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Condo Starts in Toronto Stalled due to Low Sales

Jim Flaherty can take a look at the lack of trucks and construction trailers, and partially finished condo projects around Toronto, and breathe a sigh of relief. His mortgage rules are working. Toronto condo starts are softening, and perhaps he can finally stop worrying about “the last Toronto condo buyer.” There is definitely some change happening within the City, and while it may have developers cringing, it’s nothing but good news for the market, and for the Finance Minister.

The chart above shows exactly what’s happening in Toronto’s current situation, and is broken down further below:

  • According to Urbanation Inc., there were 30% fewer condo sales in the third quarter when compared with the second quarter. This is thought to be largely because of a drastic overstock of inventory on the market after the second quarter.
  • The average unsold Toronto condo unit sold for $573 a square foot, up 2% from last year.
  • In Old Toronto, unsold condo units are being sold at $670 a square foot, up from $668 in 2011.
  • Unsold inventory hit a record low of 18,123 in the second quarter of this year; and dropped even further to 17,182 in the third quarter.
  • Also according to Urbanation, teh amount of unsold inventory in Toronto is below 22% – the average for the past 10 years.
  • While there were 5,050 condo unit sales in the second quarter, this number dropped to 3,413 in the third quarter.
  • Resale prices remained steady for the second and third quarters, selling for about $407 a square foot.

The stats are not surprising for developers, or financial analysts.

“Here’s what’s happening,” says Brad Lamb, one of the better-known brokers and developers in Toronto. “Projects under construction are well sold and going ahead, there’s no issue. But projects waiting to get their sales numbers to start construction are slightly delayed as they get the units they have to sell to get going. We are selling but at a slower pace.”

Mr. Lamb says that while condo projects that were already in the works during the second quarter are still going forward. But those that hadn’t made the important third-quarter deadline have been put on hold. He does say though, that developers have some options and may not need to scrap their projects completely. He says that his development team has turned high-rise projects into lower buildings that can be rented out, or turned into a parking lots or smaller office buildings, and then being sold.

But Ben Myers, executive vice-president of Urbanation, disagrees. He points to the fact that Toronto only saw five condo starts in the third quarter.

“With slowing sales and a record level of unsold inventory in the market in the second quarter, condominium developers reacted quickly by delaying their project launches, especially in the 416-area,” says Mr. Myers.

But while negative numbers usually give a negative result, there is some positive news to take from all this. Because there have been fewer starts, it’s giving the unsold units currently on the market time to be scooped up. And while these new numbers may spell doom at first for some, it’s actually exactly what the market needed. Otherwise, prices and sales would continue to climb, and we would eventually all be left sopping wet after the bubble burst. That’s just the view Benjamin Tal, deputy chief economist at CIBC World Markets, has taken.

“It is exactly what we had been expecting, some cancellations,” says Mr. Tal. “Supply starting to react to demand, that is a functioning market and the way it should be. Demand will fall faster than supply; supply is not as flexible as demand.”

Mr. Tal also says that when looking at these numbers in particular, it’s crucial that analysts and consumers remember that they only reflect the condo market. And that while there could be softening in all market regions, we’re going to see the most dramatic results coming from the most overcrowded markets – Toronto and Vancouver.

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