The pre-construction real estate market has seen incredible and consistent sales velocity in the past several years, coupled with escalating pricing.
In the last few months, this has changed quickly, with the economy experiencing a significant slowdown in sales absorption. This rapid shift is, understandably, leaving many uncertain in the near term. To assuage the tumult, Austin Birch will be focusing on these changes in their upcoming Austin Birch Report, a publication filled with insider insights into buyer mindsets and market trends.
Recently, the report has been assessing the considerable lift of the GTA’s rental market. With interest rates rising and homeownership quickly becoming unaffordable, the City of Toronto has seen the largest year-over-year growth for rentals (increasing by 19.4% in Q2-2022).
However, despite this significant growth, the current financial climate has been a cause of concern for many in the pre-construction industry. With the significant increases in interest rates and substantial drops in resale home prices, buyers are eyeing the widening price gap with apprehension.
Of course, this is top-of-mind for everyone in the industry, but these concerns have become something to tip-toe around rather than to address head-on, creating a slew of questions with few answers. With this in mind, Austin Birch quickly committed to delving into the nuances and unknown factors of the current climate.
Austin Birch’s insights on the state of the market
Austin Birch has set to work, hoping to shed light on the state of the market and provide readers with valuable insights and information. To give you a brief view of this intriguing new piece, we will be sharing some particularly interesting notes, but don’t forget to sign up for an in-depth look at The Austin Birch Report when it releases on austinbirch.com.
First, the report states that the city’s outskirts are seeing the biggest drop in activity, while Downtown has not been affected as strongly. Areas in the 905 and 705 have reported an average decrease of 25-30% as opposed to Downtown’s 5-10%. It is suggested that this is due, in part, to the fact that price increases in the 905 and 705 are more evident when compared to the 416 rental market.
Interestingly, although activity has slowed, savvy investors are still buying pre-construction, knowing that rental revenue has never been higher. As buying became unaffordable for many, people turned to rentals and, as such, interest rates increased dramatically – much to the benefit of the rental market. With this rampant inflation, now may be the best time to buy pre-construction as it allows investors to stay safe from devaluation with higher lease rates, which will likely not come down much when the sales market ramps up.
With all these exorbitant increases, the report notes that consumer confidence is not at its best and many are delaying or abandoning their search altogether. This reservation usually stems from wanting to wait and see what is happening in the market – hoping to jump in if builders adjust prices or if they see a deal or incentive that appeals to them.
Rethinking the launch
Reading on, the report delves into how the current climate will be affecting developers’ plans moving forward. Some developers have or will consider delaying their launches until they feel the market will absorb their product more quickly. On the other hand, some are starting to rethink pricing to achieve a quicker absorption of inventory, attempting to pull permits and get construction financing so they can lock in their continuously escalating development charges and construction costs – which eat into profit margin and risk the financial feasibility of the project.
Still, other developers are adding or increasing incentives in an effort to attract the current, smaller pool of active buyers. Of these incentives, extended deposit structures are stated to have the most significant effect on buyers as many feel more secure keeping money in the bank due to the uncertainty of the market. In the same vein, developer reputation is also important to buyers who want to ensure their investment will come to fruition instead of being stalled or canceled.
Overall, although the subject matter of the report may be a sore spot for many, Austin Birch states that this is an opportunity to look at the industry as a whole, from government policies to financial institutions. Together we can work to set the stage for a positive real estate market for years to come. The GTA is unique in comparison to the rest of the country, and there are so many factors driving population growth and recirculation around the region. For this reason, it is apparent that more homes are needed to keep up with this population growth, and this is best filled by building more multi-family condominiums and housing developments.
A custom strategy for the sales and marketing process
Austin Birch’s mission is to enable their clients to do what they do best: develop superb real estate. Austin Birch handles the rest, with an innovative hands-on approach that encompasses the entire sales and marketing process; helping developers release projects in truly unique ways. Austin Birch understands how crucial a custom strategy is to success and therefore has developed a highly attuned methodology that guides Toronto and GTA clients through every step of their unprecedented process. Discover how to unlock your project’s full potential with Austin Birch. Unthink the norm, Unthink Real Estate.
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