Toronto's condo sector is shaping up to have one of its strongest years on record, dispelling fears that Canada's largest housing market is ripe for a correction.
Builders sold nearly 11,000 condo units in the first half of 2015, the third-best year on record, according to research firm RealNet Canada Inc.
Most of the sales activity has been among presales, thanks to 55 new projects that developers launched in the city this year.
But buyers have also been snapping up units in projects wrapping up construction, helping to absorb the large surge in completed but unsold units, which had soared to four times their historic norms at the start of the year.
The spike in inventory was among the red flags prompting Canada Mortgage and Housing Corp. to name Toronto a "high risk" housing market earlier this month. With strong sales through the spring and early summer, unsold condo inventory actually ended the second quarter 13 per cent lower than the same period last year, condo research firm Urbanation Inc. said.
Low mortgage rates and interest from offshore investors in the wake of a falling loonie have helped keep Toronto's market hot this year, said developer Peter Freed, whose Art Shoppe condo development, built in partnership with Capital Developments and designed in part by Karl Lagerfeld, was the city's top-selling project this year, according to RealNet.
Freed Developments Corp. launched three projects this year, all of them near the city's midtown at Yonge Street and Eglinton Avenue. The area has seen a surge of new development proposals thanks to a light-rail transit line now under construction. So far this year, Mr. Freed's company has done roughly $500-million in sales.
"It's been our best year ever in our 20-year history," he said. "We spent 10 years selling 2,000 units in King West and we've sold almost 2,000 units at Yonge and Eglinton in 24 months."
He is already planning his next developments, a series of mid-rise projects along Dupont Street, and he recently purchased the dilapidated Galleria Mall in partnership with Elad Canada Inc., with plans for a mixed-use project.
Toronto developers could expect to sell 18,000 to 20,000 new condos this year, equivalent to 10 months' worth of supply. That's considered a "balanced market" for the condo sector, said Urbanation senior vice-president Shaun Hildebrand.
"It's certainly sustainable and not a level that would create oversupplied conditions in the absence of a sharp decline in demand," he said.
Surprisingly, Mr. Hildebrand contends that Toronto is actually facing a shortage of existing condo units for sale given that most units have been presold to investors years in advance.
Of the 115,000 condo units in development, 85 per cent have already been sold, Mr. Hildebrand said. With the price growth of new condos slowing to an estimated 1 to 2 per cent a year, more investors have opted to hold onto their units and rent them out rather than try to flip them for profit. That has led to a drop in the number of newly built units showing up on the resale market.
"In the context of today's market, there's not really that much supply out there," Mr. Hildebrand said.
Bank of Montreal senior economist Sal Guatieri echoed that sentiment in a report on Friday, where he noted that total housing starts in Toronto have been trending slightly below the rate of household formation over the past two years, with the rise in condo units compensating for a drop in new detached homes.
As prices for single-family homes soar out of reach of most first-time buyers, many are turning back toward the condo market. "The city is building a lot of condos for good reason," Mr. Guatieri wrote. "They're needed by the tens of thousands of people moving to the region each year who can't afford a detached home."
Sales have been strong for another reason this year: Developers have become more aggressive in offering incentives, with financial enticements such as price discounts, rental guarantees, minimal down payments and cash back on closing proving especially popular this year.
Of 453 condo projects in active development, at least 140 are offering some kind of incentive, said Phong Ngo, RealNet manager of new homes research.
"We've been seeing more incentives than previously and things that we haven't really seen in the past, like the rental guarantees and cash back," he said. "In the past, it was more on material things, like free appliances and upgraded countertops."
Such tactics helped developers eat through their backlog of unsold inventory in existing projects in order to focus on launching new ones. Mr. Hildebrand estimates the market could see another 14,000 to 16,000 condo units launched in the second half of the year, typically a quieter time for the market.
Economic uncertainty and stock market turmoil may even bode well for the city's condo market as more buyers, both domestic and foreign, seek shelter in the perceived safety of real estate.
"A lot of buyers may be scared off by what's happening in the stock market," Mr. Hildebrand said. "I could see how they would flock to hard assets, particularly condos in Toronto, just like they did in 2009."