With 35,074 units sold and 105 projects launched—including 19 with more than 500 units—last year, according to an Urbanation report, there’s nary a doubt that investors consider Toronto’s condo market the goose that laid the golden egg.
According to the report, last year’s completed and registered projects appreciated 42% over their pre-sale opening prices, and that most newly completed condo rentals yielded positive cash flows—factoring in an 80% loan-to-value mortgage, condo fees and taxes.
Shaun Hildebrand, senior vice president of Urbanation, says last year’s outlying numbers signify new launches will be brisk through 2018.
“Last year was an exceptionally strong period for new launch activity, and I think that’s probably going to moderate this year, but still remain at a very strong level because of how low inventory is and how high price points are,” he said. “We’re projecting 26,000 condo sales in 2018, which is where it was in 2016.”
However, Hildebrand warned that the market consistently delivers units behind schedule, and that it will also affect the rental market, where secondary units like condominiums are preventing the disquietingly low vacancy rate from dipping any further.
“It’s believed that investors represented the strong majority of purchasers in the new developments that were launched last year,” he said, adding that carrying costs could escalate faster than rental rates and compromise cash flow.
“The data also suggests investors will act less aggressively in 2018, as well. It will be quite difficult for them to cover their holding costs when the units come to completion in four or five years because of how high price points were in 2017.”
Barbara Lawlor disagrees because there’s unrelenting demand for rental accommodations in Toronto.
“The valuation of Toronto real estate is increasing at such a rapid pace, and prices are increasing at such a rapid pace, that I’m betting on the equity gain five years from now if the rental market continues to be as tight as it is today, with less than 1% vacancy,” said the Baker Real Estate president and CEO. “The fact is that when I put my units out for rent for the first time five years from now, I can set my rent to the highest bidder. And there are bidding wars going on for rentals in our city, so I can set my rate as high as the highest bidder is willing to pay. That will help with the carrying costs.”
Suburbs becoming attractive again
Toronto condo prices could slow
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On the heels of a record-setting year, Toronto’s condo market will likely moderate, but remain vital, in 2018.