Those who bought off-plan homes, in particular, find themselves in an increasingly difficult position. Some are unable to finance the final stage of the purchase because the appraised value of the property is lower than expected and because mortgage rates are higher than when the property was purchased.
Pre-construction condos were purchased primarily in 2019 and 2020. Once the fees and expenses add up, these buyers no longer make a profit. They probably make a losssays Jordan Srinko, CEO of Precondo, a company that manages many pre-construction projects.
He says the past few months have been very challenging for his company. And that’s not a good thing.
« We put out fires, we calm people down, we try to find solutions off the beaten track. »
He adds that the company is receiving calls from customers of other companies seeking assistance as their occupancy date approaches.
We try to offer them solutions and help them through this difficult period.
Towards a slowdown in construction?
Given the changing conditions, experts say some investors are opting for caution. Promoters are also backing down. Data released in October shows that there are fewer new condo projects than expected this year.
The long-term repercussions of this situation on housing supply are worrying at a time when needs are terribly great.
According to the Greater Toronto Real Estate Board (Toronto Regional Real Estate Council), the price of condominiums increased by 4.5% compared to the same period of the previous year.
Since March, however, prices have dropped nearly 12% in the Toronto area and nearly 11% in the city itself.
Raising interest rates hurts
At the same time, the increase in the Bank of Canada’s key rate has caused mortgage rates to rise. A closed five-year fixed rate mortgage is offered at around 5% at most banks.
The calculations made by some investors who have bought off-plan homes in recent years no longer hold up.
The context for mortgages is completely differentpoints out Ron Butler, of butler mortgage, in Toronto.
Investors who bought 18 months ago could get a mortgage, fixed or floating, at a relatively low interest rate.
% everywhere”,”text”:”It’s behind us. It is now within 5% everywhere””>It’s behind us. It is now within 5% everywheresays Mr. Butler, who notes that those who have invested in more properties in recent years are in a more difficult situation.
« They must find a way to cover the closing costs of three different apartment buildings in a market where rents are unlikely to cover the cost of the mortgage. »
Investors are in a hurry to sell
Investors who have bought apartments off-plan hoping to sell them before their occupancy date are currently in the very crowded market of disposal sales.
The original buyer can sell the contract with the builder to a new buyer. As a rule, these transactions were very profitable, because they took place years after the purchase, but very close to the end of the construction.
Although it is difficult to quantify these sales since they are not announced by the Multiple Listing Service (MLS) – o Multiple listing service (MLS) – Jordon Srinko thinks it is still possible to get a property at a good price thanks to the current offer.
:don’t buy a pre-construction condo with the sole goal of quickly reselling it for a profit. It worked for more than 10years in Toronto, but one day it will stop working”,”text”:”I’ve been saying this for years: don’t buy a pre-construction condo with the only goal of selling it quickly for a profit. It worked for over 10 years in Toronto, but one day it will stop working””>I’ve been saying this for years: don’t buy a pre-construction condo with the sole aim of reselling it quickly for a profit. It worked for over 10 years in Toronto but one day it will stop workingwarns.
I guess we’ve come to this.
With information from Farrah Merali, CBC