Unsold condos piling up in Toronto
Some developers holding off on new projects
Sales have been slow and unsold inventory has piled up in the Toronto condominium market, though according to one expert that's not necessarily a bad thing.
The city saw 3,903 new condo units sold in the second quarter according to the latest data from the market research firm Urbanation. That’s a drop of 18 per cent from the same period last year.
New openings were down by about 1,000 units for a typical second quarter and the number of unsold "active" units edged up to just under 19,400 — data that appears to support lingering fears about the city’s condo market.
Not necessarily so, according to Urbanation Senior Vice President Shaun Hildebrand. He says, if anything, Toronto needs more condos.
"What’s really weighing down the market right now [is] we’re not seeing the volume of new projects opening up that you’d expect, particularly for the springtime," Hildebrand told CBC News.
New projects are scarce because a slump in sales in the second half of 2012 left some developers — who kept building despite the downturn — with too much inventory.
"The industry reacted a bit slowly to the slowdown," said Hildebrand. "A lot of those projects did not sell as well as hoped."
Those developers are, for now, burning off existing inventory before they offer or build anything new.
"I think that will probably continue to be the case through the rest of the year," he added, noting that inventory of pre-constructed units is "still fairly elevated."
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Units in new condo buildings continue to sell well, including the Yonge + Rich development which at last count had moved 68 per cent of its units.
A news release from Urbanation noted that the 18 per cent drop in new unit sales is "very much in line" with the number of units that became available during the quarter.
Few options for young professionals
The "active" units tracked by the company include condos that are awaiting or are under construction, and those ready to be occupied.
Of the 92,398 active units in Toronto by the second quarter 19,394, or 21 per cent, remained unsold.
A little more than half of those have yet to be built and, thus, don’t pose a threat to the market, said Hildebrand. If buyers don’t respond by taking at least 70 per cent of a new building’s units, the developer simply won’t get the go-ahead for construction.
Typically, only a handful of units are still unsold by the time a building is complete. These often become rental units.
Rentals are a big, though often overlooked, part of the condo market. Demand for rental apartments is at a 20-year high and expected to remain healthy as a young generation of workers enters the early stages of home ownership.
Few single-dwelling homes or purpose-built apartment buildings are going up around Toronto these days, leaving 25- to 30-year-olds turning to condos.
"These are the people who were hardest hit by the recession," said Hildebrand. "But their job market is improving … and as they get jobs they’re moving out of their parents’ homes and looking to rent."
Hildebrand predicts the Toronto condo market "will continue to improve but at a gradual pace."
Developers remain hesitant while buyers and investors alike in particular have grown more picky about what they choose to buy.
"The numbers should improve in the second half of the year, " said Hildebrand, "but the total for 2013 will be below what is was in 2012. And, he added, "way below" the exceptional numbers seen in 2011.