10 November 2022 ~ 0 Comments

The potential upcoming Tsunami in Toronto real estate 

There’s been whispers of late that the new condo construction market is rising in risk and could topple in 2023, creating a Tsunami of sorts across the GTA.
Many who don’t follow the real estate market on a daily basis might be shocked to hear that the high majority of new condo builds over the past five years are mainly marketed and sold to investors. I’m guessing that a few development projects are 95%+ investor owned, with the average somewhere around the 70-80% range. 
These investors are both domestic (they live and earn a living here) as well as foreign investors, who make up a much smaller percentage. There are corporate buyers of condos, as well as private group funds. Many intend to rent out their units, some long term, others short, and then flip out of them.
Wait, you may be thinking, how does this affect me?
I’ve written about this risk in past article posts. This one isn’t so much about previous concerns an investor faced, but more on the impact to the overall housing market and economy when and if, this tsunami hits. 
Now not everyone who has bought new over the past 4-5 years will feel this sting. But there is a large amount of overextended buyers who have taken from a HELOC (Home equity line of credit) to use as a down payment on one, two and sometimes three units! 
Well, with the quick and massive hike in interest rates these past 6 months, the carrying cost has gone up. Add to this that many investors have a mortgage of their own, on the home they live in. If you are on a variable rate mortgage, your rates may have increased as well. And if they haven’t yet, they will be shortly, as many variable rate mortgages will be “triggered” over the coming months from what I’ve been hearing.
So rising costs on both the home front and the HELOC side are certainly making some feel the squeeze. 
Now add in a most likely higher cost on the mortgage your investment condo will have when complete, and there’s a very good chance you’re in a big hole after the rent has been taken in. 
What is the likelihood of a recession in 2023. Some say it’s 50% likely, others say it’s a certainty. The Bank of Canada until very recently said no, we should be on track for a soft landing. Attention passengers, that’s been updated to a likely hard landing ahead. 
I could go on and on but I think I’ve demonstrated the basis for at least concern to be had for anyone in this predicament. Yes, there is a chance it won’t happen, and I’ll go on a record and say, “I’m rooting for you that it doesn’t, and we manage this soft landing”. 
There is some hope, and that is developers have been shelving new projects left, right and centre across the GTA of late. Sales of new builds are down 90% of late when compared year-over-year, which is way higher than what’s happened in the resale condo market. The condo assignment market is dead in the waters, and this is a sign not to be taken lightly. 

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