There were 35,074 new condominium apartment units sold across the Greater Toronto Area in 2017, up 30 per cent compared to 2016 (26,893), and 75 per cent higher than the 10-year average of approximately 20,000 sales, according to Urbanation Inc.’s 2017 condo market results.
Condo market activity was driven higher in 2017 due to a surge in new project openings, which included 19 large-scale developments featuring 500 or more units, and strong investor demand. Of the 105 new pre-construction projects launched in 2017, totaling 32,435 units, 84 per cent of those units were sold by year-end, with prices averaging $795 per square foot.
New launches in downtown Toronto markets sold for an average of $972 per square foot, with available inventory at year-end reaching $1,079 per square foot, the first time the average price has surpassed the $1,000 per square foot threshold. Activity remained strong throughout the year, with sales in the fourth quarter climbing 20 per cent annually to reach a Q4 high of 8,869 units sold.
Since inventory levels for unsold condos dropped 26 per cent in 2017 and 58 per cent over the past two years to 7,942 units, and prices climbed 35 per cent to an average of $876 per square foot in 2017, Urbanation expects new launch activity to remain busy in 2018. However, the company expects to see a more cautious approach this year as developers must deal with delays and uncertainty in obtaining approvals and face tighter resource constraints while completing projects that are already underway. In 2017, industry consultants reported double-digit increases in construction costs, which along with large proposed increases in development charges and high land prices, will lead to a more measured page for new launches to ensure sale price targets can be achieved.
Meanwhile, investors are expected to remain active this year, encouraged by strong rates of return for projects that are completing construction, steady price growth for condos in 2018 and rapidly rising rents. Urbanation found that for projects that were completed and registered in 2017, average resale values were 42 per cent higher than their average pre-sale opening prices.
Also, it was calculated that most newly completed condo projects were able to generate positive cash flow in the rental market last year, factoring in an 80 per cent loan-to-value mortgage, condo fees and taxes. Therefore, Urbanation believes investors should act less aggressively in 2018 due to high prices, capped rent increases, rising mortgage rates and stricter mortgage qualifications. Providing some offset to less investor demand will be end-user buyers, who are expected to increasingly seek to purchase condos due to elevated single-family home prices and new lending rules.
Urbanation also calculated the percentage of resale condos that were bought and resold within short periods of time. For units bought and resold within 12 months, the share of total condo resales reached a high of four per cent in Q1-2017, falling to 2.9 per cent in Q4-2017, which is slightly lower than Q4-2016 (3.1 per cent). For units bought and resold within six months, the share fell to 0.8 per cent in Q4-2017, down from a high of 2.1 per cent one year before.
Less speculative demand in the second half of 2017 contributed to lower overall resale condo sales volumes in 2017, which fell six per cent to 23,907 units. However, resale activity climbed 2.5 per cent quarter-over-quarter in Q4 as some buyers made purchases before new mortgage stress test rules took effect that the start of 2018.
Resale market conditions remained tight throughout 2017 as listings trended lower, providing support for prices. Average resale prices climbed 22 per cent on an annual basis in Q4-2017, although all of the growth was recorded in the first half of the year.
Following a five-year low for completions in 2017 to 13,513 units, condo deliveries are expected to increase in the next three years, reaching 22,395 units in 2018, 25,124 units in 2019 and 28,432 in 2020. However, actual completions may be lower than projected, given that annual deliveries have been averaging about 7,000 units less than scheduled in recent years. Only 62 per cent of units that were scheduled for delivery in 2018 reached occupancy.
“While the results for 2017 prove how remarkably strong demand can be for GTA condos, the level of activity underway is putting the industry under tremendous pressure to push the units through the development cycle,” said Shaun Hildebrand, Urbanation’s senior vice president, in a press release. “A more sustainable pace of roughly 26,000 sales is likely in store for 2018.”