As preconstruction condo sales in Toronto plummet to levels not seen since the global financial crisis 15 years ago, developers are now turning to more lucrative incentives to try to entice prospective buyers.
Last month, an Urbanation report found that there were only 1,461 preconstruction 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 just 884 sales were made.
According to the report, sales were down 71 per cent this year compared to average first quarter sales over the past 10 years.
Sales in the first quarter of 2024 also represent an 85 per cent drop from the first quarter of 2022, which saw 9,723 transactions, the report noted.
The sluggish 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 as they no longer qualify for a loan.
The Urbanation report also found that since the market began slowing in 2022, 60 projects, amounting to 21,505 units, in the Toronto region that have been put on hold indefinitely.
“Most people don’t know that a building cannot be built 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 per cent of the units before a shovel goes into the ground on a 200- unit building, that’s 140 units… (There were) 1,500 units sold in the entire GTA the first quarter. Out of 70 projects that tried to launch, seven hit their actual markers.”
To try to draw in more buyers, condo developers are offering incentives like never before, including reduced or free parking, reduced deposits, rental guarantees, and mortgage assistance programs, he said.
“The developers who are proactive, who are well capitalized… are giving investors incentives,” Papailias said.
Christopher Castellano, the vice-president of sales and marketing at developer Camrost Felcorp, said his company recently wrapped up a successful incentive program that offered two years of the mortgage cost to a maximum of $90,000 for units priced at less than $1 million.
He said the developer now has a whole suite of new incentives geared at different groups of purchasers.
“I think the way we’ve structured the incentives now really speak to the current market conditions of the uncertainty with what’s going on with the market, the uncertainty of what’s going on with interest rates,” Castellano said.
“I think when it comes to preconstruction and just real estate in general, purchasers are, you know, they’re very educated and they’re very savvy as to what’s going on in the market. So I think if you’re not offering a good product and you’re not offering competitive incentives, you’re going to lose a purchaser.”
Papailias said the incentives now being offered by a several developers in the GTA are “by far the best” he has ever seen.
“People who buy now with these incentives are the same people who are going to be the benefactors in three years from today when this environment has caused cancellation and delays across the entire province,” he said.
Matti Siemiatycki, the director of the Infrastructure Institute at the University of Toronto and a professor with the department of geography and planning, said given that the majority of the housing stock in Toronto is built by the private sector, project cancellations and delays now could have big impact on housing supply in the near future.
“As demand declines and as prices have risen and as interest rates have become an issue… it’s becoming harder for developers to build and they’re scaling back. You’re seeing projects getting cancelled pre-sale and you’re also seeing some that have struggled even after construction has started,” he said.
“What we do know is that if there’s less starts today, then even as the market picks up, there will be fewer homes on the market for people to move into.”
He said developers have been careful to incentivize buyers without dropping 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’re trying to provide incentives that don’t change the base price of the units. Because that’s where you start to see market corrections. If the underlying asset price gets revalued, then that can have a long term knock-on effect,” he said.
“So you see them trying to bring forward different types of one-off incentives like free parking or like mortgage holidays for a couple of months, or things of that nature to try to bring buyers in without resetting the overall value of the units because once that reset happens, then that can change the market dynamics going forward.”