The market for new condos has shifted... should you?

As 2024 concludes, GTA condo buyers find themselves in a rapidly changing market. Following the price surge of 2021-22, driven by low interest rates, high investor demand, as well as surging construction costs and government fees and taxes, the market has been trending downward slowly since the summer of 2022. Developers are cautious, balancing inventory with a slower pace of new launches, while economic factors, including recent interest rate cuts, signal potential relief for buyers and investors alike.

Average condo prices remain in the Greater Toronto and Hamilton Area as tracked by Zonda Urban in Q3-2024, show a rate of $1,142 per-sq.-ft. (psf), translating to an average unit price of $784,000 at 689 sq. ft. – this is still a high price for the average first-time buyer. There were only 465 new condo sales recorded in the third quarter, and more than 2,300 units have been cancelled in 2024 due to the muted sales activity. Developers are adapting to limited demand by holding back new openings. In Q3-2024, only two projects, comprising 748 units, launched with just 15 per cent sold, underscoring the slow absorption across active projects.

Developer incentives

Developers have introduced various incentives to attract buyers, such as capped development charges, extended deposit structures and rental guarantees. These concessions aim to offset high upfront costs and broaden appeal to investors looking to rent the units out. Buyers should evaluate these options carefully, and consider asking for more in-suite upgrades, as developers are much more willing to negotiate with serious prospective purchasers.

While investor activity has slowed due flat pricing and stabilized rental rates, the longer-term outlook suggests potential gains in both, as slower sales from Q3-2022 to Q3-2024 will result in fewer starts and limited supply delivered to the market in 2027 and 2028.

Many condo developers are shifting the tenure of their buildings away from ownership, as purpose-built rentals are leasing between $4.75 and $5.50 psf, and leasing up quickly. However, due to higher upfront costs of a rental building, these projects are smaller as rentals in comparison to what they would be as condo units.

What this means is that developers are bullish on rental moving forward, and despite an increase in rental apartment starts, the lack of new condo sales will result in a crushing undersupply in three to four years, so this might be the exact time to start investing in a pre-construction condo unit scheduled for completion in 2027 and 2028.

Earlier this year, population growth in Ontario topped 500,000, and there is significant latent demand sitting on the sidelines, saving up for their next move. Despite recent announcements to scale back immigration, demographics support future housing demand.

The Bank of Canada’s recent 50 basis-point rate cut signals the successful effort to stabilize inflation, which has reached its lowest level since 2021. This reduction, combined with anticipated further cuts, should lower borrowing costs, making condo purchases more accessible. By 2025, analysts project that easing rates will foster a more balanced market, potentially boosting both new sales and resales.

Strong fundamentals

Looking ahead, buyers should keep several considerations in mind. Interest rates are likely to continue falling, reducing financing costs and improving affordability for both first-time buyers and seasoned investors. Incentives remain crucial in today’s market, and evaluating their impact on your bottom line is essential. Moreover, the long-term demand driven by continued immigration suggests strong fundamentals for GTA real estate.

Although current sales and rental conditions are muted, the GTA condo market remains underpinned by steady demand growth, suggesting gradual recovery as economic conditions improve. Prospective buyers and investors may find this period a strategic entry point, as incentives, lower borrowing costs and long-term demand could signal a window of opportunity.

As always, do a lot of research, talk to experienced brokers, and hire a trustworthy mortgage broker. Good luck.