Toronto’s heated condo market looses some steam due to the growing development costs and some of the condo project cancellations. They have produced some caution into Toronto’s hot condo market, and with more project terminations likely yet to come, comments Urbanation, the development research company.
Urbanation found that new Toronto condo launch prices went up 23 per cent year over year at the end of the 1st quarter, 2018. Even with a really large number of condo development projects that were launched in 2017, about 53 condo developments projects with nearly 14,000 units that still had not begun construction.
It’ is not unusual that for a project to take more than a year to go from pre-sale launch to building. Yet about a third of those units — about 4,000 — that are in developments that are still seeking approvals to proceed.
“Our belief is that most will still proceed… but some of the developments are at risk,” said Shaun Hildebrand, Urbanation senior vice-president.
Cancellations such as Liberty Development’s 1,153 Cosmos condos in Vaughan in April, 2018 and the Castlepoint Numa 168-unit Museum Flts last fall in 2017 could remain isolated instances,” he said.
“The Condo development industry’s reputation will decline somewhat in 2018 and more projects will announce cancellation,” Hildebrand said.
But he added that, “the cancellations still just a fairly minor share of overall development.
“The record number of condo units that are now under construction (61,337 at the end of the 1st quarter, 2018) show confidence to the market that projects are proceeding.”
The condo constructions are at a 25-year high — 70,000 apartments in the Toronto region with including purpose-built rentals — construction prices are rising and there is a tie up of projects in the approval pipeline. Even some the projects that are 86-per-cent sold out and have secured construction financing will have a rough time obtaining a construction contract without the approvals to build, said Hildebrand.
The number of new condo sales has returned to a somewhat normal level in the 1st quarter of 2018 — down to 4,219 units compared to 9,744 in the 1st quarter of 2017. The number of projects launched also down by 38 per cent compared to 2017, in part because some of the developers have decided to move up their timelines.
The prices have also decreased recently to $843 per sq. ft. in the 1st quarter of 2018, from $893 per sq. ft. in the fourth quarter of 2017.
In 2018, the new-construction and re-sale condo markets have aligned, states the Urbanation report.
The re-sale condo sales were down 31 per cent compared to the high 2017 levels to 4,297 apartments. The high prices and new mortgage stress tests have discouraged some buyers. The re-sale unit prices have stayed somewhat steady and growing just 2 per cent compared to the 4th quarter of 2017 and up 11 per cent to an average of $661 per sq. ft. year over year.
Unsold new construction condo inventory stays at a 16-year low with less than 8,000 units available, and it is pushing up prices 30 per cent to $914 per sq. ft. from the first quarter of 2017.
The supply shortage is most pronounced in the smallest condos with studios showing the fastest price appreciation of 24 per cent year over year in the first quarter of 2018. One-bedroom condo prices also showed above-average growth, said Urbanation.
That reflects the concentration of development in densely populated, more expensive downtown areas where builders have actually been allocating more space to larger apartments to feed demand from move-up buyers and downsizers.
“There was always the fear over the last decade that too many condo units were built, and we were building too many small units. Now we realize is that is not been the case and we have actually not been building enough small units,” said Hildebrand.
Smaller condos may have been Toronto’s answer to its existing acute affordable housing challenges and, unfortunately, that these units that are now rising in price, Hildebrand said.
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