First off, I would like to give credit where credit is due: all of the information provided here was from a seminar I attended by Urbanation. They are the leading research company in Toronto for condos rentals and the commercial real estate market.
Here are some of the basics:
We are going to have a housing supply issue (Province wide) likely after 2028 because new condo construction (sales of new projects) have almost completely halted, which will lead to a shortfall of our much-needed rental requirements. Condos are critical for our rental market.
Condos represent 50% of the resale market under the $1 million dollar price point in Toronto.
We have not seen new condo construction this low in years. 2024 will be the lowest level of new condo sales since 1991.
We need about 20,000 to 30,000 new units a year to keep up with rental demand.
This year and likely until 2027, we will have a record number of condos coming to the market about 34,000 a year. After that is when they predict we will see a complete stop. So after 2027 we will not be able to satisfy the demand for the amount of housing required.
A lot of the inventory in our current sales stats which (provided by TRREB) are actually new construction units. There are lots of sellers trying to ‘assign’ or sell their new construction units. This is different from resale units. One reason they are not selling is because there's quite a price difference between resale and new construction. So if a buyer has a choice, with higher interest rates, resale is the more economical option.
The gap between buying a new construction condo versus a resale condo is about 32% (so new construction price per square foot (PSF)is about 32% higher than the resale PSF.
Many times I get asked why there are not larger condos and the main reason for this is that the city of Toronto has increased the costs for Developers by a 1000% to build two bedroom condos which is alarming! Developer profits have reduced dramatically over the years because of increased costs both in hard materials but also in developmental costs. Developers right now are averaging about a 9 to 12% profit margin.
For investors that were buying new construction, the higher price of buying the unit doesn’t allow them to make money given where rental rates are. On avg. they are losing around $600/month (on new construction) because of the costs involved.
Condo Resale Market:
Prices are lower right now however not across all types of condos. For ex. while studio apartments have seen the biggest decline in price, there has actually been growth in the three bedroom segment, the under $600k segment and the $2million price point (that's been about 9%! because that segment of the market is not as sensitive to interest rates).
Rentals:
‘Studio’ rentals has seen the largest decline in rates/prices
Prices for fall 2024 have been lower to do a reduction in non-permanent residents and the influx of new condos - but the expectation is that will just be temporary.
MY THOUGHTS:
Ultimately we are going to see a massive decline in inventory after 2028 (or 2029) because there will not be an influx of new construction available for rental or for sale. If you are an investor and you are not rate sensitive, now is a great time to buy and I would say possibly even into this December because of the inventory levels. I would suggest buying resale over new construction because of the price differential and your option to break even is higher with a resale property right now.
Once we hit the projected inventory shortages either way you will be in a great position because you own and can either sell or continue to rent out if you have the tolerance for being a landlord.
Right now the condo market is in a buyer's market (in certain segments). If you are a first-time home buyer and can buy after December 15th (because of the new regulations that came into place recently) there will be more opportunities for you. This condo shortage doesn't only apply to downtown Toronto there are some areas in the 905 which will also experience this but have also seen an influx of population from Torontonians leaving Toronto and wanting to move to other areas such as Simco, Hamilton, Durham, Niagara. If Toronto is not your comfort zone not to worry I have agents in that area that I trust completely and that can help you with a purchase so you should you decide so if you are somebody that loves new construction there is a big assignment market right now so if you are leaning more towards something brand new either for yourself or as an investment there are opportunities to be had with assignments.
These are all my thoughts as of right now. The market is always changing so anything is possible. 😊
Comments