Sales of new condos plunge in Toronto: Is the market ‘normalizing’?

Sales of new condos were down 18 per cent in the second quarter of 2013 over the same period a year ago as developers focus on selling off their record inventory of unsold units rather than launching new projects, says market research firm Urbanation.

Just 29 new projects, with a combined 6,728 units, were launched in the past six months.

That’s the lowest number of new launches in a decade, with the exception of 2009, according to an assessment of the new and resale condo market released Wednesday by research firm Urbanation.

However, the number of unsold units continued to climb across the Toronto Census Metropolitan area: They totalled 19,394 units as of the end of June, the vast majority of them — 11,265 condos — in projects still in the pre-construction phase.

It will be years until most of those units are built and some of those projects may never go ahead.

There are hopeful signs that the “market is regaining its footing coming out of an extremely volatile sales environment during the past two years,” said Urbanation Senior Vice-President Shaun Hildebrand in a statement.

“Developers have been cautious, but the success of some key projects this year and the solid performances of the resale and rental condo markets in the second quarter should improve confidence.”

Sales are likely to rebound further in the second half of the year as developers remain competitive in their pricing and site selection, largely sticking to high-demand, Triple A locations close to the core and transit lines, Hildebrand said.

Despite widespread uncertainty in the condo market over the past year, and even recent warnings from the Bank of Canada that the Toronto market is oversupplied, the average index price per square foot of a new condo was up in the second quarter of 2013 by 2.7 per cent, to $539 per square foot, according to the Urbanation report.

“We’re starting to see things normalize, but it’s happening gradually because of these record levels of unsold inventory,” Hildebrand said. “This is occupying the attention of developers who want to wind down this inventory before they begin with their plans for launching new projects.”

Condos under construction climbed in the second quarter to a record 57,461 units, some 13 per cent of which have yet to be sold. Many of those condos were marketed during 2011 and early 2012, when condo sales were off the charts.

From roughly 2008 to early 2012, investors almost single-handedly drove Toronto’s condo market — fuelling the push for smaller and smaller condos and fears the market was a bubble that was bound to eventually burst.

While they may, at the peak, have accounted for 65 per cent or more of all condo purchases, most have opted to rent out their units, rather than sell, given vacancy rates hovering at just over one per cent and the unprecedented demand now to live downtown, Hildebrand said.

While there has been a noticeable pullback in investor demand — Hildebrand estimates that investors now account for about 40 to 50 per cent of new condo purchases — more end-users, mostly first-time buyers tired of paying rents in downtown condos averaging more than $1,800 a month, appear to be buying again, he added.

Even resale condo sales, which started slumping dramatically in early 2012, have been picking up steam, according to Urbanation.

The 4,689 resale transactions recorded this year to the end of June were 46 per cent higher than the fourth quarter of 2012 and just seven per cent lower than the second quarter of last year.

The average resale price per square foot for the Toronto CMA hit a record $413 in the second quarter, after two quarters of decline.

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