Toronto Condo Glut Drives Deep 40% Discounts for Opportunistic Investors
Large investors bought unsold newly built condos in the Toronto region at a 40-per-cent discount to the original selling price and accounted for nearly half the preconstruction sales in recent months.
These investors paid an average of $763 per square foot for a completed and unsold unit in the third quarter, according to a report from condo research firm Urbanation Inc.
They often buy a minimum of a few dozen units from a developer as a bulk purchase. In the most recent quarter ended in September, there were six bulk buyers in the Toronto region that bought 339 units. The bulk buys accounted for 45 per cent of the 760 new condo purchases in the quarter.
Real estate companies or investment funds have gotten a cheaper price than individual buyers trying to find a deal among the glut of unsold units in the Toronto and Hamilton area.
Individuals paid an average of $1,033 per square foot for a newly built condo in the third quarter, according to Urbanation.
“Two straight quarters of higher sales show that buyers will step in at the right price,” Urbanation president Shaun Hildebrand said in a news release. “Bulk investors are acquiring completed units at heavily discounted prices.”
The bulk purchases included a transaction by High Art Capital, an Ontario government-backed fund that is turning a portion of its units into affordable rentals. High Art paid $22.3-million for 43 units in a condo complex called Line 5 in midtown Toronto, The Globe and Mail first reported in September.
That works out to about $518,000 per unit and is close to the typical selling price of a condo on the resale market in the Toronto region. That is unusual because newly built condos normally sell at a significant premium to those on the resale market
This is the second quarter since the federal and Ontario governments’ HST rebate on new homes has been in place. It is also the second period where new condo sales have been markedly higher than last year.
Buyers can get a maximum of $130,000 rebate on the HST for new homes priced up to $1.5-million until the end of March, 2027. The temporary tax break went into effect in April and is designed to help developers get rid of unsold inventory, which it has managed to do to some extent.
At the end of September, there were 5,127 newly built units that were unsold. That was down 7 per cent from the end of June. (The unsold inventory does not include the units that developers have had to take back because buyers have defaulted on their purchases.)
Those who bought preconstruction units at the height of the market have seen the value of their units plunge over the past four years, according to realtors and property appraisers.
Many preconstruction buyers have not been able to close if their lender does not provide them with a mortgage at the original purchase price.
For the many individual investors who have been able to close, they are losing money on their investment because they either cannot find renters or the rent is not enough to cover the cost of their mortgage payments, condo fees and other property expenses.
That has led to a drop in preconstruction condo sales, which is a precursor to a condo tower being built. In the third quarter, there were only 60 condo units in the preconstruction phase that were sold in the Toronto and Hamilton region.
Mr. Hildebrand called the preconstruction market dormant and said this will lead to a major decline in new condos being built.
This article was first reported by The Globe and Mail
