In the ever-evolving landscape of urban living, the discrepancy between the prices of new construction condos and those of resale units has become a topic of keen interest and speculation. Drawing upon a detailed analysis encapsulated in a comprehensive map I've developed, this post aims to shed light on the current state of condo pricing and offer insights into future trends that will affect buyers and investors alike.

The Present Discrepancy

As of now, a noticeable gap exists between the cost per square foot of newly constructed condos and that of resale units across the city. This divergence isn't merely a reflection of the premium placed on brand-new properties but also highlights a broader trend in real estate pricing dynamics especially with construction prices having increased significantly since the pandemic. 

New constructions often command higher prices due to their modern amenities, advanced building technologies, and the allure of being the first to occupy a space. Conversely, resale condos, while potentially offering more square footage per dollar, may lack the cutting-edge features and designs that new buildings boast.

The Map Analysis

The map I've created serves as a visual representation of the current average $/sqft for different areas of Mississauga and Toronto. I’ve further taken some examples of units that have sold from September 1, 2023 - March 1, 2024, and added them into the map for a comparison. In order to make it more objective, I only used buildings that were less than five years old. You can immediately see that pre construction condo prices are significantly higher than resale prices and the overall average of the area that they are located in. 

Future Implications

This disparity poses an interesting question: as these new constructions are completed and enter the market in full, what happens to this price gap? There are only three possible outcomes:

1. New Construction Prices May Decrease: As the new condos come into the market, investors will have to sell in order to move their money elsewhere. Buyers may not care that the condo is new, and will not attach as significant a premium on the property as there currently exists. This will result in investors selling the new condos at a loss and causing prices for the new condos to fall closer to resale prices. 

2. Resale Prices Could Surge: Alternatively, the price of resale condos might experience a significant uptick. This could occur as buyers always compare prices on a $/sqft basis to different buildings in the area. If the new construction prices hold because investors are not selling at a loss, then the existing inventory prices will have to go up. 

3. New Construction Goes Down, Resale Prices Go Up: What is probably the most likely scenario is that we will experience a little bit of both of the above. New construction does have inherent value, the latest technology, first buildings in a new area, unique architectural appeal, etc. This will keep the price stable, while generating a demand for resale condos nearby, where buyers will be forced to purchase for a premium due to the average price increasing. 

Why is this Happening?

Since the global pandemic, inflation has affected every industry. The construction industry was and still is being severely impacted by a rise in costs. Compounded with the fact that land prices also continue to rise, new construction simply costs more. Currently, the costs of the land and constructing upon it is higher or equivalent to the prices that resale condos are selling for. This is before anyone makes any profit for their work. That is unsustainable and why we are having this issue. 

Navigating the Future

For potential buyers and investors, understanding these trends is crucial. Those eyeing new constructions might find potential bargains if the market adjusts prices downward. Meanwhile, investors in the resale market could see significant appreciation in property values if resale is able to capitalize on the higher price of new construction lifting the overall price of the condo market. 

Conclusion

The gap between new construction and resale condo prices is more than just a matter of numbers; it's a reflection of changing urban lifestyles, economic conditions, and real estate market dynamics. Whether this gap will widen or narrow remains to be seen, but one thing is clear: the landscape of urban real estate is on the cusp of significant change. As we move forward, staying informed and agile will be key to navigating the future of condo living.

As a Muslim realtor, the number one question I get asked by far concerns the legality of a mortgage that involves riba (interest). The questions can range from any of the following:  

1. Is interest the same as riba? 

2. Why is riba haraam?

3. Am I allowed to get a mortgage and pay interest as a Muslim? 

4. What is an Islamic mortgage and are they really halal? 

5. Is there any interest involved in pre construction investments? 

Some of these questions require considerable explanation which I hope to do, inshAllah (God willing), in future posts. But this post is designed to be a Muslim’s FAQ reference guide when it comes to mortgages and their permissibility. Please revisit this post periodically for new updates and links. We are continuously working on integrating Islamic principles into our real estate decisions. Stay tuned for the latest developments as we advance in this direction.

