Sluggish condo sales could spell trouble for Toronto's housing supply in the future
Plummeting demand for pre-construction condominium units is prompting developers to offer incentives to attract buyers.
A recent Urbanation report revealed that 11,595 units in 29 Toronto projects have been delayed since mid-2022 due to market conditions. The situation has worsened, with developers launching only four new projects in the first quarter of 2024—an unprecedented slowdown.
The slowdown began when the Bank of Canada started raising rates in March 2022. Tim Syrianos, principal broker at Re/Max Ultimate Realty, warned that this could result in very few new units from 2027 to 2028.
"There’s going to be a real supply challenge in the coming years,” Syrianos said. “So how can housing get more affordable when there is even less supply than what we have now?"
The report noted that developers are offering a wide range of deals to boost sales, including reduced or free parking costs, waived development levies, smaller deposits, higher broker commissions, interest on deposits, and mortgage assistance programs.
“These incentives have become a key driver to help sell,” REC Canada managing partner Simeon Papailias told the Toronto Star. “People can’t expect consumers to be taking on all of the risks when there are such high interest rates.”
For instance, Toronto developer Camrost Felcorp recently offered to cover up to $90,000 of mortgage costs for two years on units priced under $1 million. Another developer, Emblem Developments, has allowed buyers to make a reduced down payment of 10% payable over two years instead of the usual 15% to 20% upfront.
Daniel Foch, a Toronto-based realtor and director of economic research with RARE Real Estate, noted that some developers are boosting commissions to attract buyer agents.
"You’re also seeing developers offer increased commissions where they beef up the commission as high as 10% to the buyer agent, and then the agent distributes part of it to the buyer," he said.
While not all developers are using these tactics, those needing to sell the final 10% of their units to secure construction financing are particularly aggressive with incentives.
“They don’t want to lower the value of the unit because that would devalue the product,” Foch added. “So this offers them another alternative to try to sell the unit.”
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