Areas outside Toronto among most distressed parts of Canada’s condo market, data show

The glut of unsold preconstruction condos in Ontario is not concentrated in a host of new high-rises in downtown Toronto, but further north in the emerging Vaughan Metropolitan Centre, and to the west, in downtown Hamilton.

Each of those neighbourhoods had about 1,000 unsold condos at the end of the second quarter, according to data from new-home research firm Zonda Urban.

For years, areas outside of Toronto were considered promising places for development because they were more affordable than the city.

Today, they are some of the most distressed parts of the country’s condo market.

In downtown Hamilton, a relatively affordable city, there were 1,127 unsold condos, which represents 34 per cent of the area’s inventory that is either under construction, preconstruction or newly built.

In Vaughan Metropolitan Centre, where scores of skyscrapers have been built and planned around the eponymous subway station north of Toronto, there were 966 unsold units. That accounts for 43 per cent of the area’s new condo inventory.

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In comparison, Toronto’s Entertainment District is one of the densest areas in downtown and has a surfeit of established and newly built condo towers. The district had 711 unsold units in the second quarter, according to Zonda. That represents 27 per cent of the neighbourhood’s inventory that is under construction, preconstruction or newly built.

“It will take some time and likely a mix of outcomes or solutions to clear the unsold inventory in these markets,” said Pauline Lierman, Zonda’s vice-president of market research for Ontario and Quebec.

In Hamilton, some of the developers with unsold units include Fengate Real Estate, Emblem Developments Inc. and Rosehaven Homes.

Condo projects are now taking years to sell, unlike during the pandemic real estate boom, when a large condo project could sell out in several months.

Fengate launched preconstruction sales at its 75 James condo building in Hamilton in 2022, as the market started to slump. It sold about half of the 616 units in the 30-plus storey building that year. Today, 60 per cent of the project’s units are sold, which is still below the 70-per-cent threshold required to get construction financing.

“As with many residential developers across Canada, Fengate continues to evaluate a range of strategic options for its remaining inventory,” said Carolyn Poirier, the developer’s vice-president of sales, leasing and marketing.

Those options include continuing to try to sell to individual buyers, selling multiple units at a discount to large investors, or converting some or all of a project to rental units.

Last year, Fengate launched a rent-to-own plan in Hamilton, where tenants in one of its rental-only apartment buildings could apply part of their rent to purchase a condo at 75 James. A tenant could be eligible to use 50 per cent of their paid rent as a credit toward a condo purchase – up to $35,000, according to their website.

Fengate said this would provide residents with a tangible path from renting to homeownership. Ms. Poirier said there has been strong interest from residents, with several exploring ownership opportunities.

The federal and Ontario governments have also tried to help developers get rid of their unsold condos, and have implemented a temporary HST rebate for new home purchases. Developers say the tax break has helped spur more sales.

Rosehaven’s vice-president of sales Stefano Guglietti said in an e-mailed statement that purchases at its 393-unit Rebecca condo project in Hamilton have increased since the rebate program went into effect in April.

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Emblem Developments launched sales of a large development in downtown Hamilton in 2022. Called Design District, the project is marketed as three 31-storey buildings with a total of 931 units. Its website is still advertising units for sale, though does not specify how many are unsold. Emblem declined to comment.

Although the price of preconstruction units has been declining, they are still more expensive than condos that have already been built. That means buyers can find a better deal on the resale market.

“There will be a sell-down when people realize they have to kind of reduce their pricing to get rid of inventory,” Ms. Lierman said.

Mississauga City Centre used to have a similar volume of unsold units as in Vaughan Metropolitan Centre and downtown Hamilton. But two developers in the area recently cancelled one of their joint condo projects because they were not able to sell 70 per cent of the building’s units before launching construction – the threshold required to get construction financing.

The cancelled project is called M6 and was being developed by Rogers Real Estate Development Ltd. and Urban Capital. M6, which was not yet under construction, was designed to be 58 storeys, with nearly 900 units. Sales were launched a few years earlier.

“Following a promising initial launch in late 2023, a prolonged shift in the condominium market and our inability to reach the sales threshold required to begin construction have led us to make the difficult decision not to move forward with M6,” Rogers Real Estate’s vice-president, treasurer John Anderton said in a statement to The Globe and Mail this month.

“As a result, all purchase agreements have been cancelled, and all deposits have been refunded,” the statement said.

