Skip to main content
the listing
Open this photo in gallery:

Major real estate developer Camrost Felcorp has rolled out a sales incentive on two of its Toronto-area projects that goes directly at the fears of rising interest rates by promising a to cover three per cent of a condo’s mortgage’s interest payments for three years.Camrost Felcorp

From free Louis Vuitton bags to maintenance-fee holidays sales incentives for pre-construction condominiums are coming back, with some builders creatively targeting a key sticking point for some of today’s buyers: rising interest rates.

Major real estate developer Camrost Felcorp has rolled out a sales incentive on two of its Toronto-area projects that goes directly at the fears of rising interest rates by promising a to cover three per cent of a condo’s mortgage’s interest payments for three years. For the 46-year old company, it’s an out-of-character sales promotion.

“We’re not an incentive-driven developer: This isn’t the Walmart or Canadian Tire model where nothing is ever really full price and everything is always on sale, that’s not how we approach our business,” Christopher Castellano, vice-president of sales and marketing.

So far the mortgage rate reduction is planned for just two Camrost projects – The Residences of Upper East Village in Toronto’s Leaside neighbourhood and the fourth tower in its Exchange District (EXS) site in Mississauga – where time may be on the mind of buyers. Both buildings are expecting to be ready for occupancy in within the next two years (a short turnaround for pre-construction buyers, who can typically expect to wait five to seven years). The Residences site has a collection of larger-units that were held back from initial sales in a building that will be registering early in 2023. While the EXS is more mixed with suites from 555-square feet to just under 900 square feet, the luxury apartments will share a building and amenities with a boutique hotel that is under construction now. Both buildings are targeting a larger share of so-called “end-users” who might expect to live in the apartments, unlike the typical condo investor intending to flip units or rent them out.

Mr. Castellano said that the recent run-up in Bank of Canada interest rates has buyers fretting about near-term affordability. “Interest rates have knocked off about $500,000 from a purchaser’s affordability; that will drop you down two bands worth of pricing,” he said. “People just don’t know what’s going to happen with interest rates … The stuff coming to market in the next 24 months has people sweating the most.”

On Aug. 2, real estate analysis firm Urbanation Inc., released a report that suggested some developers are taking a pass on even trying sell into this rate environment: it revised an earlier prediction on condominium pre-sales that estimated 36,000 condo units would go up for sale in 2022 down to 26,000. That implies that 10,000 condo units that were being primed for sale have been pushed off into future years.

Open this photo in gallery:
Open this photo in gallery:

Renderings of EXS, the fourth tower in the Exchange District site in Mississauga by developer Camrost Felcorp, which is offering a mortgage buydown incentive.Norm Li/Norm Li

Not everyone in the industry accepts those figures represent a shift in market sentiment.

“We are not experiencing delays or pullback. … The headlines that are hitting surprised me. In fact we’re ahead and our pipeline for the fall is robust,” said Barbara Lawlor, CEO of Baker Real Estate Inc., a major player in pre-construction condo sales. “There’s lots of conversation …. but it’s not stopping the big guns from going out. The atmosphere is skittish, it’s nervous, because of the headwinds of interest rates and the R-word – recession – having said that we continue to sell.”

“There’s a lot of noise right now,” said Pauline Lierman, vice-president of market research for real estate analysts Zonda Urban, who suggested any delays thus far are likely down to factors such as local planning delays rather than interest rate panic. That said, if there are going to be rate-related changes to sales plans she believes they are likely to start happening in the fall after the next scheduled rate hike announcement.

For a large condo that requires a million dollar mortgage the Camrost incentive could be worth as much as $90,000, which will be paid in a lump sum to the buyer when they take possession (or knocked off the purchase price as a credit). Buyers are not required to use a particular mortgage lender (unlike some promotions the industry has tried in the past) but the deal is only “up to” 3 per cent: if a buyer secured a 2.5-per-cent rate Camrost will not be paying them an extra 50 basis points of value below zero. There’s still some risk for Camrost according to Mr. Castellano: “If rates drop 30 days later, that’s a windfall for the purchaser, that’s a risk for us that we’re over-paying.” But the purpose of the deal is to provide “peace of mind” to buyers that if rates continue to rise there’s some affordability protection built into their purchase.

There are less generous incentives in the market now, such as an offering from the Southport at Swansea condo project in Toronto (from Barry Zagdanski’s State Building Group) that would discount closings costs (up to $30,000), and a project in Hamilton backed by Emblem Developments Inc. – run by CEO Kash Pashootan, who is also the CEO of First Avenue Investment Counsel Inc. – that gathered a lot of buzz by offering a free Louis Vuitton bag to buyers (estimated retail price, $3,500).

Ms. Lawlor said the most important incentives remain a reasonable price per square foot and a flexible deposit structure, the latter has grown in popularity as the average price of deposits has soared into the multi-hundred-thousand-dollar range.

Brokers who work with condo investors say that even Camrost’s 3 per cent interest over three years isn’t going to change the affordability picture for buyers, but it could serve to nudge some into action.

“It’s just an add-on. Let’s say you’re going to get a car like a Toyota Camry: would you instead buy a Hyundai ‘cause it has a sun roof? The fundamentals have to be the reason why you are purchasing. … The incentive is what encourages people that are almost at the finish line,” said Nerses Sraidarian, broker of record at Big City Realty Inc.

Some of his clients believe the rates will begin to fall back within a year, while he believes 18 months is more likely, and acknowledged the uncertainty may keep some buyers on the sidelines. But if rates continue to rise quarter after quarter he expects more builders to borrow the mortgage rate discount idea.

“In our industry there’s a lot of regurgitated information, one person does something and seven others will copy it,” Mr. Sraidarian said.

Your house is your most valuable asset. We have a weekly Real Estate newsletter to help you stay on top of news on the housing market, mortgages, the latest closings and more. Sign up today.

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe