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Record number of condos to flood Toronto market in 2023

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A crane stands between condominiums in Toronto’s Liberty Village neighborhood in July 2022.Carlos Osorio/Reuters

A record number of new condos will be completed in Toronto in 2023. Soaring mortgage interest rates Make it difficult for investors to close the property.

About 32,000 condos will hit the city and its surrounding suburbs, according to data from condominium research firm Urbanation Inc. This surpasses the previous high in 2020, when 22,473 units were completed.

Many units are popping up on the market degree of interest Borrowing costs rose, leading to lower property sales and home prices.

Currently, many buyers mortgage eligibility issues, the 5-year interest rate is above 5%. Similarly, lenders are valuing units at lower prices. That means the buyer has to come up with additional funds to make up the difference between the unit’s smaller mortgage and what the buyer agreed to pay based on the lower assessed price.

Pre-construction condominiums that have not yet been built are purchased primarily by investors who plan to rent the units or profit from their resale. A 20% down payment is required to secure the condo before construction. After the condo is built, the buyer has to pay his remaining 80%.

Shawn Hildebrand, president of Urbanation, said: “Investors may be looking to exit the unit before it closes, making it difficult to qualify for a mortgage given what’s going on with interest rates. may be faced with

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This has led to more buyers wanting to move out of their newly built condos and selling their rights to buy new units. This is also known as a transfer sale.

Brigitte Obregon, broker at Re/Max Ultimate Realty, which has been selling pre-construction condos since 2009, said:

Rising mortgage payments have also made it less profitable for investors to own condos.

As of the third quarter of 2022, the average cost of ownership for a condo in Toronto was $3,506 per month, according to Urbanation. By comparison, average monthly rent At $2,733 in the area, condo owners pay an average of $773 out of pocket each month. That’s up from a $235 monthly average in the third quarter of 2021, a $196 shortfall in 2020 and a $17 shortfall in 2019, according to Urbannation.

Pre-construction condominium sales in Toronto have increased over the years, fueled by demand from investors and developers. But since house prices began to fall in 2022, it has become somewhat cheaper to buy prebuilt condos on the resale market.

As of the third quarter of 2022, the average pre-construction condo price was $1,427 per square foot, according to Urbanation. By comparison, the average condo price on the resale market was $891 per square foot.

Vicky Huang, CEO of Bay Street Group, a real estate brokerage that works with Chinese buyers, said, “People are saying, ‘Okay, so we can get better deals in the resale market and the pre-construction transfer market. ‘I’m saying,'” he said. In the resale and pre-construction housing market.

Typical home prices across Canada are down 10% from their February 2022 peak. In the pre-construction market, investors don’t believe property values ​​are rising as quickly as they have in the past. This is expected to further contribute to the slowdown in pre-construction sales in 2023.

Activity has already declined significantly, and by the third quarter of 2022, pre-construction sales reached the lowest level since the global financial crisis of 2008-09. According to Urbanation, dozens of projects lost sales during the quarter.

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