According to new Urbanation Inc. research, the Greater Toronto Area is expected to see a record number of new condo units completed in 2023. According to Shaun Hildebrand, president of Urbanation, the real estate data analysis firm expects nearly 32,000 new condo units to be completed this year in the GTA — more than the previous high of 22,473 units completed in 2020 — as well as 7,740 new purpose-built apartments — the highest in at least three decades.
According to Hildebrand and Simeon Papailias, managing partners of Royal LePage’s REC Canada, the increased supply is unlikely to offset the drop in property listings and vacancies caused by rising interest rates and inflation.
Due to pandemic-related construction delays and supply-chain issues, condo completion fell to 13,885 in 2021, the lowest number since 2017. “So we’re still making up for some ground lost in 2021,” Hildebrand explained.
Housing Shortage Due to Rising Demand and Decreasing Pre-Construction Condo Sales
Shortages are likely to persist this year as demand rises in the face of record immigration numbers and declining pre-construction condo sales, which fell 79% year on year in the third quarter of 2022 due to rising interest rates and construction costs.
“With record-high immigration targets in the coming years, population-driven housing demand will continue to rise, and we’ll need more housing,” Hildebrand said. “We’re also seeing a significant slowdown in new project launches, so we’ll be dealing with significantly declining completions in four or five years.”
“We’re talking 30,000 doors across a population of six million. It is insufficient. “It will take ten years and 50,000 doors to achieve a balanced market, which means a buyer has a fair opportunity,” Papailias said.
The majority of the new condos have been pre-sold to investors who intend to rent the units out or profit from resale.
“Approximately 97% of the units that are expected to be completed in 2023 have been pre-sold,” Hildebrand said.
Thousands of pre-construction buyers who purchased during the pandemic are now facing ballooning mortgage rates that have tripled in less than a year, increasing borrowing costs.
A 20% down payment is required to secure a pre-construction condo, with the buyer paying the remaining 80% after the condo is built.
Rise in Assignment Sales Due to Skyrocketing Mortgage Rates
According to Papailias, a concerning rise in assignment sales has occurred as a result of skyrocketing mortgage rates — a legal transaction in which the original pre-construction condo buyer transfers the rights and obligations of the purchase agreement to another buyer.
“We’re seeing the number of assignment requests double and even triple because people are afraid they won’t be able to qualify,” Papailias explained. “People are thinking there’s no way we can qualify for a $800,000 mortgage at 5%, and those people are looking to get out of the deal.”
While the new supply is unlikely to have much of an impact on pricing for prospective buyers, Hildebrand believes it may help alleviate the city’s soaring rents.
“We could see some impact on rental prices because most investor held units will inevitably be put up for rent, as they always do. This is in addition to the increase in purpose-built rental completions,” he explained. “I don’t think it will cause rents to fall, but I think it will help level them out.”
According to Papailias, the new units are a good sign for tenants and, in the long run, prospective buyers.
“The news of more than 30,000 doors coming to market will be a breath of fresh air to tenants in the GTA, as 90% of these units were purchased by investors who will rent them out in the first year,” Papailias said.
“At least 50% of investors sell in the second year, so it should give 2024 first-time homebuyers a chance to get into their first place.”
