TORONTO – February 01, 2018: Urbanation Inc., the leading source of information and analysis on the Toronto condominium market since 1981, released its year-end 2017 condo market results today.
Highlights of the release include:
· New condo apartment sales reached a record 35,074 units in 2017
· A record 105 projects launched for pre-construction sales last year totaling 32,435 units
· A record 19 new project launches last year contained more than 500 units each
· Unsold inventory remained below 8,000 units throughout 2017, which hasn’t happened since 1999
· Pricing for available units reached an average of $876 psf in Q4-2017, rising 35% year-over-year
· The 905 Region represented a record share of total sales in 2017 at 38%
· The number of condos under construction returned to previous highs at 58,900 units
· One-third of units launched for pre-sale in 2016 had not started construction by year-end 2017
· Less than half of the units that launched for pre-sale in 2017 have yet to receive full approvals
· Completions dropped to a five-year low of 13,513 units in 2017, with only 62% of units that were scheduled for delivery last year reaching occupancy.
· Sales activity is expected to moderate in 2018 on development delays, rising construction costs, and less speculative investor demand
The 35,074 new condominium apartment units sold across the GTA last year represented 30% growth off the high reached during the previous year in 2016 (26,893) and was 75% higher than the 10-year average of approximately 20,000 sales. Activity was driven higher last year on account of a surge in new project openings, which included several large-scale developments of 500-plus units, and strong investor demand. New pre-construction openings were met with a record level of absorption (84% of units launched were sold by year-end), with selling prices averaging $795 psf in these projects. New launches in Downtown Toronto markets sold for an average of $972 psf, with available inventory at year-end priced at $1,079 psf — surpassing the $1,000 psf threshold for the first time. Activity remained strong throughout the year, with fourth quarter sales of 8,869 units rising 20% annually to reach a Q4 high.
With inventory levels for unsold condos dropping by 26% in 2017 and 58% over the past two years to 7,942 units, and prices up 35% in 2017, new launch activity will remain busy in 2018. However, a more cautious approach is expected this year as developers grapple with delays and uncertainty in obtaining approvals, and face tighter resource constraints in completing existing projects that are underway. Industry consultants have reported double-digit construction cost increases in 2017, which along with large proposed increases in development charges and high land prices, will lead to a more measured pace for new launches to ensure sale price targets can be achieved.
At the same time, investors are expected to remain active this year, encouraged by strong rates of return for projects that are finishing construction, steady price growth entering 2018 for condos, and quickly rising rents. Urbanation found that of the projects that were completed and registered in 2017, average resale values were 42% higher than their average pre-sale opening prices. Furthermore, it was calculated that most newly completed condo projects were able to generate positive cash flow in the rental market last year, factoring in an 80% loan-to-value mortgage, condo fees and taxes. Nonetheless, investors should act less aggressively in 2018 given high prices, capped rent increases, rising mortgage rates, and stricter mortgage qualifications. Providing some offset to less investor demand will be end-user buyers, who will increasingly turn to condos due to elevated single-family home prices and the new lending rules.
As a measure of speculative activity in the condo market, Urbanation calculated the percentage of resale condos that were traded within short periods of time. For units that were bought and resold within 12 months, the share of total condo resales reached a peak of 4.0% in Q1-2017, falling to 2.9% in Q4-2017, which was less than the share in Q4-2016 (3.1%). For units bought and resold within six months, the share fell to 0.8% in Q4-17, from a high of 2.1% found in both Q1-17 and Q4-16.
Less speculative demand in the second half of the year contributed to lower overall resale condo sales volumes in 2017, which declined 6% to a total of 23,907 units. However, resale activity grew 2.5% quarter-over-quarter in Q4 as some buyers brought forward their purchases in advance of new mortgage stress test rules taking affect at the beginning of 2018. Resale market conditions remained tight throughout the year as listings trended lower, providing support for prices. Average resale prices were up 22% year-over-year in Q4-2017, although all of the growth was recorded in the first half of the year as prices remained flat over the past two quarters.
Following a five-year low for completions in 2017 to 13,513 units, which was 31% lower than the 19,617 completions averaged between 2014 and 2016, condo deliveries are scheduled to increase in the next three years, reaching 22,395 units in 2018, 25,124 units in 2019, and 28,432 in 2020. However, actual completions are very likely to be lower than projected, given that annual deliveries have been averaging about 7,000 units less than scheduled in recent years.
“While the results for 2017 prove how remarkably strong demand can be for GTA condos, the level of activity underway is putting the industry under tremendous pressure to push the units through the development cycle”, said Shaun Hildebrand, Urbanation’s Senior Vice President. “A more sustainable pace of roughly 26,000 sales is likely in store for 2018” added Hildebrand.
Urbanation is a real estate consulting firm that has been providing market research, in-depth market analysis and consulting services to the condominium industry since 1981. Urbanation uses a multi-disciplinary approach that combines empirical research techniques with first-hand observations and site visits. On a quarterly basis, Urbanation tracks the new, resale, rental and proposed condominium apartment markets in the Greater Toronto Area. Urbanation also actively conducts site specific market feasibility studies across the country for both condominium and purpose-built rental apartment projects.
www.urbanation.ca Media Contact: Shaun Hildebrand
416 922 2200 ext. 243