HomeUSAHere's How Higher Interest Rates Are Affecting Canada's Condo DemandOUS News

Here’s How Higher Interest Rates Are Affecting Canada’s Condo DemandOUS News

Rising interest rates and other constraints in the construction industry have prompted builders in some Canadian markets to postpone condominium projects, while others say demand for condos will remain the same as supply remains tight.

Real estate consulting firm Urbana released a report this week showing that builders in the Greater Toronto Area (GTA) are slashing the number of condo units they are launching this year.

Based on input from developers at the beginning of the year, Urbana estimated that 35,000 condo units would be available for presale by 2022. In its second quarter report, it said that some 16,000 units were actually put up for sale in the first half. of the year, it now expects to launch 10,000 more units only before 2023.

Urbanization expects about 10,000 anticipated units to be delayed or cancelled.

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Although GTA is currently experiencing an all-time high of approximately 123,654 condo units currently pre-sale or under construction, Urbana’s president Sean Hildebrand tells Global News that the slowdown in launches has led to buyer confidence in the “future of the housing market”. reduces.

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High cost making some projects less viable

Door Outlook is not limited to Toronto. The Canadian Home Builders Association (CHBA) said in its latest Housing Market Index (HMI) that developer confidence has declined sharply in the first half of 2022.

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The HMI measures the confidence of Canadian residential builders on a 100-point scale. While the index posted an all-time high for both single and multi-family home construction in the first quarter of 2022, the second quarter report released in mid-July showed 65.7 for single homes and even higher A sharp drop of up to 59.9 was observed. In multi-family, that includes condos.

The CHBA pointed to labor shortages and rising interest rates to dampen confidence, but noted that the Bank of Canada’s latest 100-basis-point increase has not yet been included in the data.

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In addition to interest rates, other costs for homebuilders are rising rapidly, whether due to higher prices on materials or increased development fees.

Hildebrand says that as a result, condo builders are unable to meet their pre-sale prices, which buyers can afford and are instead shelving units they don’t believe will be available in the near future. will be able to sell.

Investors, who make up the majority of pre-construction condo buyers, are especially put off in high-interest-rate environments, notes Hildebrand.

“With the slowdown in sales that we have seen and more general market hesitation from buyers, it is difficult to launch condo projects and the cost increases they are experiencing,” he says.

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Unfavorable conditions are also reducing construction activity in Canada’s most expensive housing market.

“Fundamentally, yes, there has been a notable recession,” says Ron Rapp, president of the Homebuilders Association Vancouver.

Ongoing supply chain issues and other inflationary pressures are driving up costs for materials, Rap notes.

Builders often have tight windows and deadlines to secure financing and approvals and get shovels in the dirt; If they don’t feel confident about the cost and viability of a project, they are more likely to stall and break down later down the line when market conditions become clear, he says.

“Hopefully, as things go online, supply chain challenges will start to ease over the next few days. But right now, it’s creating significant problems for building community and development community,” Rapp says.

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Demand slows, but hasn’t gone up, in big cities

Not all observers are feeling sad about the pre-construction condo market.

Marc Lefort is associate vice president at McGill Real Estate, which specializes in Montreal’s pre-construction condo market. He says he has seen a slowdown in demand this summer, but attributes it to the “post-COVID holiday”, as buyers focus on travel rather than house hunting.

“We feel a slowdown this summer, but in our analysis it’s not really interest rate (growth),” he told Global News, adding that he expects demand to pick up again after Labor Day.

Lefort says developers McGill Real Estate have experienced similar labor and cost pressures to builders outside Quebec, but says the company hasn’t seen any condos canceled or delayed, with “many projects” launching in the fall. ready to be.

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He believes the strong demand for new construction comes from the ongoing supply shortage facing the Canadian housing market. And while rising interest rates can reduce buying power, as rental rates rise in parallel, renters are not finding compelling reasons to wait on the sidelines, he argues.

Montreal may be an outlier, Lefort notes, as the city hasn’t experienced the same price pressures as Toronto or Vancouver in recent years.

“I know affordable is a big word, but we’re still short of most of the big cities in North America.”

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While Hildebrandt says there is a good influx of housing units in the works today in Toronto, the ensuing slowdown could mean that the market could be caught off guard if demand picks up again.

“It certainly creates some bottlenecks in the supply pipeline. So when demand eventually recovers, as we expect, supply will not increase to the extent it normally would,” he says.

Rapp says rising interest rates have “taken the shine off the frenzy that was going on before,” adding that strong immigration and inter-provincial migration have kept pressure on Vancouver’s current supply challenges.

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The inability to maintain a steady flow of new housing in the pipeline could “accelerate” the affordability challenges already facing the city.

Rapp says builders are looking for policy measures that can encourage quick approvals and new housing additions, even during market down periods, to ensure that the city’s housing inventory doesn’t lag further. .

“There has to be some kind of balance. We’re not really sure how it will play out right now. ,

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© 2022 Global News, a division of Corus Entertainment Inc.


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