High borrowing costs, record completions lead to condo oversupply

A report by TD economist Rishi Sondhi stated gross sales exercise hasn’t been absorbing provide quick sufficient, with July rental resales within the GTA down 25% from pre-pandemic ranges.

Sondhi stated the development is tied to components equivalent to a wave of newly constructed condos hitting the market, elevated borrowing charges which have made it tough for some patrons to shut on their mortgages, and buyers trying to promote properties as declining rents and damaging money circulation make them unprofitable.

“The comparatively elevated rate of interest backdrop signifies that the hole between the speed of return from a rental within the GTA … and from a risk-free’ authorities bond has narrowed,” he stated within the Sept. 5 report.

“This may increasingly have diminished the motivation to carry a rental as an funding, though the latest drop in yields could possibly be serving to to re-widen this unfold.”

Apartment completions within the GTA

Sondhi’s report confirmed there have been round 19,000 rental completions within the area between January and July of this yr, up from about 12,000 throughout the identical seven-month interval in 2023 and 10,000 the yr earlier than.

The tempo suggests this yr may see “file excessive” rental completions within the GTA, stated Brendon Cowans, a gross sales consultant for Toronto-based brokerages Property.ca.

“You possibly can simply think about all of this provide coming in a excessive rate of interest setting. It’s not a stunning mixture,” he stated.

Lively rental listings throughout the GTA have been up 63.9% in July from the identical month final yr, rising from 5,416 to eight,879, based on knowledge from actual property agency Zoocasa. The Metropolis of Toronto has seen the same bounce, with lively rental listings rising year-over-year by 61.5% in the identical interval.

What’s occurring in different main cities?

Though the GTA leads the nation in lively listings beneficial properties, the development is in keeping with different main cities throughout Canada. 12 months-over-year lively rental listings rose greater than 40% in London, Hamilton-Burlington, Mississauga and Ottawa in Ontario, in addition to Vancouver. Montreal and Calgary every noticed progress of about 23%.