Buyers rush to snap up recently completed condos as houses climb further out of reach
Demand remains so strong for new condos — and especially among “end users” looking for a place to live rather than an investment to rent out — that the glut of unsold units declined significantly across the GTA as of the second quarter, according to developers and condo research firm Urbanation.
Unsold inventory, considered a key barometer of the health of the condo market, dropped 13 per cent as of the second quarter of 2015 over the same period last year, according to Urbanation’s Q2 market survey released Wednesday.
The total number of unsold units may still sound large on paper — 17,709 units as of the end of June, down from 20,763 during the same period last year, Urbanation’s survey says.
But just 1,425 of those are completed and move-in ready, down slightly from last year, says Urbanation. The rest are in various stages of construction, although some 1,000 more are expected to be completed by the end of this year, according to Urbanation senior vice-president Shaun Hildebrand.
While the number of move-in units is down very slightly from last year, says Urbanation, some developers say they are having trouble keeping up with demand because of a flurry of buying in the last few months by baby boomers and young professionals looking for brand-new alternatives to pricey lowrise houses, but with a quick move-in date — even outside the highly sought-after downtown core.
“We’re seeing big demand in buildings that are within a few months of occupancy. There’s essentially no inventory out there and a lot of pent-up demand,” said Scott McLellan, senior vice-president of Toronto condo builder Plazacorp.
Canada Mortgage and Housing Corporation data show about 1,956 unsold, move-in ready condos across the GTA as of the end of June, significantly higher than historic norms of 1,600 to 1,700, although it couldn’t explain the reason its numbers were so much higher than Urbanation’s.
CMHC senior analyst Dana Senagama agreed, however, that condo market fundamentals remain healthy: GTA sales remain strong, backed by low interest rates, high house prices and strong immigration.
Just in the last two months, Plazacorp has sold the last 20 empty units in its Liberty Village King West buildings, says McLellan, and is quickly selling off the top two recently finished floors in its Ivory on Adelaide project on Adelaide Street East.
“I’ve got four projects in the works right now (most planned for the downtown core) and I’d get them all in the marketplace this Saturday if I could because, essentially, there’s no inventory.”
Lots of new units are in the pipeline, according to Urbanation. More than 20,000 new suites are slated to be completed this year and the same number next year before completions are expected to return to more historic norms — between 13,000 and 16,000 new units a year — in late 2017, says Hildebrand.
But some 87 per cent of all the units now under construction are already sold, and most are likely to end up as rental units rather than resale units as vacancy rates remain just above 1 per cent.
Unsold inventory numbers have been a major concern in the industry and CMHC set off alarm bells last spring when it released data for May showing a shocking 41 per cent jump in unabsorbed condos in one month.
Urbanation tracked the jump to the Regent Park area, where CMHC said some 785 units remained unsold. In fact, almost all had been, and some time ago. CMHC corrected the numbers the next month. Senagama attributed it to a paperwork problem.
Demand for move-in units is especially high this year because there have been fewer launches as sites get harder to find and city approvals more lengthy because of the growing complexity of projects, says Great Gulf president Christopher Wein.
“There’s always a flurry of activity to buy finished units as buildings approach completion, but you’re seeing even more of that activity now because there are fewer units available and higher demand,” says Wein.
The most visible evidence of continuing strong condo demand has been playing out in the resale sector. Bidding wars have been breaking out as those priced out of the house market vie for unique or bigger units that can work as longer-term homes.
Prices for resale condos were up 6.8 per cent across the GTA in the second quarter, to an average of $453 per square foot, as sales spiked 21 per cent, Urbanation notes.
The better supplied new condo sector saw more moderate price increases of 2 per cent during the quarter, pushing the average price to $566 per square foot, it says.