Pre-construction condo sales are plunging in Toronto
Canada’s dream of homeownership is slipping further out of reach for many as the country faces a worsening housing crisis, a report from Reuters highlighted. A sharp decline in pre-construction condo sales is raising alarm bells among economists and real estate experts, who warn of a looming supply shortage that could exacerbate the affordability challenge.
Pre-construction sales, where investors typically purchase condos before they’re built to rent them out, have traditionally fueled construction in major cities like Toronto. However, these sales have plummeted to historically low levels, stalling the funding needed for new housing projects.
“If you think moms and dads with strollers are lining up at condo projects to buy 500-square-foot condominiums, they are not,” said John Pasalis, president of Realosophy Realty, highlighting the crucial role investors play in this market segment.
Several factors are attributed to the decline in investor interest. High mortgage costs, lower prospects for capital appreciation, slower rent increases, and uncertainty about future interest rate drops and government intervention have made pre-construction condos a less attractive investment, Reuters noted.
The lack of pre-sales means construction starts are expected to fall in the coming months, reducing the supply of new homes in the years to come. This is a worrying trend, as Canada needs to significantly increase housing supply to meet growing demand.
“We are not going to balance the market for ownership in the next four or five years,” said Robert Hogue, a housing economist at RBC. He warned that the ongoing demand-supply mismatch could further exacerbate the housing crisis.
Government measures fall short
The federal government has implemented various measures to address the crisis, including recent changes to mortgage rules that allow first-time buyers and those purchasing newly built homes to take loans with 30-year amortizations. However, critics argued these measures may not be enough to incentivize construction as long as investors remain hesitant.
Adding to the complexity of the issue, increasing supply in certain markets, like Toronto, has dampened investor hopes of future capital appreciation. Despite government efforts to control population growth by limiting immigration, demand is still expected to outpace supply.
A recent report by Canada Mortgage and Housing Corporation (CMHC) revealed that new condominium sales were down by more than half in the first six months of 2024 compared to the same period last year.
“Building these large condominium structures is quite difficult these days,” said Aled ab Iorwerth, deputy chief economist at CMHC, emphasizing the challenges developers face in securing funding for new condo projects.
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