New condo sales in the GTA have dropped to its lowest point since 2009, signalling a potential impact to the construction of new condo projects and eventually “serious supply shortage,” according to a report from a market research firm.
While new condo sales increased 118 per cent quarter-over-quarter, the report released Tuesday from Urbanation Inc. states 4,610 units were sold in the second quarter of 2023 — marking a 35 per cent decrease compared to the same time last year.
For the first six months of 2023, 6,727 condo units were sold — marking a 59 per cent decrease from the first six months of 2022 (16,272) and 42 per cent decrease from the 10-year average of 11,516 units sold — marking the slowest first half of the year since 2013.
With uncertainty surrounding the market and a difficult financing environment due to “a sharp increase in interest rates,” investors have become “less interested” in joining the market, Urbanation president Shaun Hildebrand said.
Though sales were 28 per cent below the second-quarter 10-year average, the number of new units brought to market were in line with the 10-year average, Hildebrand said. “There was more supply, it just didn’t sell that well for the most part.”
For Nasma Ali, a broker with One Group, condos in general are sitting on the market longer than they used to — something Ali links to sales being slower in the summertime and interest rates being higher.
The group of buyers for these condos — investors and first-time home buyers just aren’t there.
“Most investors aren’t really scooping up condos anymore because with the interest rates so high — there’s just a huge gap on what they can get in rent versus what they’re paying in mortgage,” Ali said. “And then for first-time home buyers, it’s just so expensive.”
James Frodyma, a real estate agent with Sutton Group Admiral Realty Inc., said potential buyers are “not as confident real estate will appreciate as quickly as it has” in the past.
In the last few years, it was a “safe bet” that if someone bought a presale condo it would appreciate in value once it was brought to market, but, as Frodyma puts it, that’s not always the case now and sometimes presale condos aren’t appraised for the same amount they were purchased for. Frodyma added this would explain why there’s been “tepid interest” in building new condos.
“Things are expensive right now. People are worried interest rates will stay high for the next little while and affordability becomes an issue,” Frodyma said.
Urbanation estimates that more than 10,000 units that would normally come to the market as pre-sales or new supply have been delayed. That figure could double by the end of the year, Hildebrand said.
“This is supply that isn’t going to start construction next year and this is supply that isn’t going to be delivered a few years down the road,” Hildebrand said.
“If you have the population growing at a record pace and supply is gearing up to scale back significantly, it’s going to create some very serious supply shortages in the market down the road,” Hildebrand said.
Recent sales data from Urbanation also shows buyers are looking outside the downtown core to purchase less-expensive units. Of new condo sales in the second quarter of 2023, a “record high” 60 per cent were purchased in the 905 region, while Toronto has a “record low” 14 per cent share of sales.