New condo sales are rebounding in many of the country’s major cities, as houses increasingly become more unaffordable and buyers race to purchase any kind of property for fear of missing out on the booming real estate market.
After a year in which buyers shunned tiny condos in favour of roomier houses in smaller cities, new data show that new condo sales are steadily climbing in the large urban centres. These are condos that have either yet to break ground or are under construction, and sales for these projects are often viewed as a bet on the future because buyers wait several years for their units to be built.
“Fear of missing out is driving a lot of activity today,” said Matthew Boukall, a vice-president at Altus Group, a commercial real estate data firm. Buyers fear missing out on a market that they think will keep rising, he said. As well, buyers “missed out on single family and they don’t want to miss out on anything.”
With the benchmark price of a detached house more than $800,000 across the country, it has become very difficult to save enough for a down payment. Many buyers are looking at condos because the purchase price is lower.
And new condos have become more attractive because the buyer has a longer period of time to come up with the 20-per-cent down payment and then has a few years to come up with the remaining balance when the condo is completed.
“Younger buyers are coming to the table on preconstruction launches in greater numbers than we have seen before because the market has shifted so much,” said Derek Nzeribe, founder of Haus Collection, which specializes in preconstruction sales in Ottawa. “It won’t be built for a number of years, but at least they can put their foot in the market,” he said.
In the Vancouver region, there were 4,293 new condo sales in the first quarter of this year, more than double the same period last year, according to data from Altus. In Calgary, sales rose by 66 per cent to 407 units, and in Hamilton sales tripled to 515 units. In the Toronto region, there were 5,680 sales, which was 14 per cent lower than last year when the market was booming. But the numbers were higher than the past three months of 2020. In Montreal, it was a similar trend with sales down 4 per cent compared with early 2020 but higher than the end of last year, according to Altus.
“Buyer confidence has come back. The low-interest rate is obviously a huge driver of the market,” said Cara Hirsch, founder of Hirsch + Associates, which helps real estate companies develop and sell their preconstruction condo buildings. Ms. Hirsch invests in real estate as well and recently sold a property for four times what she paid.
While the rapid rise in home prices has shut out many homebuyers, it has made many keen to get in now in case prices keep on rising at the same rate. The home price index, which adjusts for price volatility, is up between 30 to 40 per cent in many parts of Ontario, the Maritimes and British Columbia.
“The excitement in the market appears to be encouraging investors and buyers to come back, and in turn encouraging developers to release more product,” Mr. Boukall said.
In downtown Toronto, condos are popular among investors who are increasingly buying on the idea that prices will continue to rise so they can sell the property when the condo is built.
With preconstruction condos selling at more than $1,400 a square foot, it’s difficult for investors to have their renters cover the cost of their mortgage payments, insurance and condo fees. But that hasn’t seemed to faze many investors, and developers have been making it easier for buyers to come up with the cash for the 20-per-cent down payment by extending deadlines.
“Investors are clearly purchasing in downtown condo projects for long-term capital appreciation, otherwise the motives are harder to justify,” said a recent report from industry researcher Urbanation Inc.
The high prices have sent Toronto investors to cheaper markets such as Hamilton and London, Ontario, Calgary and Montreal.
“Prices in Vancouver and Toronto push investors toward Montreal,” said Stéphane Côté, president of major projects at Cogir Real Estate, a Quebec developer with about a dozen condo and apartment projects under construction in his province and Ontario. Mr. Côté said last year’s sales and the current demand has given him confidence to launch a high-rise condo later this year in downtown Montreal.
Jassem Awadh, a real estate agent with Justo Brokerage, said he is directing his preconstruction investor clients to places such as Calgary, where it is 50 per cent cheaper than Toronto. In addition to the lower costs, developers are offering even greater incentives such as smaller deposits and guaranteed rental income for up to five years. “The majority of investors say, ‘Sign me up,’” Mr. Awadh said.
Parents who worry their children will never be able to afford to buy a home also constitute a growing group of buyers. Mr. Awadh said he often gets clients saying, “Listen, I have kids, they will get priced out, what can I do?” His advice to them is buy and rent the unit out until their children are old enough to own. Then, give the condo as a graduation present. “At least they are in the market,” he said. “A lot of them are buying units and giving [their kids] the keys.”
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