved in. Typically if not all the units are sold, remnant inventory is sold directly to homebuyers who are intending on living on the unit.
In a condo of 300 units, approximately 210 units have to be pre-sold in an effort to obtain construction financing. The majority of people purchasing these units are investors and brokers who intend on re-selling the pre-sold unit or renting it out to tenants.
In this article we described the various stages a developer takes in an effort to sell 65-80% of a condo before construction begins. Each of these stages traditionally shows a variation in price meaning that family and friends of the developer get the best price while those who are walking in off the street at a grand opening didn’t get the price that a Platinum agent would have received. The condo launch is vital to ensure that construction financing is obtained and a developer can go ahead and complete the project. Below we’ve included a chart that depicts the unit availability and pricing of each condo launch stage. Stay tuned as next week we dive in further and describe why you should want to intend the Family and Friends event as an investor.
Unit Availability and Pricing during a typical condo launch