The tower was the sixth phase of a larger condo development with more than 5,000 residential units. The developers’ first two skyscrapers, called M1 and M2, have been completed and are fully occupied. The third, M3, is nearing completion. At 81 storeys, M3 is one of the tallest buildings in Canada. It has about 900 units, according to its website.

Two other condo towers, M4 and M5, are under construction. It is unclear whether they have unsold units, and Rogers declined to comment on sales for those two buildings.

Daniels Corp. has also been developing in Mississauga City Centre and has about 60 units unsold in the area as of mid-June, according to Dominic Tompa, president of Daniels Realty Corp., the in-house brokerage for the housing developer.

Over the past few years, multiple condo projects have been completed, leading to the oversupply of units in the area.

“You had a lot of projects that were sold between 2017 and 2022 and all having come to completion in the last 24 months to 30 months,” Mr. Tompa said. “You’ve got a lot of product that will just take time to absorb.”

In Vaughan Metropolitan Centre, or VMC, a slew of condo units are under development. VMC has been a hub of development for the past 15 years. It was designated as Vaughan’s new downtown after the province made a commitment in 2006 to extend Toronto’s main subway line north to Vaughan, according to the city’s website.

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One of the city’s brochures from 2021 said there were 32,000 housing units planned for the neighbourhood.

The City of Vaughan did not reply to a request for comment on the plans and volume of unsold units.

So far, 10,186 condo units have been developed in VMC, according to Zonda data. Of that amount, 85 per cent was completed after 2020, as the condo market peaked and then slumped.

Some of the major developers that have projects under way in VMC include SmartCentres REIT, Menkes Developments Ltd. and pension fund British Columbia Investment Management Corp.’s real estate arm, QuadReal Property Group.

Menkes and QuadReal are co-developing Encore at Bravo, a 58-storey condo building with more than 650 units. There are still units for sale, according to their website. QuadReal declined to comment on the number of unsold units, and Menkes did not respond to a request for comment.

SmartCentres is also advertising units for sale at its Park Place development, which has two towers, one that is 48 storeys and another that is 56 storeys, according to its website.

SmartCentres did not respond to requests for comment. Its website said that its VMC developments would eventually be home to 45,000 residents.

A key issue dampening sales is that mom and pop investors – who used to account for the overwhelming majority of preconstruction purchases – have lost interest.

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Many who have already closed on a purchase are bleeding cash every month, because they either cannot find a renter or the rental rate is not enough to cover their monthly mortgage payment and condo fees.

In VMC, rents have dropped to an average of $3.52 a square foot, or $2,112 for a 600-square-foot unit, in the first quarter of this year. That’s compared to an average of $4.06 a square foot, or $2,436 for a 600-square-foot unit, in the first quarter of 2024, according to data from new-home consulting firm Urbanation Inc.

For investors who bought for price appreciation, condo values are no longer increasing.

The drop in condo prices has made it more difficult for preconstruction buyers to close on their units because they often have to come up with additional funds to cover the gap between what they agreed to pay and the current price. That shortfall can run in the hundreds of thousands of dollars.

If buyers are unable to close, they are in default of their purchase contract. If they walk away, they lose their deposit and the developer has to take back the unit and either hold it, or try to sell it again.

In one VMC building called the Vincent, some preconstruction buyers are trying to get out of their purchase contracts. The Vincent was launched during the height of the real estate boom in 2021 and sold out in six months. It consists of nearly 800 condo units across two skyscrapers. Buyers were expected to start closing on their units this summer.

Jackson Scarfe, a realtor with Re/Max Plus-City Team Inc. who specializes in distressed sales, said some of the Vincent’s buyers were trying to get out of their sales contracts. A decline in property value from the time buyers purchased units to when they were completed has made it difficult for buyers to close on their condos.

“Toronto condos have seen a horrible downturn,” Mr. Scarfe said.

Mr. Scarfe said one buyer agreed to pay $940,000 for a 747-square-foot, two-bedroom, two-bathroom condo. That works out to about $1,258 a square foot. However, today, the price is much lower on the assignment market – a private market where buyers try to sell the rights to their contract, also known as an assignment sale.

Mr. Scarfe’s brokerage used comparable sales in the area to value the property. He said it works out to a low of $763 a square foot. That is 40 per cent below the original price that the buyer agreed to pay.

He said he has many people in various buildings trying to sell their preconstruction condo contracts because they cannot come up with the shortfall and close.

“It’s heartbreaking,” he said. “There’s just way too much supply.”