New condominium launches have become more scarce in Toronto and Vancouver since the Bank of Canada started raising interest rates two years ago.
There were fewer than 1,500 new condo sales in the country’s biggest market, the Greater Toronto Area (GTA), in Q1 2024, compared to nearly 10,000 in the same quarter of 2022. Absorption is at its lowest level in over 30 years, unsold inventory is piling up and taxes and fees continue to rise for developers and purchasers.
The condo market is obviously at a low point, so a panel discussion of stakeholders at the May 28 Land & Development conference at the Metro Toronto Convention Centre explored conditions and longer-term prospects.
KingSett Capital group head of development and panel moderator Jeff Thomas supplied the condo market facts and figures before inviting the five other experts to have their say.
PMA Brethour’s Andrew Brethour
“We’re in a buyers’ market and there are no buyers,” said Andrew Brethour, executive chairman of Markham-based real estate agency PMA Brethour.
Despite this “desperate position,” Brethour said he’s been through five market corrections with low activity throughout his career and there have always been recoveries.
He believes things have reached a low point and, while he thinks mortgage interest rates could hover around five per cent for several years, he’s looking for the market to slowly improve.
Brethour said the GTA condo inventory numbers are exacerbated by up to 7,000 units of assignment product – original unit purchasers selling their contracts to other buyers before final closing.
Brethour said there are opportunities to add infill condos for end-users in certain Toronto neighbourhoods, but the smaller scale of such projects makes it difficult for many developers to make the pro formas work.
Urbanation’s Shaun Hildebrand
“We’re projecting, with completions rising this year, that the number of condos under construction is going to fall to under 80,000 units,” said Shaun Hildebrand, president of Toronto-based real estate research firm Urbanation. “It was over 100,000 a year ago.
“And with that, there’s going to be a lot of job losses. I think it’s been estimated that every construction crane relates to about 500 jobs . . . it’s a massive hit to employment and the GTA economy at large.”
More than 60 GTA condo projects that had started releasing marketing materials have been shelved and about 30,000 rental apartments approved for construction have been delayed since 2022, according to Hildebrand.
Many pre-construction condo projects are only 30 or 40 per cent pre-sold, which Hildebrand said is a major problem since about two-thirds of all housing construction in the GTA is for condos.
At least 80,000 new homes must be built annually in the GTA to meet the Ontario government’s goal of building 1.5 million new homes across the province in the next 10 years. Hildebrand said he’d be surprised if that number hits 20,000 this year.
“On the resale side, we’re seeing some signs of stability,” Hildebrand said.
“The resale market is generally viewed as a leading indicator for the new sale market and we’ve never seen a wider gap between resales and new sales than right now. Resale volume is not great, but it’s stabilizing.”
Investors have driven condo sales for years, but it’s tough to attract them with six per cent mortgages and condos priced at $1,400 per square foot.
“It starts to make more sense the closer you can get to $1,000 per square foot,” Hildebrand said. “I think we need to see interest rates going down 200 basis points or we need to see rents rise 20 per cent.”
CentreCourt’s Gavin Cheung
Toronto-headquartered CentreCourt president Gavin Cheung said potential new condo purchasers aren’t seeing a compelling value proposition because “pricing in the pre-construction market hasn’t come back down to be anywhere close to where resale is.”
Cheung thinks projects that launch at prices closer to replacement cost and resale prices will have more traction because they can provide some value.
“If you’re buying in the residential market, it’s not likely a yield play, it’s likely a capital appreciation play,” Cheung said. “When you’re in that mindset, you have to believe that there’s upside relative to your going-in purchase price.”
CentreCourt is a long way off from moving to develop more purpose-built rentals, Cheung stated.
Marlin Spring’s Andrea Oppedisano
Toronto-based Marlin Spring Developments development vice-president Andrea Oppedisano said her company is looking for ways to add value and, seeking to add density in some projects to dilute per-square-foot costs.
While it’s always difficult to obtain building permits, Oppedisano believes municipal officials are gaining an appreciation for the difficulties faced by developers.
“Where we are starting to have those conversations for added density, I would say that we are seeing a little bit more support and staff looking to work with us,” Oppedisano said.
Development charge rates in Ontario are frozen either at the time of site plan or zoning application and remain frozen for two years after the relevant application is approved.
Marlin Spring attempts to take advantage of the frozen rate, which can result in significant cost savings that can be passed on to purchasers.
Marlin Spring is also looking at incorporating multi-generational units into some developments, so costs can be shared among family members, as well as secondary suites to provide income to purchasers.
Anthem Properties’ Michael Ferreira
While the slowdown in Vancouver’s condo market hasn’t been as dramatic as in Toronto, it’s been similar.
“We don’t have the same amount of product that’s under construction and coming to completion that might be at risk of being underwater when it closes,” said Michael Ferreira, senior VP of finance and corporate affairs for Anthem Properties.
Vancouver-based Ferreira noted there are reports a Vancouver luxury condo tower completed last year had 30 per cent of its units unsold.
Regarding condo launches in Vancouver this year, Ferreira said those that sell 25 to 30 per cent of the units are doing pretty well, and then “you’re just grinding it out after that.”
Ferreira thinks there will need to be two or three quarter-point interest rate cuts by the end of the year to give investors sufficient confidence to consider buying condos again. Condo investors are also wary of potential changes to existing regulations.
“The investor is still being made out to be the bad guy in all of this, but they are really necessary,” Ferreira said. “If we can’t get our pre-sales, we’re not going to get the project financing and no housing is going to get built.”