Canada’s Real Estate Insolvencies On Track to Surpass 2009 Levels
Canada’s residential property development sector is experiencing a surge in insolvencies, with experts warning that this trend is likely to continue as developers grapple with higher borrowing and construction costs.
According to data from the federal Office of the Superintendent of Bankruptcy, the number of insolvent real estate companies and projects is on track to surpass levels seen during the global financial crisis.
From January to May 2024, Canada averaged 20 real estate, rental, or leasing insolvencies per month. At this rate, the country is projected to reach approximately 240 real estate insolvencies this year, marking a 57% increase from 2023 and a 13% rise compared to 2009.
These figures do not include receiverships, which are also on the rise. Insolvency Insider Canada reports that the real estate sector accounts for 55% of receiverships recorded so far this year, up from 30% in 2023.
The current challenges can be traced back to 2017 when Toronto’s real estate market experienced a boom in preconstruction condo sales. This surge led to increased demand for construction workers and materials, driving up costs. By 2021, construction costs across major Canadian cities were 34% higher than in 2017. The COVID-19 pandemic further exacerbated the situation, causing delays and additional expenses.
Today, construction costs in Canada’s major cities are 81% higher than in 2017, with the Toronto region seeing a staggering 107% increase. The Bank of Canada’s interest rate hikes have significantly impacted developers, making loans more expensive and putting pressure on their financial stability.
Smaller developers and those lacking financial resilience are feeling the brunt of these challenges. For instance, Maplequest Ventures, a small developer in Brampton, Ontario, defaulted on its loans due to rising interest rates. Similarly, King David Inc.’s luxury condo development in Markham faced difficulties repaying a $54-million loan, leading to receivership for part of the project.
Industry experts, including Colin Doran from Altus Group and Syl Apps from Hines Interests LP, note that this stress in the system is unprecedented in recent Canadian history. With borrowing costs remaining high and demand for preconstruction condos waning, developers are finding it increasingly difficult to pass on higher costs to buyers.
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