As pre-construction condo sales in Toronto fall to levels not seen since the global financial crisis 15 years ago, developers are now turning to more lucrative incentives to try to attract potential buyers.
Last month, a report from Urbanation found that there were only 1,461 pre-construction condo sales in the Greater Toronto and Hamilton Area (GTHA) so far this year, the lowest number of transactions recorded in the first quarter of the year since 2009, when only 884 sales were made.
According to the report, sales fell 71 percent this year compared to average first-quarter sales over the past 10 years.
Sales in the first quarter of 2024 also represent a drop of 85 percent compared to the first quarter of 2022, in which 9,723 transactions were recorded, according to the report.
The slow sales activity has been attributed to high interest rates, which have resulted in higher construction costs and elevated borrowing costs. In some cases, high interest rates have prevented buyers from closing on previously purchased units because they no longer qualify for a loan.
Urbanation’s report also found that since the market began to slow in 2022, 60 projects, amounting to 21,505 units, in the Toronto region have been put on hold indefinitely.
“Most people don’t know that you can’t build a building unless the developer sells at least 70 per cent (of the units),” Simeon Papailias, managing partner of Royal LePage’s REC Canada, told CP24.com. .
“So if they have to sell at least 70 percent of the units before a shovel goes into the ground in a 200-unit building, that’s 140 units… (There were) 1,500 units sold across the GTA during the first trimester. Of the 70 projects that tried to be launched, seven achieved their real objectives.”
To try to attract more buyers, condo developers are offering incentives like never before, including free or reduced parking, reduced deposits, rental guarantees and mortgage assistance programs, he said.
“Developers who are proactive, who are well capitalized… are giving incentives to investors,” Papailias said.
Christopher Castellano, vice president of sales and marketing at developer Camrost Felcorp, said his company recently concluded a successful incentive program that offered two years of mortgage costs up to a maximum of $90,000 for units priced under $1 million.
He said the developer now has a whole set of new incentives aimed at different groups of buyers.
“I think the way we’ve structured the incentives now really speaks to the current market conditions, the uncertainty of what’s happening in the market, the uncertainty of what’s happening with interest rates,” Castellano said.
“I think when it comes to preconstruction and real estate in general, buyers are, you know, very educated and very knowledgeable about what’s going on in the market. So I think if you don’t offer a good product and you don’t offer competitive incentives, you’re going to lose a buyer.”
Papailias said the incentives now offered by several developers in the GTA are “by far the best” he’s ever seen.
“The people who buy now with these incentives are the same people who will be the benefactors three years from today, when this environment has caused cancellations and delays throughout the province,” he said.
Matti Siemiatycki, director of the Infrastructure Institute at the University of Toronto and professor in the department of geography and planning, said that since the majority of housing stock in Toronto is built by the private sector, project cancellations and delays could now have great impact on housing supply in the near future.
“As demand declines, prices rise and interest rates become an issue…developers are finding it increasingly difficult to build and are scaling back. “We are seeing projects that are canceled in pre-sales and we are also seeing some that have had problems even after construction has started,” he said.
“What we do know is that if there are fewer construction starts today, even when the market recovers, there will be fewer homes on the market for people to move into.”
He said developers have been careful to incentivize buyers without lowering the price per square foot.
“It’s interesting to see how the market has responded because… One of the things you see is that they are trying to offer incentives that do not change the base price of the units. Because that’s where you start to see corrections in the market. If the price of the underlying asset revalues, that can have a long-term domino effect,” he stated.
“So you see them trying to come up with different types of one-time incentives, like free parking or mortgage holidays for a couple of months, or things of that nature to try to attract buyers without resetting the full value of the units because once that reset happens, then that can change the dynamics of the market in the future.”