New condo launches have been sparse in the Greater Toronto and Hamilton Area amid the higher interest rate environment. In fact, there was just one high-rise condo launch to speak of in the first few months of this year, which is atypical for the region.
And it seems that things have gone from bad to worse. Much worse. Figures provided to STOREYS by Urbanation show that 76 new condo projects that were on track to launch since the market began to slow down in 2022 have been put on hold as of the second quarter of this year. Collectively, those projects were set to bring 24,335 new units to the region.
To put those numbers in perspective, Urbanation reported this past April that 60 projects with 21,505 individual units had been put on ice “indefinitely” since 2022. Going back a little further to September 2023, the research and consultancy firm put those same figures at less than half of what they are now: 31 projects and 8,038 units, respectively.
While Urbanation President Shaun Hildebrand says that it wasn’t unheard of for a developer to put off a condo launch prior to the market slowing down in 2022, it was never for “this long” and “not at this scale.”
Speaking to the latest data, Hildebrand tells STOREYS that, to his knowledge, eight condo projects have “officially” been cancelled, translating to (at least) 741 new housing units that will never come to market. “There are quite a few more [projects] that are on the cusp of cancelling and we are just waiting on official confirmation, with more likely to follow,” he adds.
Urbanation also reported last week that new condo sales had sagged to close to a 30-year low and some 25,893 units were sitting unsold on the GTHA’s market by the end of June, representing a record level. On the presale side of things specifically, just 3,625 new condo units were launched in the second quarter, and of those, just 17% were sold.
It’s clear that buyers are missing from the new condo market, but a just-released report from Urbanation and CIBC underscores the type of buyers that are missing — namely, investors. In fact, it says that, historically, up to 70% of condo presale buyers in the GTA are investors.
For that group, the math simply doesn’t work right now, the report says. Investors tend to rely on rental income, which has begun to lag behind the costs associated with condo ownership. The report shows that “using the entire pool of condo rentals completed last year, 58% had a mortgage and were cashflow negative” — in other words, rents did not cover ownership costs including mortgage, condo fees, and property taxes — while “only 18% had a mortgage and were cashflow positive.”
Speaking specifically to leveraged investors, 77% were cashflow negative in 2023, and that figure has already escalated to 82% in the first half of 2024.
Though interest rates are finally coming down — the Bank of Canada has now dropped its policy rate by a half-point since June to 4.5% — Hildebrand is not convinced that rate cuts, on their own, will be enough to bring the region’s condo ghost town back to life.
“Lower rates will help, but the new condo market became so dislocated from its fundamental value that it will take time to repair. New condo prices were, and still are, too stretched relative to resale prices and achievable rents,” he says. “We need a combination of lower rates, higher resale prices, and higher rents for the math to work again for investors, who will continue to be gun-shy given the difficulties they are facing in the current market. Many are learning a painful lesson, and the same level of enthusiasm for investing in the market may not come back for a long time.”
