Developers are expected to delay building 10,000 new condominium units as preconstruction sales plunge amid interest rate hikes.
At the beginning of the year around 35,000 new condo units were anticipated to launch in the GTA. Close to 16,000 units were put on the market at the start of the year, but with fewer than 10,000 units expected for the rest of 2022, at least 10,000 units will be put on the shelf, according to a report Tuesday from market research firm Urbanation .
“As developers grapple with rapidly rising construction costs, labor shortages, large increases to development charges, higher interest rates, and lengthy approval timelines, there appears to be little, if any, room for new condo prices to adjust lower in the current environment, the report says.
The GTA saw new condo sales plunge by 19 per cent from the first quarter to the second quarter of 2022 and dropped a further 24 per cent year-over-year.
The number of unsold new condominiums in the market rose by 36 per cent from the 18-quarter low in the first quarter of 2022, but it declined by six per cent annually and remained 20 per cent below the 10-year average.
In addition, because condo resale prices only declined by 4.9 per cent quarter-over-quarter, with still low inventory levels, there isn’t enough pressure for new prices to drop further for new units. Instead, developer are canceling or delaying their plans to launch, the report says.
“The new condominium market is likely to continue slowing in the near-term from last year’s record high as presale buyers act ambitiously and developers delay new openings, with a focus on finishing projects already underway,” said Shaun Hildebrand, president of Urbanation, in the report.
“However, prices are expected to hold firm amid low inventory and high development costs. The strength in the rental market and shift in demand towards more affordable ownership options should provide support for condominium activity as the market works through the effects of higher interest rates.”
In the GTA there was a record of 123,654 new condominiums either in pre-construction sales or under construction in the second quarter. Now, more new condos are in development in the 905 region following the boom in new condo activity in the suburbs over the last three years.