New Condo Developments Dropping Like Flies

If you are one of the unfortunate buyers of Step condos, you just found out your completely sold out new condo project has been cancelled by the developer.

A few weeks back, On The Danforth condos, suffered the same fate. Another sold out project, cancelled by the developer.

What’s going on you ask? Well…there’s not a simple explanation that applies to the rash of cancellations happening across the GTA.

In 2018 there were 17 projects cancelled totallying 4,672 units. Now before you start feeling too sorry for all of these ‘displaced soon to be home owners’, keep in mind that close to 75% of most new condo sales are to investor buyers.

But there is an alarming trend at hand, where completely sold out projects are dropping like flies. In 2017 the number was 1,678 units and a mere 379 the year before that. In the GTA where housing is at a premium and shortage, this is very concerning.

We have low availability in rental accomodations, shortages in active listings for sale, and a declining sales market in new construction buys in 2019. On the new construction side you can’t blame buyers for shunning the purchase of property that won’t be built for at least four to five years, if at at all?

When your developer cancels your project, all you are entitled to is the return of your deposits. If you made your purchase three years previously, you are not only out the gains in market value (property appreciation), but you’ve also lost out on three years of mortgage paydown and cash flow.

Projections for 2019 are that the number of cancellations are going to be higher than last years total. Hopefully, if you are one of the unlucky ones whose project isn’t going to be built, you at least get the return of your deposit back.

Even though Tarion insures deposits up to $20,000.00, in many cases your deposit can be four times that amount. Buyers who bought from the now bankrupt Urbancorp developer know the sting of that first hand. It could take years to get your money back, and maybe not in its entirety.

Developers have always targeted the investor buyer and over the past eight years, they’ve upped their focus in this area. Targeting buyers through slick marketing campaigns, above average compensation to agents (many whom work entirely in the interest of the developer, even though they appear to have a third party arms length relationship) and finally, a combo of savvy investor and naive buyers looking to score that VIP price.

Buying a new construction condo today has become more of a speculative investment, due to the high cost of purchase, and the current rental rates being paid. Most units are operating at a monthly loss, with many in the 50% per month range. It baffles me why an investor who could purchase a fairly new resale unit between $800-$900/sq ft opts instead to pay $1100-$1200 and has to wait four years to make money?

All this being said, the key to purchasing new construction if that’s your preference is to make sure that you are dealing with a reputable developer who has a history of delivery their sold units. Don’t be caught up in the greed of VIP pricing, and suspect locations. Stick to those that have made developing a long term business, this should help ensure that your purchase isn’t cancelled after years of a project being sold out.

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