High borrowing costs, record completions lead to condo oversupply – MoneySense

A report by TD economist Rishi Sondhi said sales activity hasn’t been absorbing supply fast enough, with July condo resales in the GTA down 25% from pre-pandemic levels.

Sondhi said the trend is tied to factors such as a wave of newly built condos hitting the market, elevated borrowing rates that have made it difficult for some buyers to close on their mortgages, and investors looking to sell properties as declining rents and negative cash flow make them unprofitable.

“The relatively elevated interest rate backdrop means that the gap between the rate of return from a condo in the GTA … and from a risk-free’ government bond has narrowed,” he said in the Sept. 5 report.

“This may have reduced the incentive to hold a condo as an investment, although the recent drop in yields could be helping to re-widen this spread.”

Condo completions in the GTA

Sondhi’s report showed there were around 19,000 condo completions in the region between January and July of this year, up from about 12,000 during the same seven-month period in 2023 and 10,000 the year before.

The pace suggests this year could see “record high” condo completions in the GTA, said Brendon Cowans, a sales representative for Toronto-based brokerages Property.ca.

“You can just imagine all of this supply coming in a high interest rate environment. It’s not a lovely combination,” he said.

Active condo listings across the GTA were up 63.9% in July from the same month last year, growing from 5,416 to 8,879, according to data from real estate firm Zoocasa. The City of Toronto has seen a similar jump, with active condo listings increasing year-over-year by 61.5% in the same period.

What’s happening in other major cities?

Although the GTA leads the country in active listings gains, the trend is in line with other major cities across Canada. Year-over-year active condo listings rose more than 40% in London, Hamilton-Burlington, Mississauga and Ottawa in Ontario, as well as Vancouver. Montreal and Calgary each saw growth of about 23%.