Toronto’s condo market is experiencing deteriorating sales not seen in decades, according to a new report, which could lead to a stagnating supply in the coming years.
While the city’s lowrise market is in good standing, that is not the case for condo sales, which Urbanation’s GTA Condo Investment analysis says are in “recessionary territory.”
According to the report, prices are too high for pre-sale investors to buy relative to resale prices, rents, and interest rates, and developers can’t lower prices due to high development costs.
Condo sales have plummeted as a result, creating a stockpile of empty units.
“The math doesn’t make economic sense from both the demand side (investors) and the supply side (developers),” the report said.
Moreover, the percentage of pre-construction condos that are sold in advance has hit a 20-year low, with less than 50 per cent of units being purchased.
Pre-construction sales have to reach 70 per cent for a project to begin, hence the current slowdown will dramatically reduce supply in years to come and leave projects incomplete, according to the report.
Toronto Regional Real Estate Board (TRREB) offered similar findings for Q2 2024, highlighting a steep decline in condo sales and a sharp rise in inventory, without any significant reduction in condo prices.
There were 5,474 condo sales in Q2 in 2024, compared to 6,824 sales over the same period last year, a decline of 19.8 per cent, TRREB said.
However, new listings were up 36.5 per cent year-over-year in the second quarter to 16,917.
“Despite a much better supplied condo market over the past year, selling prices have remained relatively flat, especially in Toronto,” TRREB Chief Market Analyst Jason Mercer said in a press release on Friday.
“This suggests that sellers are holding relatively firm on their listing prices. This may be in anticipation of improved market conditions as borrowing costs continue to trend lower this year and next.”
WHAT WILL BRING THE COST OF CONDOS DOWN?
The Bank of Canada announced a second consecutive key interest rate cut on Wednesday, bringing it to 4.5 per cent, which Urbanation says should over time “work along with reduced construction costs to help condo developers eventually bring prices closer in line with market demand.”
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However, a Toronto real estate agent says in order to lure potential buyers off the sidelines, many of whom are currently waiting for further drops in interest rates, governments should implement additional purchasing incentives.
“The government needs to improve financing options, and offer tax reductions for new builds,” Toronto realtor Bethany King told Now Toronto in an email statement on Friday, who also suggested providing lower rates for first-time buyers.
“There are so many young professionals who want to purchase their first condo and begin building equity and unfortunately can’t,” Hodge-Brown continued.
The city says its vacant homes tax (VHT) policy was implemented to help renters and buyers do exactly that.
“The goal of the VHT is to increase the supply of housing by encouraging owners to make their vacant residential properties available for rent or for sale. Homeowners who choose to keep their properties vacant will be subject to the Vacant Home Tax,” Christy Abraham, a city communications advisor, told Now Toronto in an email statement on Friday.
The city has also pledged to deliver on its target of 65,000 rent-controlled homes, including 6,500 rent-geared-to-income (RGI) homes, by 2030.
In an attempt to curb demand for housing, the federal government is implementing caps on the number of international students allowed to study in Canada and has targeted a decrease of 5 per cent in the amount of temporary residents in the country over the next three years.
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While Urbanation doubts those policies will make a difference in 2024, it expects to see the impacts in 2025 and 2026.
“It’s reasonable that population growth will be notably slower in 2025 and 2026. When combined with higher condo completions in the next two years, this will somewhat ease the pressure on the rental market, but it also potentially creates further headwinds for condo investment demand.”
