Investor Interest Revitalizes Toronto’s Condominium Market
Larger investors helped resuscitate sales of newly built condos by 52 per cent in the second quarter in the Toronto region, as developers chopped prices and benefited from the HST rebate.
There were 702 new condo sales in the Toronto and Hamilton area over April, May and June, according to industry research firm Urbanation Inc. In the second quarter of last year, there were 463 purchases.
Although the volume of transactions was higher this year, the number of purchases was 86 per cent below the 10-year average for the second quarter.
The uptick in sales occurred during the first three months of the HST rebate, a one-year policy announced in March by the Ontario and federal governments to help developers get rid of thousands of unsold condos. The maximum rebate is $130,000 on a newly built home priced up to $1.5-million.
Of the total sales, 204 units were purchased by seven investors. Larger investors view the downturn as an opportunity to purchase unsold units in bulk at a discount.
Under the temporary law, they will be required to turn the units into rentals to receive the tax break. Some of the bulk buyers have publicly said they will rent the units for a period of time and then sell them when demand for condos returns.
In the past quarter, the bulk buyers were able to negotiate a hefty discount.
The average asking price for newly built completed units was $1,186 a square foot, according to Urbanation. That works out to about $593,000 for a 500-square-foot unit.
In comparison, the average selling price for a bulk purchase was $773 a square foot or $386,500 for a 500-square-foot place.
Other buyers, such as mom and pop investors and those who plan to live in the unit, also made purchases at a discount. The average selling price was $1,008 a square foot, according to Urbanation, or $504,000 for a similar sized unit.
“Some developers became more aggressive in lowering asking prices and negotiating selling prices following the HST announcement,” Urbanation said in a news release announcing the numbers.
Overall, bulk buyers paid less than recently built units on the resale market. The average resale price was $830 a square foot for new buildings completed within the past three years.
In the first two months of the HST rebate, buyers have gravitated to detached houses and low-rise homes. In April and May, low-rise homes accounted for about 80 per cent of the sales, according to data from Toronto headquartered Altus Group, a real estate research firm.
Condo developers and the rest of the industry have said that sales were tepid because the federal government had not yet issued legislation. There was uncertainty over whether a buyer would get the rebate on or after closing.
Now that the legislation has been issued, it has clarified that a buyer can get the rebate on closing.
“I have seen sales pick up,” said Alexandra Raszewska, a lawyer with Legalclosing.ca, a residential real estate law firm.
Urbanation said there were 5,001 newly built condo units that were unsold and sitting empty in the second quarter. That is 68 per cent more than the same period last year and a record high. It does not include units that developers have taken back when buyers have defaulted on their purchase.
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As well, three-quarters of the second-quarter sales were in newly completed buildings.
Urbanation said there were only 50 sales in the preconstruction phase or where buyers purchase from a plan and construction has not yet started.
The development industry has warned that the lack of sales will lead to a supply shortage in a few years. Developers typically have to sell 70 per cent of their building’s units to qualify for financing to start construction.
This article was first reported by The Grace and Mail
