‘Sluggish’ condo sales relief on horizon: report

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When competition for residential properties becomes too intense, demand for condos will ramp up, says report

If you own a condo that you’d like to sell, you already know the struggle to find committed buyers is real. You’re not alone.

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In May, the Greater Toronto Area saw a record high 8,183 condo units on the market, Engel & Völkers reports.

That surge underscores a significant shift in buyer preferences, with many prioritizing residential homes due to lower risks and fewer expenses than condos, it explains in its Mid-Year 2024 Canadian Luxury Real Estate Market Report.

“Condos, traditionally entry-level homes for first-time buyers, are experiencing sluggish sales as potential buyers hold out for interest rate relief. The lack of competition for residential property classes is creating a situation where buyers who would typically purchase condos are now vying for residential homes,” it says in the report.

MARKET TO STABILIZE

But when the competition for residential properties becomes too intense, Engel & Völkers expects competition for condos will once again ramp up. “As interest rates decrease, we expect the condo market to stabilize. Lower interest rates will enable first-time buyers to qualify for mortgages, making homeownership more accessible for them,” says Anita Springate-Renaud of Engel & Völkers Toronto Central.

“As well, once buyers begin getting priced out of the residential home market, they will return to favouring condos. Currently, qualified buyers are favouring residential class homes over condos, resulting in less competition for these properties. However, once the competition for residential homes intensifies and buyers are priced out of that market, focus will return to the condo market.”

Why have condo sales been lagging? Too much inventory. “COVID-19 caused delays in several developments, which ended up registering simultaneously. This, combined with resale units and a slow market, creates a challenging environment for condo sales,” says Springate-Renaud.

But too much inventory doesn’t shoulder all the blame. “Another factor is investors have largely exited the market. Buyers are not buying to invest – they are buying for traditional reasons like upsizing, downsizing or relocating. Without investor competition, the market for condos faces significant difficulties.”

Just when will demand for condos return? “Buyers are expected to return once the housing market gains momentum and buyers get priced out of the residential class category, likely in the fourth quarter of this year or the first quarter of next year,” Springate-Renaud says.

RENTER FATIQUE

Engel & Völkers predicts the condos will return to favour. “Condos remain a viable entry point for building equity as the market stabilizes. As one of Canada’s major cities, the demand for housing in Toronto isn’t slowing down,” she says.

“With rental prices at all-time highs, we predict that many renters will experience fatigue. As new development has stalled, rent will begin to increase in the next several years, as there will be no new supply making the rental market less appealing and buying much more attractive. When they feel comfortable to take the leap, they will soon feel that buying might be a better option.”

Also, according to the report, Engel & Völkers Canada predicts Toronto residential homes priced over $1 million will see a five per cent price increase by year-end.