Real estate developers are accelerating their expansion into smaller Ontario cities and semi-rural areas, signaling the next wave of housing investment in a country with a shortage of affordable places to live.
They are making their way to vacation spots like Niagara, Wasaga Beach and Collingwood, as well as ramping up development of high-rise apartments in smaller cities like Hamilton, Guelph, Ancaster, St. Catharines and Waterloo.
Driving the push toward so-called secondary and tertiary markets are changes in how and where people work that have resulted from the pandemic’s stay-at-home mandates. More employees are being allowed to do their jobs remotely, which leads to increased demand for homes with home office space in the suburbs and beyond.
This gave developers an additional incentive to snap up vacant land outside major urban centers. It is believed that small towns will continue to grow in population, and there will be an increase in demand for all types of housing, including relatively smaller and cheaper types such as apartments.
Developers were already buying into the suburbs knowing there was a need for housing due to high levels of immigration and investor demand.
Over the first two years of the pandemic, developers’ holdings of vacant land fivefold at Wasaga Beach; it nearly tripled at Waterloo and Caledon; It doubled in Collingwood and Hamilton, according to the Altus Group, a commercial real estate data company. In Guelph and Niagara-on-the-Lake, the number of land purchases rose 40 to 50 percent over the same period.
Suburban and rural lands fetched record prices, averaging more than $2 million an acre in Waterloo last year. According to Altus, Niagara-on-the-Lake, Guelph, and Brampton also approached that mark. Prices rivaled those in Toronto and its neighboring city, Mississauga.
“There is a dearth of land for sale and high demand,” said Raymond Wong, Vice President of Data Operations at Altus, adding that land prices “really started accelerating” in suburban and semi-rural areas last year.
Land can be vacant, have unused structures, or even agricultural land with or without access to services such as sewer and power. Although the country is experiencing an affordable housing crisis, these new developments are not designed to be affordable social housing. Members of the real estate industry and some economists said the extra supply would help create affordable living options.
Mr. Wong said developers see real estate projects in secondary and tertiary markets as their future, especially as the availability of land in major urban centers has dried up. From 2020 to 2021, the number of land purchases decreased in Toronto and Mississauga.
Bayfield Realty Advisors Inc. said: , which has developed shopping plazas in remote Canadian cities since 2005, is scouring the country in search of new land. “We’re looking at every county,” said chief investment officer Bernard Okrant.
Bayfield recently changed gears to include condo development, and is set to release a six-story, 116-unit building in Niagara Falls later this year. It is also preparing to begin construction of a rental-only apartment building with more than 300 units in Kingston. Additionally, Bayfield is embarking on several 30-story apartment buildings in Pickering, on a massive 25-year development in the eastern suburb of Toronto.
Mr. Okrant said the pandemic has sped the move toward smaller towns, making the development of properties on the ground and the redevelopment of shopping plazas owned by Bayfield very profitable. This includes converting unused land into residential property, as well as adding housing, storage and more retail to the shopping plazas. “The full range of possibilities has increased since we started in 2005,” he said.
Although the market for resale housing is starting to cool off due to rising borrowing costs, the pre-construction world is different. Pre-construction homes haven’t started yet or are still under construction, and sales of these projects are often seen as a bet on the future, as buyers wait years for their units. Developers usually ask for a down payment of 20 percent during the first year, giving buyers more time to finish their financing.
“They have two to five years to close,” said Kara Hirsch, founder of Hirsch + Associates, which helps real estate companies develop and sell their apartment buildings before they’re even built. “Promoting fear of rising interest rates has not affected the pre-construction market as it does in the resale market,” she said.
One of Mrs. Hirsch’s condo projects in Cremore, just south of Georgia Bay, sold his second tranche of units within a few days and at a premium to the first round. March sales averaged $783 per square foot. The first round, which launched last summer, averaged $665 per square foot.
“We couldn’t keep up with the demand. There are no other condominiums in Cremore,” she said, adding that most buyers want a second property or investment.
It was a similar story for Elite Developments, another real estate developer that recently branched out into apartment buildings. Its first residential project – a 10-story building in Brantford – sold out on three weekends late last year. Elite spokeswoman Julia Bellisari said 6,000 people had registered to buy one of their 198 apartments.
Elite is preparing to launch a 28-storey apartment building in St. Catharines in what it said will be the city’s tallest apartment building. It has other housing projects underway in smaller cities such as Ancaster, Cayuga, Hagersville, Hamilton and Niagara.
Ms. Bellisari said Elite expects to build at least 1,200 housing units over the next two years, most of which are condominiums. Elite also builds some townhouses and detached homes. “We have a lot of upcoming projects,” she said.
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