A condo complex under construction in Toronto in August. A worsening market downturn has prompted a record number of project cancellations this year.Cole Burston/The Globe and Mail
Condo sales in the Greater Toronto and Hamilton Area reached a 35-year low in the third quarter, as a worsening downturn in the market prompted a record number of project cancellations this year.
Only 319 new condo units were sold in the third quarter, down 54 per cent from a year ago and the lowest quarterly total since 1990 when Toronto’s condo market faced a severe crash, according to a quarterly condo report by the real estate research firm Urbanation.
Condo developers in the area scrapped 10 projects, with a total of 2,499 units, in the third quarter, reaching a new record for cancellations.
A total of 18 projects, or 4,040 units, have been cancelled in the GTHA in the year-to-date. The previous record of cancellations in a single year was 15 in 2018.
Only two condo projects with a total of 614 units started construction in the third quarter, which is a 77 per cent decline from a year prior.
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Robert Kavcic, a senior economist with the Bank of Montreal, said the downturn in the condo market has only just begun.
“I believe we are still in the earlier innings of the condo market correcting, especially in the investor-oriented space,” Mr. Kavcic, said, adding this cycle is expected to be measured in years, not months.
While some are concerned about whether these cancellations will constrain housing supply in the coming years, Mr. Kavcic said that the type of housing units being cancelled are not the ones that are in demand.
“The fact is that we have a glut of supply that is made of smaller units and rentals, and that is not the type of housing stock Canada needs,” Mr. Kavcic, said, adding the real demand is behind family-oriented and detached housing.
Urbanation president Shaun Hildebrand said the current state of cancellations is driven by a lack of demand for units that are priced too high, a reversal from why projects were mainly cancelled during the previous peak in 2018.
“Today, projects are cancelling due to insufficient pre-sales and an inability to lower prices [due to high costs] to a level that would attract demand,” Mr. Hildebrand said in an e-mail.
“Back in 2018, projects were mainly cancelling because they had pre-sold quickly and by the time they had all their approvals and were ready to start construction, costs had increased to a level that made projects economically unfeasible.”
The hope is that developers will take note of the lack of demand for small condos and start building larger units for families, said Carolyn Whitzman, adjunct professor and senior housing researcher at the University of Toronto’s School of Cities.
“We’re reliant on the private market to produce supply and hopefully they’re receiving signals,” Prof. Whitzman said, adding the process could take years.
CIBC deputy chief economist Benjamin Tal said it will likely be years before the condo market sells off its excess inventory and for prices to stabilize to a point where developers find it feasible to build again.
“When this all clears, the condo market will be very different,” Mr. Tal said, adding the focus will likely be on building condos for residents rather than developers, and apartment sizes will ideally be larger.