1. Is interest the same as riba? 

In the context of Islamic finance, interest and riba are often used interchangeably, but they have distinct meanings.

Interest: Interest generally refers to the cost of borrowing money, usually calculated as a percentage of the principal amount. It is a common feature in conventional financial systems and is used to compensate lenders for the risk and opportunity cost of lending money.

Riba: Riba, on the other hand, is a broader concept in Islamic finance. It refers to any unjust or exploitative increase in value, whether in loans or in trade. In the context of loans, riba is essentially what is commonly referred to as interest in conventional finance. Islamic teachings prohibit riba, considering it exploitative and harmful to both individuals and society.

2. Why is riba haraam? 

Very simply put, riba is haraam (forbidden) in Islam because it promotes inequality. Islam is a religion that fundamentally values and promotes equality among all individuals, and therefore does not permit an economic structure where the rich can take advantage of those less fortunate by charging an excessive amount for the use of their money. In Islam, money is regarded as 'rizq' (provision), a form of sustenance provided by Allah. It is not just a means for personal gain, but a tool entrusted to us, carrying a profound responsibility to benefit others with the blessings Allah has granted. This perspective underscores the duty to utilize financial resources wisely and compassionately in serving the community and upholding Islamic values.

3. Am I allowed to get a mortgage and pay interest as a Muslim? 

The question of how to purchase a home in accordance with Islamic principles is a subject of extensive scholarly debate, and regrettably, there is no one-size-fits-all answer. It's important for every Muslim to conduct their own research and make an informed decision, always placing their religious values above material considerations. Generally, there are four primary methods through which Muslims can approach home buying while staying aligned to Islamic principles. They are:

a. Purchase a house outright with cash without the use of any debt product such as a mortgage. 
b. Purchase a house as part of a housing coop. In arabic, this is referred to as Ijara Mutanaqisa. This is when a group of people may pool their resources together in order to invest in a property with everyone holding a share proportionate to their investment or as agreed upon. 
c. Vendor take back - Murabaha. This is one of the forms of Islamic mortgages. This specific format means that the vendor provides a loan to the purchaser, and the vendor and the purchaser both own the home. Then the purchaser continues to pay off the loan provided by the vendor, and with each payment, purchases a share from the vendor until they eventually own the entire home outright. 
d. Usage of the fatwa by the European Council of Fatwa and Research. This fatwa permits the one to purchase a home through a conventional mortgage under specific circumstances. It is important to read this fatwa in its entirety to make sure that the case applies. 

4. What is an Islamic mortgage and are they really halal? 

There exist a range of Sharia-compliant loan options, often referred to as Islamic mortgages. It's important to note, however, that there is ongoing scholarly debate regarding the complete adherence of these options to Sharia law. Despite this, they are currently the closest alternatives available in the market to conventional mortgages. Islamic scholars generally agree that opting for a Sharia-compliant loan is preferable. One benefit for this consensus is the support it provides to Muslim financial businesses. By choosing these options, individuals help demonstrate the financial viability of such businesses, paving the way for the development of products that are universally recognized as Sharia-compliant.

5. Is there any interest involved in the purchase of a pre-construction home? 

In the process of buying new construction homes, it typically involves the buyer placing a deposit over a set period, with the balance due at the time of closing. The closing is the point at which a mortgage is taken out, and this is where concerns about riba (interest) come into play. However, all transactions up to this point are considered halal (permissible) under Islamic law. A common practice among buyers, particularly Muslims looking to avoid riba, is to 'assign' their contract rights to another buyer before closing, often for a profit. This enables the original buyer to steer clear of interest-bearing transactions while making a real estate investment, making it a popular method for Muslims to engage in real estate investments without compromising their religious principles.

If you have any questions, please feel free to reach out. I'm always happy to chat.

