Pre-sales for townhouses/semi-detached are much more expensive than detached homes in the Greater Toronto area: Report
Housing in Toronto is the tenth least-affordable in the world, neck-and-neck with London and behind cities like San Francisco and Honolulu–though not by much. Buying properties as a pre-sales–a home that is bought or sold prior to construction–is often considered a more cost-efficient way of getting into the housing market. But is that actually the case? And does the type of home factor into whether or not a pre-sale is in fact cheaper?
How was the Greater Toronto pre-sale data collected?
Data scientists at Roomvu gathered MLS data from the Greater Vancouver Region from 2016-2019 and compared the average sale price of pre-sale homes against the price of those that had already been built. The findings showed that for several neighborhoods in the area, pre-sale homes were actually equally or more expensive than those that were already built. The team at Roomvu then shifted its focus to the Greater Toronto Area (GTA) to see if the same trend appeared to be continuing.
In looking at information from Durham, Halton, Peel, Toronto, and York, Roomvu determined that pre-sale attached or semi-attached homes sold for up to 35 percent more than newly built (0-5-year-old) homes. Comparatively, detached properties purchased on pre-sale were on average 17 percent less expensive. Although, this has not been the case for the year 2019, where, so far, pre-sales for detached homes have been more expensive than newly built ones.
Greater Toronto Pre-sales VS. and already-built townhomes and semi-detached homes
Pre-sales VS. and already-built detached homes in GTA
Why are Toronto pre-sales in townhomes and semi-detached higher priced than detached homes?
1. There are different types of developers
Sam Merhbod, CEO at Roomvu Technologies and a Ph.D. researcher says there are several factors that are contributing to this phenomenon. One of those factors considers the different types of developers that would operate in the pre-sale market versus newly and already built homes.
“Detached properties are often built and sold by small businesses and local investors who are less able to sell homes at prices considerably higher than market-value,” explained Mehrbod. “Conversely, large development companies that focus on townhomes and semi-detached properties like row-houses are able to sell at a higher price, thanks to the means they have to more aggressively market and showcase the properties. Including building pre-sale presentation centers and offering Realtor Incentives”
2. The New Foreign Buyer Tax
A second consideration is the Foreign Buyers Tax, which came into effect in April of 2017. Foreign investment has been singled out as a major contributor to the rising cost of housing in Toronto and the Foreign Buyers Tax was instituted as a means to curb this investment. In response, foreign buyers shifted their focus to pre-sale homes as a means to lessen the tax burden.
“Purchasing pre-sales, as opposed to homes that have already been built, allows buyers to defer taxes until construction is complete,” said Mehrbod. “This delay allows time for the buyer to sell the property in the interim, or hold onto the property while they obtain Canadian immigration status and therefore are no longer subject to the Foreign Buyers Tax.”
The Take-Away
The paradigm of expensive housing is one that Torontonians and Vancouverites know all too well. And if buyers were hoping to catch a bit of a deal by purchasing a pre-sale property, the data shows that this is certainly not the case with attached and semi-attached properties. Our data suggests that buyers should perhaps look for better deals from the developers in the semi-detached and townhouse markets, or look at buying pre-sale homes in the detached market. On top of that, pre-sale buyers have to pay extra taxes (GST/ HST) when completing the pre-sales which might make pre-construction homes not such a sweet deal after all.