Achi news desk-
As pre-construction condo sales in Toronto plunge to levels not seen since the global financial crisis 15 years ago, developers are now turning to more lucrative incentives to try and entice potential buyers.
Last month, a Trefoli report found that there were just 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 there were no but 884 sales were made.
According to the report, sales were down 71 percent this year compared to average first quarter sales over the past 10 years.
Sales in the first quarter of 2024 are also an 85 percent drop compared to the first quarter of 2022, which saw 9,723 transactions, the report noted.
The slow sales activity has been attributed to high interest rates, which have led to higher construction costs and higher 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 Trefoli report also found that since the market began to slow down in 2022, 60 projects, totaling 21,505 units, in the Toronto region have been put on hold indefinitely.
“Most people don’t know that a building can’t be built unless the developer sells at least 70 percent (of the units),” Simeon Papailias, managing partner of REC Canada Royal LePage, told CP24.com .
“So if they have to sell at least 70 percent 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 GTA whole in the first quarter. Out of 70 projects that attempted to launch, seven reached their actual markers.”
To try to attract more buyers, condo developers are offering incentives like never before, including discounted or free parking, reduced deposits, rental guarantees, and mortgage assistance programs, he said.
“The developers who are proactive, who are well capitalized… give investors incentives,” Papailias said.
Christopher Castellano, vice president of sales and marketing at the developer Camrost Felcorp, said that his company recently completed a successful incentive program that offered two years of the cost of the mortgage to a maximum of $90,000 for units for less than $1 million.
He said the developer now has a whole series 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 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, buyers are, you know, very educated and they’re 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 being offered by several developers in the GTA are “by far the best” he has ever seen.
“The people who are buying now with these incentives are the same people who are going to be the benefactors three years from now when this environment has caused cancellations and delays across the entire province,” he said. .
Matti Siemiatycki, director of the Infrastructure Institute at the University of Toronto and a professor with the department of geography and planning, said that given that the majority of the housing stock in Toronto is being built by the private sector, project cancellations and delays could have happened now. major impact on housing supply in the near future.
“As demand goes down and prices go up and interest rates become an issue…it becomes harder for developers to build and they scale back. You see projects being canceled before they are sold and you also see some that have struggled even after construction has started,” he said.
“What we do know is that if there are fewer 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 entice buyers without dropping the price per square foot.
“It’s interesting to see how the market has reacted because… One of the things you see is that they try to provide incentives that don’t 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 is revalued, then that can have a long-term knock-on effect,” he said.
“So you see them trying to introduce different types of one-off incentives like free parking or mortgage holidays for a few months, or things of that nature to try and bring buyers in without resetting overall value the units because once. that a reset happens, then that can change the dynamics of the market going forward.”