May we all be guided by the best of intentions that bring benefit to ourselves, our community, and ensure blessings in this life and the next. Ameen.

Helpful links and videos on the permissibility of mortgages and Islamic finance:

Sheikh Dr. Yasir Qadhi’s discussion with Dr. Hatem El Haj on mortgages and sharia compliant loans
Fatwa by the European Council for Fatwa and Research permitting mortgages under special circumstances

As the year draws to a close, many individuals find themselves reflecting on their financial goals and contemplating strategies to secure a more stable future. One often overlooked but immensely valuable tool for financial planning is the First Home Saver Account (FHSA). In this blog post, we'll explore the significance of opening an FHSA before the end of the year and how it can pave the way toward achieving your long-term financial objectives.

Understanding the First Home Saver Account (FHSA):

Before delving into the urgency of opening an FHSA before the year concludes, let's briefly review what an FHSA entails. The FHSA is a specialized savings account designed to assist individuals in saving for their first home. What sets it apart is its favorable tax treatment, making it an attractive option for those with homeownership aspirations.

The Time-Sensitive Advantage:

Opening an FHSA before the end of the year holds several time-sensitive advantages that can significantly impact your financial journey. Here's why it's crucial:

1. Tax Benefits: One of the primary draws of an FHSA is the favorable tax treatment it offers. Contributions to an FHSA are taxed at a concessional rate, providing a potential boost to your savings. By opening the account before the year concludes, you can capitalize on these tax benefits sooner rather than later.

2. Maximizing Contributions: FHSA has an annual contribution limit, and making contributions early in the financial year allows you to maximize your savings potential. By opening the account now, you can take advantage of the entire contribution limit for the current fiscal year, setting the stage for substantial savings.

3. Contribution Carry Over: The annual contribution limit for the FHSA is $8,000 per year. Unlike the TFSA, this limit doesn't accumulate until you open the account. Once the FHSA is established, any unused contribution room will carry over to the following year. Given the FHSA's lifetime contribution cap of $40,000, it takes five years to fully leverage the maximum contribution and savings potential from an FHSA.

Paving the Path to Homeownership:

Opening an FHSA is not just about taking advantage of immediate tax benefits. It's a strategic move toward realizing your dream of homeownership. Here's how:

1. Building a Solid Foundation: The FHSA provides a disciplined approach to saving for your first home. By opening the account now, you lay the groundwork for a more stable financial future, ensuring that homeownership is not just a dream but an attainable goal.

2. Access to Government Contributions: In some regions, the government may offer incentives to FHSA holders, such as matching contributions. By opening your account before the year concludes, you position yourself to potentially access these government contributions sooner.

3. Mitigating Market Fluctuations: Real estate markets can be unpredictable, and the sooner you start saving, the better positioned you are to navigate market fluctuations. Opening an FHSA now allows you to take advantage of potential growth opportunities in the property market.

Taking Action:

As the year-end approaches, consider the immense benefits of opening an FHSA. Consult with financial advisors, explore the specific advantages available in your region, and take the proactive step toward securing your financial future. The FHSA can be a valuable addition to your financial toolkit as you build a stable financial future for yourself and your loved ones.

Remember, the journey to homeownership begins with a single step, and opening an FHSA before the year concludes might be the pivotal move that propels you toward achieving your real estate aspirations.

Important Notes and Links

• The FHSA is not a replacement for the RRSP and/or the TFSA. It is a different financial product and they all have their use cases. It is important to speak to a financial advisor so that you may maximize each account’s individual potential. 

• Government of Canada page on FHSAs

• Government of Canada page on RRSPs

• Government of Canada page on TFSAs
  

Welcome to our Real Estate Blog! Here you can find timely updates of my latest properties, open houses, just solds and much more.

Whether you are interested in buying or selling real estate, I am here to help guide you every step of the way.

If you have any questions about real estate from home evaluations to mortgages to searching for properties in your area, don't hesitate to contact me today!