In 2011, there were more than 28,000 new condominium sales in the Toronto Census Metropolitan Area (CMA) according to Urbanation Inc.
That represents one of the highest annual sales totals of any metro area in North America over the past decade.
Based on the strong 2011 sales, there were 27,413 condominium apartment starts in the CMA in 2012, about 5,000 more than the previous record high (per CMHC data). Folks predicting an oversupply of apartments and a subsequent price correction in the high-rise market circled 2014 on their calendars, when all these projects would begin to complete, their forecasts would be proven correct.
According to CMHC, the big surge in condo completions didn’t end up occurring in 2014, it occurred in January 2015. A total of 9,457 units were absorbed during the first month of the year, more than the previous eight months combined, and more than the combined months between December 1992 and September 1997!
It marked the greatest month for absorptions in the history of the Toronto condominium market.
700 units completed in January were not absorbed
Of note is the fact 700 units that completed in January were not absorbed, bringing the overall level of completed and unabsorbed supply in the Toronto CMA to a 20-year high. However, as a percentage of the completions over the past 12 months, less than seven per cent were unsold, well below the 20-year average of 10.6%.
It is also worthwhile to point out that the CMHC data on completed and unabsorbed units doesn’t include units leased by the developer, which is a more common occurrence. Developers are looking for monthly cash flow and a way to defer their tax burden.
Secondly, based on data from RealNet Canada Inc., more than 800 completed and unsold units are located in a mere 10 projects: nearly 250 units in two projects by a developer that never drops his prices (a house this developer built in my neighbourhood has been vacant and unsold for a decade), more than 100 units in a suburban Oakville project, and 81 units in a downtown project by a developer that still has unsold units in a tower they completed in 2009!
The increase in unabsorbed supply will not cause new or resale condo prices to flatten in the short term due to developers panicking and slashing prices. This is not a market problem, but a problem for a couple of developers.
Of the 147 projects RealNet Canada Inc. listed in its ‘standing inventory’ category in January 2015, only 11 were less than 80% sold.
In January, resale condominium apartment activity increased 11% according to the Toronto Real Estate Board and pricing increased 3.6% annually. It is clear from the early data that the additional supply is not having a downward influence on resale price growth.
January 2015: A condo market test case
If there was ever a month that would test the limits of condominium living and the desire for urbanism in Toronto, January 2015 was the perfect test case. Add an oil crisis and terrible weather, and the market kept on chugging.
Young graduates all over Ontario continue to pick Toronto as the place they want to live. People are choosing a lifestyle that includes walking to work instead of driving to work. Couples in their 20s and early 30s and getting married and raising their kids downtown.
The rapidly increasing price of single-family housing is adding an additional move-up or two to the property ladder, with folks buying a 450-square-foot condo as a single person, a 750 sf condo as a couple, and a 1,000 sf condo as a young family. Investors are easily finding tenants, and happy to hold a hard asset in times of fluctuating investment markets.
The expectation is the Toronto condominium market will remain strong in 2015. In my upcoming Market Manuscript report, I include my forecast for annual Toronto CMA new condominium sales activity of 17,775, as well as forecasts by Urbanation (18,500 sales) and Will Dunning (22,900 sales).
The Toronto market may never experience a month like January 2015 again, but it’s good to know the market can handle it if it ever happens again.
Fortress Real Developments
Fortress Real Developments is a diversified real estate development and investment company that partners with established builders and developers across the country. Fortress sources equity capital for the partnership, in addition to providing value-add services such as market research, structuring of debt, marketing, and other realty services.
Ben Myers assists in evaluating both the market conditions and projects that Fortress is active in. Follow his blog posts and commentary on the Canadian Housing Market at www.fortressrealdevelopments.com/news or follow him on twitter at @BenMyers29