What's The Biggest Challenge Facing the New Condo Market in Toronto

28 May 2014

When people say that we are building too many condos because of all the cranes downtown, then you know that these people know very little about the real estate market. The fact is that we need some 20-25 thousand new condo units each year (added together with new low rise construction) just to keep up with the population growth in the GTA. When people complain that it is only investors who buy these new condo units, then you know that these people don’t understand how long the process takes. From sales start, to finish and registration can take four to five years. End Users don’t know where they will be living or what their circumstances will be that far into the future. So End Users will never buy new condos at the outset. Hence without investors, developers for these new condos could never get construction financing to even build these units. So what is the biggest challenge facing the new condo market? It is that the MIX of new units being constructed will not meet the long term needs of people wanting to live downtown! Investors prefer to buy smaller units. That because returns are better! But End Users prefer bigger units, especially if they have families. Did you know that buying one $600,000 condo will cost twice as much in Land Transfer taxes and lost HST rebates as buying two $300,000 condos? Again Governments are negatively impacting the market! What we need is for developers to sell two side by side units to a single investor. Over time, an End User can buy both and convert them into a single larger condo unit. This trend of buying two small units and converting them into one larger one is already happening in New York City and in particular Manhattan. Instead of waiting for the trend to come to Toronto, it would be better if developers (with the help of Government) started to design and sell these side by side units to investors at the start of the new sales process.