“Under all is the land.” That’s the first thing I remember reading when I took the real estate licensing courses way back when. I also remember thinking to myself “Why’s that so important? Sounds like it could be a quote from the bible or some other historical text. I can’t imagine it having too much practical meaning.”

Fast forward almost twenty five years. I’m glad I remember that sentence because it’s turned out to be extremely important in understanding the real estate market in central Toronto. So important, in fact, that it makes an appearance every time I think about price i.e. every day. (But I don’t say “Under all is the land” to myself. I tend to think in more casual language.)

The sentence can mean many things, but to me it relates mostly to the role that land value plays in the total value of a property. Let’s look at a recent example. A client asked us if a townhouse would be as good an investment over the long term as a similarly priced detached or semi-detached home. Corinne and I both replied almost immediately to our client’s email with the same answer: no. We’re both big believers in the value of land.

If you have a townhouse, you have a townhouse. It’s unlikely that it’ll ever be torn down and replaced with something newer or larger so the property has fewer potential uses. There are generally fewer buyers looking for townhouses so the prices of townhouses tend not to increase as quickly or as much as those of semi-detached or detached homes. Townhouses are also usually on smaller pieces of land than semi-detached or detached homes. Because prices in central Toronto are now based largely on land values, the more land you have, the more valuable your property. Plus, land is a limited commodity. They’re not making any more of it and it never hurts to acquire a scarce commodity (remember to also consider “location, location, location” when you’re acquiring land, but that’s a subject for another day).

Having said all this, I’ll freely admit that there are no hard and fast rules in real estate and that it’s entirely possible to find townhouses to disprove each of these points. But we’re talking in general terms about what’s most likely to happen, and, generally speaking, semi-detached and detached homes make better long term investments than townhouses.

Where do condos fit into this equation? Are they as good an investment over the long term as semi-detached or detached homes? This is another question we’re asked quite frequently. Our answer is usually the same: no. The reasons are very similar. You don’t get any land when you buy a condo. “Under a condo is another condo.” (I just made that up.) New condos are being built all the time. Many of them are similar to each other. Where’s the value in that?

An exception to our answer would be the case of the unique or rarely found condo or townhouse. They’re special because of their location, quality, size, finishings, design, view, amenities or anything else that sets it apart from the competition. Whatever the special factor is, certain buyers are willing to pay a premium for it and are willing to accept special in place of land.

I could probably write a book about value and land, but that’s not going to happen, at least not any time soon. However, I WILL touch on one more frequently asked question about value in my next post so stay tuned!

In the meantime, if you know anyone who’s interested in learning how the market works and who’d like to receive the kind of help that involves honest answers, straightforward advice, no pressure and being treated like family, please let me know the best way for me to connect with them because I’d like to offer them this kind of help. And as always, don’t be shy if you have any questions or comments about this post! Thanks for reading.