Condo rents soar as sales slump

“For the first time in a long time, we’re seeing rent levels grow stronger than resale and new condo prices,” Shaun Hildebrand, a senior vice president of Urbanation and former market analyst with CMHC told reporters yesterday. “What we’re seeing is investors who are recognizing that the real strength in the market is on the rental side right now, not the resale side.”

Market results released by Urbanation Inc. – a leading condo analysis firm – show that a total of 2,728 new condominium apartments were sold in the first quarter of this year, down 55 per cent from Q1-2012. Reflecting the same downward trend, sales were down 29 per cent compared to Q4-2012. As lenders pull back from the condo market, developers are facing a potential $2-3 billion financing gap that could create serious construction delays.

“The lower volumes seen in the first quarter were not unexpected given how strong the market was throughout 2011 and the first part of 2012,” said Hildebrand in an earlier report. “The industry has been cautious in bringing new units to market as sales centre traffic has slowed.”

More alarming, the author of a CIBC report, economist Benjamin Tal, says is financing is “becoming an issue with the rapid pace of development causing many lenders to think twice before extending credit, even when the usual threshold of 70 per cent pre-construction sales has been reached.”

Tal adds that developers are facing a $2-3 billion financing gap “mainly when it comes to tier-2 players and/or the luxury condo space.”

The report shows that 18,000 new condos will become available in 2013, followed by 23,000 new condos in 2014 in the GTA.

According to the Urbanization report, sales in the first quarter of this year were weighed down by the lowest number of new project openings since 2009.

The number of unsold units in active projects increased this quarter to 18,845 units, 21 per cent higher than a year ago – despite the share of active units sold, which held steady at 79 per cent, only slightly lower than the five-year average of 80 per cent.

The majority of unsold units are in projects still in the pre-construction sales phase, says Hildebrand, who remains optimistic that the remainder of 2013 will show an upswing.

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