Canada's Condominium Magazine
New condo pricing increased to $816 per square foot in Q3, 2107, for unsold inventory. Pre-build prices per square foot may not reflect inventory prices. As previously reported in Condo.ca, this is due to increased demand for condominiums in the GTA — also reflected in higher prices for resale condominiums — as other home types moved out of reach for many buyers. Condo.ca reported on a Ipsos Reid poll showing a sharp shift towards condominium apartments as a preference in Toronto, especially in pre-build condos. [See “Pre-Build Condos Growing in Popularity”>>]
The good news — inventory up slightly
The good news is that unsold inventory in condominiums increased “for the first time since Q4-2015, rising to 7,618 units after falllingto a 15-year low of 6,688 in the previous quarter,” according to a report from Urbanation, who track the new condominium data. The bad news, depending on the location you prefer, the downtown core (former City of Toronto) is pricing at around $991 per square foot for unsold new inventory.
Although the slight increase in inventory is good news, 7,618 represents 47% below the 10-year average inventory of 16,304. Again, this reflects substantially increased demand. More projects will need to come online to fulfill increasing demand for condo apartments.
With resale market inventory also low — especially relative to the demographic situation in Toronto — this keeps the pressure upwards on price. Sales of new condos moderated somewhat, after turmoil caused by new rules from the Ontario government, dropping to 4,577 condo apartments sold in Q3, 2017. This represents a “30% decline from last year as fewer projects came to market following an explosive first half that saw new launches more than double and sales soar by 67%,” concludes Urbanation.
A new record — 26,452 new condo units sold
In the first nine months of the 2017 year, which saw a high-demand market in the first few months, followed by a “wait and see” pause after new rules were imposed, 26,452 new condominium units sold. It is anticipated that up to 12,000 additional condo units could move in the final quarter. Urbanation projects 2017 at 34,000 new condominium units sold.
If this projection proves out, this would far surpass “last year’s record of just over 27,000 sales and the previous peak of approximately 26,000 units in 2011,” reports Urbanation
Urbanation also predicts 2018 will see a “slowdown in sales” over 2017, which may move inventory levels up somewhat, helping moderate pric increases.
Resale and new condos diverge
According to the report, new condo pricing is diverging from the resale market trends:
“Resale condo apartment prices averaged $648 psf in Q3-2017, edging down slightly from the previous quarter ($650 psf) for the first time in three-and-a-half years as sales declined 26% year-over-year following the Ontario Government’s Fair Housing Plan introduced earlier in the year. However, market conditions remained firm with a sales-to-listings ratio of 60% (a balanced market is between 35% and 50%), keeping resale condo prices 27% higher than a year ago — a deceleration from the 31% annual growth recorded in Q2-2017.”
Rise or rental properties
One of the reasons cited by the report for the increased popularity of new over resale is the “quick rise in rents” which has been motivated by a very limited supply of vacant rental properties. New condos are generally prefered by people intending to rent for income.
The rental market currently relies heavily on condominium owners to fill gaps in supply from more traditional landlords. With the short supply, and some people in “wait and see” mode for new housing, this situation is projected to worsen. The rental market is already a “Landlord’s market” with “any price goes” on the front end. [Condo.ca previously reported on the shortfalls in rental properties>>]
Average rents increased
As Condo.ca reported, rents are on the rise on the “front end.” Due to new rules that limit increases to existing tenants, landlords are front-loading their profits with new tenants. With short supply, this Landlord’s market has driven prices up “10% annually to $2.98 per square foot as condo completions fell to a four-year low of approximately 15,000 units in the last 12 months.
Urbanation, however, reports on the increase in number of units under construction (as opposed to completion), which is at a “three-and-a-half year high of 54,715 in Q3 2017” — with completions projected to be 20,000 units in 2018. Urbanation adds that completions “could surpass the previous high of 21,000 units in 2014, easing some pressure off the rental market” in 2018.
“After closing out 2017 with a record year, the new condo market is poised for moderation in 2018. A more cautious approach for both developers and buyers in the coming months will help to ensure the transition to a more sustainable pace of activity is orderly”, said Shaun Hildebrand, Urbanation’s Senior Vice President.