Back in 2022, there were around 68 new pre-construction condo projects launched for sale in the Greater Toronto Area.
On average, it only took roughly less than 3 months to get to 70% sold.
So developers were able to take those purchase agreements to the bank to get financing and start construction pretty quickly.
Then things started slowing down in 2023 and there were only 64 new pre-construction condo projects launched for sale in the GTA.
And it took almost a year to get to 70% sold.
Now that we are more than half way through 2024, only 20 new pre-construction condo projects have launched for sale.
And most of them are struggling to get to 50% sold.
In the past 10 years, 5000 units were sold in each quarter.
In Q1 2024, it dropped 70% to about 1500 units.
With pre-construction sales falling well below typical construction financing requirements of at least 70% absorption, construction starts have experienced a sharp decline.
In Q1-2024, 2,361 new condominiums began construction in the Greater Toronto and Hamilton Area, down 52% annually.
Developers have tried many different tactics to try to boost sales.
One day only sales event to create a crowd…
Sign the agreement first and pay later…
5 or 10% deposit program…
Price incentives…
Expensive gifts…
None of these goes far enough.
So most developers have resorted to one strategy.
Perhaps the only strategy that would really work in the current market.
The one strategy is to:
WAIT.
In the last 2 years, more than 60 projects with a total of 21K units have been put on hold even though they have got all the approvals.
It sounds simple and straightforward.
But it is actually very costly to sit on a piece of land, especially at today’s interest rates.
You see, not everyone can afford to play the waiting game.
Small developers have to sell their projects before they go bankrupt.
Big developers who are rich in cash will buy out these projects at huge discounts.
Eventually only the big sharks will survive.
The same issue with the rich getting richer and the poor getting poorer.
Individual condo investors are playing the exact same waiting game.
They are waiting for interest rates to come down.
They are waiting for the market to recover so they can sell at a better price.
But some investors cannot hold on to their properties anymore because they cannot get a mortgage or they cannot withstand the monthly deficits.
In those cases, they must sell.
And some cash rich investors will come and grab those deals.
So how long do we have to play this expensive waiting game for?
Right now, the Bank of Canada’s overnight interest rate is at 4.75%, my personal prediction is that the rate needs to come down to 3% before we can see a full market recovery.
If the Bank of Canada cuts the rate by 0.25% at every rate announcement, we will need 7 more rate cuts to get to 3%.
That would take roughly one and a half years.
So we are talking about a full market recovery at the start of 2026.
It takes patience, time and money.
Let’s take it one step at a time, hopefully we are going to see another rate cut in the upcoming announcement in 10 days.
I will of course keep you posted on any market reactions and movements.
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