A record number of new condo units will be completed in Toronto in 2023, just as skyrocketing mortgage rates make it harder for investors to close on their properties.
Nearly 32,000 condos will hit the city and surrounding suburbs, according to data from condo research firm Urbanation Inc. That surpasses the previous high in 2020, when 22,473 units were completed.
The raft of units are coming on the market after jumps in interest rates have ramped up borrowing costs and led to a drop in real estate sales and home prices.
Now, many buyers are having problems qualifying for a mortgage, with five-year interest rates topping 5 per cent. As well, lenders are appraising units at lower prices, meaning that the buyer has to come up with extra funds to make up the difference between the smaller mortgage for a unit, based on the lower appraised price, and what the buyer agreed to pay.
Preconstruction condos, which have not yet been built, are mostly bought by investors who plan to rent their units and/or profit from a resale. To secure a preconstruction condo, a 20-per-cent down payment is required. After the condo has been built, the buyer is required to pay the remaining 80 per cent.
“Investors could be looking to exit before they have to close on the unit and they may face difficulties qualifying for a mortgage given what’s happening with interest rates,” Urbanation president Shaun Hildebrand said.
This has led to an uptick in buyers trying to get out of their newly built condos by selling the right to buy their new unit, also known as an assignment sale.
“A lot of people are assigning because they can’t qualify for a mortgage nowadays,” said Brigitte Obregon, a broker with Re/Max Ultimate Realty who has sold preconstruction condos since 2009.
Higher mortgage payments have also made it less profitable for investors to own condos.
The average condo ownership cost in Toronto was $3,506 a month as of the third quarter of 2022, according to Urbanation. In comparison, the average monthly rent in the region was $2,733, which left the condo owner paying an average of $773 out of pocket every month. That is up from an average shortfall of $235 a month in the third quarter of 2021, $196 in 2020 and $17 in 2019, according to Urbanation.
Preconstruction condo sales in Toronto had been on the rise for years, driven by demand from investors and developers. But since home prices started to fall in 2022, it has become somewhat cheaper to buy an already built condo on the resale market.
The average rate for a preconstruction condo was $1,427 a square foot as of the third quarter of 2022, according to Urbanation. In comparison, the average price for a condo on the resale market was $891 a square foot.
“People are saying ‘Okay, now it seems like I can get the better deals on the resale market, or the preconstruction assignment market,’” said Vicky Huang, chief executive of Bay Street Group, a real estate brokerage that works with Chinese buyers in the resale and preconstruction housing market.
The typical price of a home across Canada is down 10 per cent from peak prices in February, 2022. In the preconstruction market, investors are not seeing the value of their properties grow as quickly as it has in the past. That is expected to further contribute to the slowdown in preconstruction sales in 2023.
Activity had already dropped significantly, and by the third quarter of 2022, preconstruction sales hit their lowest level since the 2008-09 global financial crisis. Dozens of projects had no sales during the quarter, according to Urbanation.
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Montreal home sales down 36% from January 2022: Quebec real estate association
MONTREAL — The Quebec Professional Association of Real Estate Brokers says Montreal’s January home sales fell to a level not seen since 2009 as the market slowdown continued.
The association says last month’s sales totalled 1,791, down 36 per cent from 2,816 in January 2022.
Charles Brant, the association’s market analysis director, says these numbers mean activity is approaching a historic low for the month of January and come as rising interest rates are weighing on homebuyers.
He says first-time homebuyers in particular are taking a cautious wait-and-see attitude despite recent drops in prices.
The median price of a single-family home edged down seven per cent to $500,000 year over year, while condos dipped three per cent to $370,000 and plexes dropped six per cent to $675,000.
As median prices fell so did new listings, which hit 4,598 compared with 4,808 a year ago.
This report by The Canadian Press was first published Feb. 7, 2023.
The Canadian Press
B.C. residential real estate investors unfairly ‘painted as speculators’: BCREA
Statistics Canada released data last week revealing 23.3 per cent of B.C. homeowners are also investors in the market. The Vancouver census metropolitan area (CMA) had an overall investment rate in condominiums and houses of 21.3 per cent.
“Investors often get kind of painted as speculators who are out to buy up housing and do nothing with it, or flippers or any other kind of pejorative terms that we add to investors. But what this data shows, and what’s good to understand, is that they’ve really invested a lot in a primary rental in Canada,” said Brendon Ogmundson. “A lot of the rental units that are being provided are smaller investors who own one unit and are renting it out.”
Statistics Canada defines an investor as an “owner who owns at least one residential property that is not used as their primary place of residence.”
In B.C., 73 per cent of properties with multiple dwellings were owner-occupied investment properties. Investor-occupants are more common in the province, making up 9.6 per cent of owners.
This is due to a higher proportion of properties with multiple residential units – 11.7 per cent – such as laneway units or basement suites, according Statistics Canada. The national statistics agency said these types of units are more likely to be owner-occupied.
“So many owners in B.C. have chosen to also be landlords by renting out their basement suites or laneway houses and it’s way, way different than any other province in this dataset,” Ogmundson said.
Statistics Canada data breaking down homeowners by investor-type.
The region of Greater Vancouver A or Electoral Area A, which includes the University Endowment Lands, Barnston Island, Howe Sound communities, Indian Arm and Pitt Lake communities, had a higher proportion of houses and condominium apartments used as an investment at 42.1 per cent compared with the rest of the region.
The City of Vancouver had a lower proportion at 32.5 per cent.
This difference is attributed to students attending the University of British Columbia, who are more likely to be renters or live in a second property owned by a family member, according to Statistics Canada.
The proportion of condominium apartments owned for investment purposes by non-resident investors was the highest in B.C. among the provinces – seven per cent.
The rate of condominium apartments used as investment was lower in the Vancouver CMA (34 per cent) than the rest of the province.
Across B.C., non-residents and out-of-province investors owned 43,890 houses used as an investment. This number was typically higher in areas near the Alberta border.
Out-of-province investors owned 1.6 per cent of homes in B.C., while in-province investors accounted for 9.8 per cent of all investors.
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