Work on a condo building near Sherbourne Street in Toronto continues on June 3.Abhijit Alka Anil/The Globe and Mail
New condo sales in the Toronto region have plunged to their lowest level in nearly three decades, with prospective buyers refusing to pay the expensive asking prices or struggling to qualify for a mortgage because borrowing costs remain relatively high.
Sales of new condos in the Toronto and Hamilton area reached 3,159 in the first half of this year, said Urbanation Inc., an industry research firm, in a report released Thursday. That number is 72-per-cent below the 10-year average and the lowest since 1997, when real estate builders were just starting to embrace condos in lieu of rental-only apartment buildings.
A major factor behind the muted sales is the price of a new condo unit, also known as a pre-construction unit because it has not yet been built.
In Toronto, the average price per square foot was $1,529 in the quarter ended in June, according to Urbanation. That is more than double the $606 price per square foot in 2014. In the regions surrounding the city, the average price per square foot was $1,153 in the second quarter of 2024, compared with $484 in 2014.
That puts the price of a 550-square foot pre-construction condo at about $841,000 in Toronto and $634,150 in the suburbs.
Although sales are down sharply, Urbanation said in its report that there has only been “minor movement” downward in asking prices, which shows how “sticky new condominium prices have become due to high development and financing costs.” Developer expenses have spiked because of the higher cost of materials, labour and loans.
Typically, developers will pass on the costs to the individual condo buyer, many of whom are investors and purchase the pre-construction condos as rental units. For years, investors were able to cover their mortgage and condo expenses with the rent or benefit from the sharp appreciation in condo prices. But, although rental rates are unaffordable for many residents, they are not high enough to cover an investor’s costs.
The average monthly rent for a one-bedroom was $2,452 in the city and $2,413 in the suburbs, according to Urbanation. That is up 50 per cent and 75 per cent over the past decade.
In addition, more condo owners are putting their properties up for sale. Condos that have already been built are cheaper than pre-construction ones, which is giving would-be buyers other options.
Developers have typically sold an average of 56 per cent of their condo units within the first three months of their project launch. It is a different story now, with only 17 per cent sold in the second quarter this year – the lowest level in more than 25 years.
The slowdown will eventually lead to fewer condo units being built. Slower sales means that it takes longer for developers to sell the majority of their projects’ units in order to secure the loans needed to fund construction. It also leads to developers postponing or shelving their projects.
Edenshaw Developments, which is currently developing 4,000 condo units in the Toronto region, put three project launches on hold because of the lack of demand.
“Buyers are sitting there. They’re waiting. But they are just not confident,” said David McComb, the company’s founder and chief executive. “There needs to be something that’s going to occur that’s going to give the confidence back to the investor.”
Urbanation estimates that, over the past two years, developers have delayed launching 76 projects amounting to 24,335 condo units in the Toronto and Hamilton area. Urbanation president Shaun Hildebrand said the continued weakening in market conditions will likely cause more project launches to remain on hold.
“Others that are struggling to meet sales thresholds for construction financing may ultimately be pulled from the market,” he said in a news release. Developers typically have to sell 70 per cent of a condo project’s units in order to get the funding needed to build.
Over the past 12 months, developers completed building just over 28,000 condo units. That is a near record high and adds more condos to the Toronto market that is already inundated with a flood of resale units.