We answered your questions about the state of Canada’s preconstruction markets, as sales this year reached their lowest level in decades.Cole Burston/The Globe and Mail
On Sept. 25 at 11 a.m. ET, real estate reporters Rachelle Younglai and Shane Dingman answered reader questions on the state of Canada’s preconstruction markets, as sales this year reached their lowest level in decades. Investors are leaving in droves, leading developers to cancel projects and leaving buyers with mortgages worth more than the value of the property.
Readers asked whether preconstruction condo prices will continue to drop, its effects on the rental market, and whether this means it’s a good time to buy or sell a home. Here are some highlights from the Q+A.
The state of the preconstruction condo market
Is the disappearance of investors in the preconstruction condo market connected with Trump’s tariffs on Canadian goods?
Rachelle Younglai: Investors were shying away from preconstruction condos before Trump was elected and embarked on his trade war. However, the tariffs are contributing to the economic uncertainty so in that sense that could be giving investors pause.
Given the current downturn in the real estate market, are builders generally open to renegotiating purchase prices? There have been reports of banks appraising preconstruction units significantly below the original purchase price.
Shane Dingman: I’ve been watching the challenges that buyers have had on closing condos they purchased through preconstruction, and I can say that almost universally the answer will be “no” if buyers ask to renegotiate prices agreed to at an earlier date. These contracts are usually quite airtight, and while it puts some buyers in an unbearable position, the alternative of “walking away” often leads to litigation where they not only lose deposits, but pay the developer for any losses they incur when re-selling an abandoned unit.
Toronto preconstruction condo market downturn will reverse, housing agency says
Without a policy change by provincial and federal governments, how can the pre-sale or condo market ever recover? With the rising cost of construction, how is it ever feasible for developers to build?
Younglai: Developers say development charges is one of the reasons construction costs are high and the Carney government has said it would cut development charges in half. Though, that has not happened yet. I wouldn’t put the recovery of the condo market solely on the feds and provinces.
With foreign investment stifled, will condo prices reset to income levels of Canadians? And if so, at what ratio?
Younglai: Today, the bigger factor weighing on condo prices is the number of new condos coming on the market. Although the foreign buyer ban has undoubtedly weakened demand, what is bringing prices down is the spike in condo completions. Prices are down about 28% on average since their peak in 2022. That being said, in the Toronto region, the average price of a condo is still in the $690,000 range.
Based on past dips like this in the Toronto real estate market, what is your best guess on when we will hit bottom, and how quickly do you anticipate the market will rise?
Younglai: If we use history as our guide, the current downturn could take many more years to recover. CMHC, the federal housing agency, put out a report that looked at how long it took condo prices to recover after the 1990 property downturn. Back then, it took about eight years for condo values to stop falling. And we are currently in the fourth year of a condo downturn. Another place to look is the resale market – often strong activity in the resale market will spill over into the preconstruction market.
It’s much easier to buy a condo today than in previous years, says Rachelle Younglai.DARRYL DYCK/The Canadian Press
How can we change the financing of condos so that end users, rather than investors, are the primary purchasers? Livability rather than making money should be the primary driver of the design of condominium homes.
Dingman: Well, if you want to know how to chase investors out of the condo market, look no further than Toronto and Vancouver. Right now the only product selling at any sort of velocity is aimed at people intending to live there. The only challenge is that this product is a little more expensive than what you might like to see in terms of “affordable.”
When do you think it will be a good time to buy a condo? In one or two years?
Younglai: I am not a realtor so don’t take this as advice. But it is much easier to buy a condo today than in previous years. There is so much supply of condos (both newly built and older products) that you will have a lot of options and very little competition.
Is there a better model than preconstruction sales elsewhere that Canada could adopt?
Dingman: Firstly, there are different models for condominium construction – in many parts of the U.S. they finance buildings essentially “on spec,” as in build and then sell to buyers. It’s been described to me that Canadian lenders are more cautious and like to hedge risk, and for many years the preconstruction market worked amazingly well, delivering hundreds of thousands of condos over years in Canadian cities.
The challenge today has less to do with the pre-con model than with the cost of the units: rising land costs, construction costs and some development charge costs all contributed to make the average condo unit market for close to $1,000 per square foot. When it became more expensive to finance the debt on these purchases they stopped making sense for a lot of buyers. Now builders are stuck with land they purchased based on assumptions about what they could sell it for. Many of them are struggling to find ways to do something cash-positive with those investments.
