ADVICE | stAt ChAt
Don’t ExpEct ToronTo new Condo PriCes to crash in 2019
BEn MyErs
If you read the title of this article, you might think the author wasn’t paying attention in the early 1990s when new condo prices in the Greater Toronto Area (GTA) plunged by over 40 per cent from a market peak of $265 per-sq.-ft. (psf) in Q3-1989 to $155 psf in Q3-1993. In truth, I’ve followed the data carefully and heard the stories. Toronto today is a very different place, and any correction that occurs won’t be nearly as deep. In 1989, there were less than 100 actively selling new condominium apartment projects, but nearly 50 per cent of the units on the market at the time were unsold. In 2019, there are over 300 projects (likely closer to 350 when you include sold-out projects that haven’t been occupied yet), and only 17 per cent of the inventory is unsold. This is a very important fact in how quickly prices can go up and down. When a developer sells 60 per cent to 70 per cent of their units, they often seek out banks and other lenders for construction financing. For many construction lenders, they’d would like to see enough sales in place up-front 26 New Home + Condo Guide | Mar. 16–30, 2019
to fully pay off their loan at the time the project is completed and registered. This helps prevent the oversupply that occurred in the US housing market, where many lenders were providing funding to developers before any sales were in place. When developers reach this sales threshold, obtain construction financing and start
building, many will raise their prices above the “market level” because they know they have two to four years to build their condo project. Developers are confident that buyers will pay more for a finished product if they have units remaining at occupancy. Secondly, they want to ensure they have a way to add more revenue if their costs go up unexpectedly (higher