Montreal real estate developers will have profit margins averaging between 8 & 15% on the absolute cost which includes the cost of construction, the borrowing costs, the administrative salaries, marketing, etc.
So you think they don’t make money when they significantly lower their prices? You are right; because when promoters cannibalize condos they often lose money or not make enough of it.
So why do they do it? It is a marketing strategy to either sell the less attractive condos, which have technical constraints, plain layouts, poor views, etc.
More frequently, it is also to accelerate the financing process which does not even work anymore because most major financial institutions require a minimum profit margin for each condo individually and not on the total project. Those who still operate this way are usually developers that have alternate lenders, a perfect recipe for disaster because selling 50% of a project quickly at cost is one thing but selling the last 50% above average to compensate for the shortfall of the first 50% is something else. The interest rates of these alternative lenders are also higher and often times the turnaround time until the last unit is sold is usually longer than anticipated by the up-and-coming developer.
So why are there such disparities in price between different condo projects within Montreal?
It’s simple, you pay more to have more … in most cases, because there are some bad seeds within developers, you should buy only from reputable developers who offer a new construction warranty or allow you to thoroughly inspect the details of your future condo before giving them a penny.
Indeed, two developers buying their land at sensibly the same price will most often have the same cost on architect fees, concrete, labour, etc.
So how does the one that lowers his prices manage? Well he will cut corners in terms of quality, basically the quality that will be put in the final product you will end up with.
Unfortunately, today people rely too much on the price per square foot, number of bedrooms, short of quantitative points and forget about a very important aspect in real estate, the qualitative aspect.
It is as if you chose a car solely on its size, and the number of seats. In this case, everyone would feel a mini van is the best deal. But why isn’t everyone driving around in a mini van? Because design, the quality of materials, reliability, etc. are all important elements and the same goes for condos.
In a neighbourhood like Griffintown, all properties do not have the same value. Located on dignified streets like Peel and Wellington plays a role as does being on the waterfront, facing a park.
Not to mention the views, are they beautiful and guaranteed no to be obstructed in the medium to long term?
Insulation, soundproofing, etc. are not visible points but equally important as a beautiful kitchen and a nice bathroom.
I heard a developer say to clients, “We sell a little cheaper than the major developers in the neighbourhood because our sales office costs 1/10th of the price. What this developer is forgetting is that his sales office will serve to sell one phase of a project whereas the major developer will amortize his sales office for more than 12 phases, in fact his sales office will end up costing less. All to say that this argument does not hold water.
And this is why we, at McGill Real Estate, choose our projects carefully and consider our brokers consultants and not salespeople. The goal is to support you and allow you to make an educated, safe and honest buying decision. (5 of 5)
Patrice Groleau owner McGill Real Estate Agency specializing in sales and marketing projects
Holder of a BA degree in Human Resource Management from the University of Quebec in Montreal, a graduate degree in Entrepreneurship from the University of Sherbrooke, Advanced Project Management at McGill University in Montreal. He also holds a degree in Risk Management from the University of Quebec in Montreal, a trade securities licence in Canada by the Canadian Securities Institute, in addition to having obtained diplomas from the Quebec Real Estate College and Real Estate Broker College in Quebec.