For investors, if you bought post-2018, rent never came close to covering their mortgage and other fees. Why wouldn’t it be rational to assume condo prices will continue to come down further to an equilibrium where rental income would cover most of your costs?
Younglai: I think that is a rational assumption. Some developers and condo research firm Urbanation have said that prices have to come down to make the preconstruction condos attractive to investors again. Currently, investors are not interested in preconstruction condos because they can’t make money on price appreciation and/or they are burning through cash every month because their rental rates are not high enough to cover their mortgage/condo expenses.
Number of GTA homes being taken over by lenders is skyrocketing
How long will it take for the condo oversupply to be absorbed to allow developers to once again start building?
Dingman: This is actually somewhat of a misnomer – there’s still a lot of building happening right now. What we’re hearing is that because nothing new is selling in the preconstruction space, the market is a little like Wile E. Coyote running towards a cliff: there will come a time in a few years when there’s nothing being delivered and less under construction. Several years ago we had years where fewer than 4,000 new condos were delivered, and then we arrived at moments like now, where close to 20,000 condos will be delivered in 2025. As for when the stock will get absorbed, right now there are units that are going unsold in finished buildings that developers are renting themselves. Until that kind of inventory disappears, you won’t see a lot of similar product being built.
Real estate in Canada
The foreign buyers tax seems to be more a political statement rather than a reasonable economic policy. Is there a prospect for it to be eliminated?
Younglai: The foreign buyers tax is expiring at the end of next year. Could it be eliminated before the end of 2026? Maybe. Developers are putting pressure on the federal government to get rid of it because preconstruction sales are so low. And the feds are concerned about the downturn in the preconstruction condo market. But so far, the feds have not said they are open to revising the foreign buyer tax.
Rental rates have dropped, due to the supply and demand. How long before you see rents rising as supply does not meet demand?
Dingman: While I don’t have a crystal ball, I think it’s worth understanding what’s at play in today’s market. Off the top there’s not one rental market, there are many that break down not just by city and province but also by unit type and location. In some parts of Toronto, for example, there was a lot of recently built condominium apartment rental product completed in the last two years: tens of thousands of apartments have been finished since 2024 began and a good chunk of those went to the rental market.
That slowed and then stopped rent price growth in that sub-market, but if you wanted to rent a house in one of Toronto’s most desirable neighbourhoods, you haven’t seen a decline in rental prices. As to demand, there’s a lot of speculation about how things such as the cuts to foreign student enrolments in Ontario have sapped demand, among other immigration policy changes. So far I’m not positive when we’ll see demand exceed supply in some of these sub-markets again, so I don’t currently see an obvious pathway to rising rental rates.
Cities like Calgary have also seen increased attention from investors, says Shane Dingman.Louis Oliver /The Globe and Mail
How will the preconstruction condo market crisis impact the real estate market outside of Ontario?
Dingman: Great question, though I note the pre-con crisis is also affecting Vancouver’s market to a slightly less intense degree. By way of answering, I’ll say that a great many of those people who invested in pre-con condos still have money and still want to invest in housing and are looking for a safe place to do it. I have spoken to a number of brokers and dealers who have taken their Ontario condo investor clients out to Alberta and gotten them into rental four-plexes and other multi-family rental product using financing backstopped by CMHC programs such as MLI-select. These investments are just as speculative in some ways, but if you look at the growth in this kind of product in cities like Calgary and Edmonton, it seems pretty clear that some of that giant wave of investor money flowed from other parts of the country when the outlook dimmed elsewhere.
Is governmental red tape making it harder to build more housing and move the economy forward?
Dingman: Everyone defines red tape differently: a tax on foreign buyers could be considered red tape, some developers call high development fees red tape, in some cases environmental assessments are considered red tape. I tend to think that the largest and longest-lasting source of “red tape” is in the planning process, which can be very beneficial at times (planning is the process by which we decide where to put polluting industries: next to daycares and schools or not next to those?) but can and has been weaponized at different times to slow down or block development of some types of housing entirely.
In many cases, government is the tool regular Canadians use to express a preference for keeping their leafy street of single-family homes from being converted into multi-residential housing for rental. Is that red tape? I think there’s no question that when you remove planning friction from the system you get more housing built, but some types of red tape are prized by some groups and other types less so.