Real estate investor Matthew Tully at the Les Jardins townhouse development in Calgary on Sept. 23. Tully acquired a 1,650-square-foot unit in the complex in 2020 and returned two years later to purchase a preconstruction condo in the same development.Gavin John/The Globe and Mail
Amid a housing affordability crisis, new construction is essential to meet the demand of Calgary’s growing population. As home-ownership costs rise beyond the reach of many, investor buyers in the new-build condo market play an important role in securing a steady supply of new homes. Investor activity, however, can create significant challenges for first-time buyers, as competing interests emerge.
“Developers need to cater to investors to get their projects off the ground,” says Natasha Phipps, a Calgary realtor and investment property specialist, pointing at the introduction of incentives, such as free property management and rental guarantees, to lure investors.
These efforts seem to be paying off.
Largely driven by the condo segment, the total number of starts in the Prairie city’s new-build market reached 11,883 in 2023 – the highest since 2014 – as investors flocked to Calgary in search of cash-flow opportunities.
“As interest rates spiked, investors across Canada started looking at other markets [outside Vancouver and Toronto] to make their dollars go further, but also where the numbers make sense in terms of cash flow,” Ms. Phipps says. “That’s what started piquing investors’ interest in Calgary, and that wave has grown because rental rates have increased quite a bit, too, which is really needed when interest rates have risen so much.”
As Calgary’s population continues to boom, buyers looking for short-term appreciation, besides cash flow, are increasingly attracted to Calgary’s new-build condo market.
“Buyers are looking for opportunities they can invest in easily from afar, which points directly to new construction, because they’re turnkey opportunities,” Ms. Phipps says.
For Matthew Tully, investing in Calgary’s new-build market was a no-brainer.
In 2020, he acquired a 1,650-square-foot townhome in Les Jardins, a new residential development in the city’s southeast constructed by local home-builder Jayman Built. Two years later, in 2022, Mr. Tully purchased a preconstruction condo in the same development.
“We realized Quarry Park is a real gem,” he says about the neighbourhood where Les Jardins is located. “There’s so much business development there. The Green Line was supposed to come through, but it still has great access to the bus network, so it’s a really good location.”
The townhomes in Les Jardins in southeast Calgary are built around a central garden and fountain. A Calgary realtor says investors looking to make an easy sale at closing, or assigning a property, is not as successful a strategy in Calgary than it is in Vancouver or Toronto because of land supply.Jayman Built
While Mr. Tully’s plan is to hold on to both properties indefinitely, the main reason he decided to buy a preconstruction condo was the potential for appreciation.
“We knew prices were going up,” he says, noting that since closing on the condo in 2022, he estimates the property has appreciated by at least 10 per cent. “We were fortunate by buying early.”
In 2023, the starting price of a one-bedroom, one-bathroom condo similar to Mr. Tully’s was just under $300,000. Today, a similar unit is listed, on assignment, at $499,900.
But the bonanza for investors could be short-lived.
“I think we’re going to see some volatility in the condo segment due to the sheer number of buyers investing in condos,” Ms. Phipps says, pointing to preconstruction condo buyers looking to make a quick return upon occupancy, a common investment strategy in Toronto and Vancouver.
“They think they can sell easily at closing, or assign it. But assignments are extremely challenging for us to successfully pull off – we’re a very different city in terms of land supply,” she explains. “So it’s putting a lot of these investors potentially in a difficult situation where they were forced to close, and now they’re trying to sell.”
With roughly seven months of supply available, or 1,872 units, Calgary’s new-build inventory in the condo segment is the lowest among Canada’s largest cities, according to Altus Group data. However, despite sustained population growth, over the first half of 2024 condo sales in the city’s new-build market declined by 20 per cent, relative to the first half of 2023, Altus Group data show – and as condo sales in the new-build market stall, the number of starts dwindles.
In August, the number of condo starts dropped by roughly 50 per cent, year over year, while 6,216 remain in the construction pipeline.
“The challenge with the overall market is interest rates,” says Raymond Wong, vice-president of data operations at Altus Group. “So what we’re seeing is a pause in the market because everyone knows that interest rates are coming down.”
Calgary’s new-build inventory in the condo segment is the lowest among Canada’s largest cities, with roughly seven months of supply available, according to Altus Group data.Jayman Built
By contrast, quarterly starts in the purpose-built rental market have taken the lead in Calgary, as government incentives, such as the GST rebate and low cost loans, offset inflationary pressures – a situation that could pose an additional challenge for investors in the new-build condo market.
“What we’re starting to see, especially in the purpose-built rental market, is that people want more space, and some of the condo projects are basically shoeboxes,” Mr. Wong says, suggesting that potential first-time buyers could remain on the sidelines if the options available in the condo market don’t meet their needs, especially as a significant number of people continue to work from home.
“Do they want to rent, rather than carry a mortgage, and have a little bit more space? I think, as the market gets better, condo developers are going to have to figure out what type of space design should they have [for investors] to be able to attract tenants at higher rates.”
Meanwhile, on Sept. 16 the federal government announced the introduction of new mortgage rules, extending maximum mortgage amortization periods from 25 to 30 years for all new-build buyers, reducing monthly payments.
For buy-and-hold investors, this represents an improved cash-flow opportunity. But if the influx of investor buyers seeking to make a quick return continues, new-build prices will remain out of reach for first-time homeowners, explains Andy Yan, director of Simon Fraser University’s city program, urban planner and data analyst, a situation that evidences the power disparities among buyers.
“You have speculation on a number of stages of a project, all pushed towards that ultimate sale,” he says. “The complication is, what happens to the first-time homebuyer? You have various players here with varying power.”
While 30-year mortgages can appear to improve affordability for first-time buyers, in reality this new policy “allows first-time buyers to go into deeper and longer debt,” Mr. Yan says, emphasizing the risks inherent to carrying a mortgage for three decades, as many career- and family-related changes are likely to occur.
“It looks affordable, but it really isn’t.”