Despite anticipated easing of interest rates later in the year, the Toronto real estate market, particularly the condominium sector, continues to grapple with significant hurdles, dampening investor and buyer enthusiasm.
Following a sluggish recovery from last year’s market downturn, exacerbated by high lending rates, soaring living costs, and broader economic challenges, the condo market in Toronto finds itself in a precarious position. Developers are shelving projects due to tepid interest, even as the city contends with a housing crisis necessitating rapid construction of new units.
Adding to the concerns is the revelation of a near-record high in resale condo inventory, underscoring the market’s struggle to attract buyers. Local realtor Robert Marsiglio observed a surge in listed units, approaching levels unseen since October of the previous year when over 5,797 condos inundated the market amid affordability concerns and steep mortgage rates.
Last week, Marsiglio reported that the city was within a hair’s breadth of that record, with inventory surpassing the threshold by Thursday evening. The trend follows a lackluster April, where condo sales lagged behind new listings, reminiscent of the pandemic-hit April 2020.
Last month’s sales accounted for a mere 38.4% of new listings, signaling a distressing imbalance in market dynamics. Although technically classified as a buyer’s market, the exorbitant prices render transactions sluggish, prompting Marsiglio to label it as more of a “frozen market.”
While this may spell disappointment for realtors and sellers, residents anticipate a market correction, anticipating a drop in prices to facilitate transactions. However, past trends indicate resistance to significant price adjustments, raising doubts about the prospects for prospective condo buyers amidst market stagnation.
Developers scrambling for incentives
As developers grapple with dwindling demand for preconstruction condominium units, they’re resorting to unprecedented measures to entice buyers, including reduced deposits and mortgage assistance programs.
Since mid-2022, a staggering 11,595 units across 29 projects in Toronto have been delayed, reflecting the industry’s struggle amid high interest rates and waning market confidence, as per a recent report from real estate research firm Urbanation. The first quarter of 2024 witnessed a drastic reduction in new launches, with only four projects entering the market.
To stimulate sales, developers are rolling out a diverse array of incentives targeting both buyers and brokers. These offerings include reduced or free parking, waived development levies, deposits below 15%, broker commissions of 5% or higher, interest on deposits, and mortgage assistance initiatives, as highlighted by Urbanation.
Simeon Papailias, managing partner of Royal LePage’s REC Canada, emphasized the pivotal role of incentives in driving sales amid sluggish demand for preconstruction units. He noted that while incentives are not new, their prevalence has increased significantly in response to current market conditions, saying “people can’t expect consumers to be taking on all of the risk when there are such high interest rates.”
Toronto developer Camrost Felcorp recently offered to cover two years of mortgage costs, up to $90,000, for units priced under $1 million. Emblem Developments meanwhile adopted a reduced down payment scheme of 10% paid over two years, easing the financial burden on buyers.
Daniel Foch, a Toronto-based realtor and director of economic research with RARE Real Estate, highlighted the trend of developers boosting commissions to buyer agents, effectively acting as a cashback system. While not all developers are offering incentives, those seeking to finalize sales have become more aggressive, recognizing the urgency to secure financing for construction.
“They don’t want to lower the value of the unit because that would devalue the product,” Foch said. “So this offers them another alternative to try to sell the unit.”
The firm’s founder Yair (Ryan) Rabinovich described the current market as the slowest he’s witnessed, emphasizing developers’ obligation to deliver housing amid a shallow buyer pool. With the Bank of Canada’s consecutive interest rate hikes since March 2022, the market slowdown has raised concerns about the future of new builds.
Tim Syrianos, principal broker and owner of Re/Max Ultimate Realty, warned of an impending supply challenge, as high-rise buildings typically take five years to complete.
“There’s going to be a real supply challenge in the coming years,” he warned. “So how can housing get more affordable when there is even less supply than what we have now?”
Information for this story was found via blogTO.com, Toronto Star, and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
