Nick Horton, salesperson – Nov 28/2020

If I want to buy a condo, what are my best options?

To answer this question, I want to look at what is happening in the two different segments of the market:

Pre-construction and Resale.  

Pre-construction:

Earlier this week I attended a private broker presentation for the launch of the 8 Wellesley Residences, a luxury high-rise tower due to launch this spring at the corner of Yonge and Wellesley. It was interesting to hear the sales pitch for this pre-construction condo. It focused on how increased immigration will continue to drive the Toronto condo market, creating continued demand that will outstrip new supply. They specifically pointed to the federal government’s plan to increase immigration significantly over the next 3 years.

The government’s plan aims to bring in 1.2M skilled workers, family members, and refugees, which is an additional 50,000 people/year than previously planned. The logic being that more immigration will bolster the economy and fill gaps in sectors that are experiencing shortages due to COVID-19. Specifically, the government is focusing on filling labour gaps in healthcare, tech, and skilled trades. Since this is pre-construction and the building won’t be completed for 4 years, the theory is your condo should be available for rent or sale in a strong market.

The goal is to bring in 401,000 people in 2021, 411,000 in 2022, and 421,000 in 2023. Note that there is some skepticism, to say the least, from opposition parties that these numbers can be achieved. Historically, 35% of new immigrants land up living in Toronto, which means potentially 140,000+ people per year coming to live in the city.

The implied result is that these people will need a place to live and condos will be the easiest and most affordable option. Right now, there are 78,156 units at various stages of completion in the GTA. At a completion rate of around 20,000/year (est. 23,000 in 2020, est. 22,000 in 2021), longer-term demand will likely continue to outstrip supply.  

As it stands today, immigration in Toronto is down around 64% and many people are leaving to find more affordability in the suburbs, as their job now allows them to work remotely. Sales of pre-construction units are down in the City of Toronto by 16% in the 3rd quarter year-over-year, while sales in the suburbs more than doubled, up by 106%.

I am also hearing about people trying to sell pre-construction contracts that they entered into before the pandemic, for cost. To me, this is where the opportunity in the pre-construction market lies.  Finding a panicked or over-leveraged seller who has a contract in an attractive building downtown. Preferably in a building that is due for completion in a year or two when the pandemic is largely over. You get the 2017-2018 price/sq.ft, and they are happy to get out of the deal. You also get the lift when jobs, students, and immigration come back. In my view, this is a better play with a potentially quicker payoff, rather than buying a unit in a building like 8 Wellesley at today’s higher prices.

Resale:

In the resale condo market, it is likely to get worse before it gets better.

Condos have now experienced numerous months where supply continues to outstrip demand. This has resulted in active condo listings nearly tripling over the last year, increasing by 173%. There is now a massive amount of supply heading into the slower winter months and the city is experiencing a resurgence in covid-19 cases.

In addition, although not unexpected, this week CIBC, TD, BMO pushed back their office return dates to at least April. I view Bay Street opening back up as an important first step, as it will be viewed as a signal for other large employers to recall workers back to the office.

The glut of inventory is incredibly good news if you are looking to buy a condo in the core. Pre-pandemic it was a stressful experience with limited options and bidding wars everywhere you looked. Today, you can afford to be patient and wait for the right unit.

My advice on buying a condo hasn’t changed in the last 13 years. I recommend sticking with boutique condominiums or lofts in established or gentrifying neighbourhoods. The condos that are getting crushed right now are high-rise buildings in dense urban areas. You may not get the big discount you may find in the high-rise inventory, but your investment will be safer and you will be much happier living in an owner-occupied building that won’t turn back into an Airbnb when the pandemic is over. 😉

With vaccines on the way, extremely low-interest rates, and the price gap between houses and condos widening, sediment towards the resale condo market could quickly turn positive in the second half of 2021, particularly in the boutique or mid-rise segment.