The Current State of Toronto’s Preconstruction Condo Market: A Deep Dive into the Decline, Glut of Unsold Units, and What the Future Holds

Toronto Preconstruction Condo Market

Introduction The Toronto real estate market, specifically the preconstruction condo sector, has been facing a challenging period over the past few years. As of late 2024, the city is experiencing a significant slowdown, with sales plummeting to levels not seen in nearly three decades. This blog will explore the reasons behind this downturn, the factors contributing to the growing glut of unsold units, and the potential long-term implications for investors, developers, and homebuyers.

1. The Preconstruction Condo Market in Toronto: An Overview

To understand the gravity of the current situation, it’s important to have a broad view of the preconstruction condo market in Toronto and its historical performance. Preconstruction condos are typically sold by developers before the buildings are completed, often to investors who hope to flip the units for a profit once construction is finished.

Toronto has long been a hub for condo development, with the Financial District and downtown areas featuring some of the tallest and most sought-after towers in Canada. However, the last few years have witnessed a steep decline in investor interest, and the market is currently struggling to regain its former momentum.

2. The Significant Decline in Preconstruction Condo Sales in 2024

One of the most alarming statistics for the preconstruction condo market is the 64% drop in sales volume in 2024 compared to the previous year. According to a report from Urbanation Inc., only 4,590 preconstruction condo sales were recorded in the Toronto and Hamilton regions in 2024, the lowest figure since 1996.

This decline in sales can be attributed to multiple factors, including economic uncertainty, higher interest rates, and changing investor sentiment. For much of the past decade, Toronto’s preconstruction condo market was fueled by a large number of investors who purchased units with the intention of flipping them for a profit. However, as prices have risen and rental income fails to keep up with rising costs, many investors have pulled out of the market entirely.

3. Prices Falling Across the Toronto Region

In the fourth quarter of 2024, the average asking price for preconstruction condos in the Toronto region fell by 15% compared to the same period in 2023. The average price per square foot dropped from $1,407 to $1,153 in Toronto and from $1,183 to $1,104 in the suburbs. This steep decline represents the largest drop Urbanation has tracked in two decades, signaling the depth of the market’s struggles.

The price reduction is not the only indicator of a declining market. Developers are offering additional incentives to attract buyers, such as guaranteed rental income programs, which are designed to entice investors who are now more hesitant to make purchases in the current climate.

4. The Glut of Unsold Units: A Record High

As of the end of 2024, the number of unsold preconstruction condo units reached a record high of 24,277. This represents a 6% increase over the previous year and is 50% higher than the 10-year average. The unsold inventory includes condos that are still under development, in the process of being constructed, or recently completed but yet to be sold.

This glut of unsold units is concerning for both developers and the broader market. If sales continue at the same slow pace observed in 2024, it could take more than five years to clear this inventory, further exacerbating the slowdown in the sector.

5. The Slowdown in New Condo Starts

The lack of preconstruction condo sales is also affecting the pace of new condo construction in Toronto. In 2024, the number of new condo starts in the region fell by 21%, a stark contrast to the record highs of previous years. Developers are becoming more cautious in the face of uncertain demand, and new projects are being delayed or scaled back in response to the challenges in the market.

This slowdown is particularly concerning because it comes at a time when the Canadian government is making efforts to ramp up housing supply, including more affordable options. The lack of new starts in the preconstruction condo sector may hinder the broader goals of addressing the housing crisis in Toronto and the surrounding areas.

6. The Impact on Investors: A Changing Landscape

For many years, investors were the driving force behind the preconstruction condo market. However, the changing dynamics of the market have left many investors in a difficult position. Condo values are no longer appreciating at the rates they once did, and rental income has not kept pace with rising costs such as mortgage payments, property taxes, and condo fees.

Many investors are now facing financial strain, as their units are either unsold or are not providing the returns they had anticipated. Some are opting to sell their units at a loss, while others are choosing to hold on in the hope that the market will improve.

7. The Future of Toronto’s Preconstruction Condo Market

Looking ahead, the outlook for the preconstruction condo market remains uncertain. Shaun Hildebrand, president of Urbanation, predicts that 2025 will likely be another tough year for the market, as investors continue to face challenges with their existing units.

However, it’s not all doom and gloom. Some experts believe that the downturn may eventually lead to a “massive decrease” in new home construction, particularly in the preconstruction condo segment. This could help to stabilize the market in the longer term, as reduced supply might lead to a more balanced market and more competitive prices for buyers.

8. Government Action and Policy Responses

The Canadian federal and provincial governments are already taking steps to address the housing crisis, with policies designed to encourage the construction of more affordable housing. However, the slowdown in preconstruction condo development may hinder these efforts. If the current trend continues, policymakers may need to find ways to incentivize developers and investors to reenter the market.

One potential solution could be to introduce measures that encourage more owner-occupied condo purchases, rather than relying on investors. This could help to stabilize the market and reduce the glut of unsold units.

9. What Does This Mean for Potential Homebuyers?

For potential buyers, the current state of the preconstruction condo market offers both challenges and opportunities. While the glut of unsold units may mean that buyers have more options to choose from, the slowdown in sales also means that the market could remain stagnant for some time.

Buyers may be able to take advantage of falling prices, but they should also be cautious about purchasing a condo that may take years to appreciate in value. It’s important for homebuyers to carefully assess their long-term plans and financial stability before committing to a preconstruction purchase.

10. Conclusion: A Shifting Market

The Toronto preconstruction condo market has entered a period of transition. With sales plummeting, prices falling, and unsold inventory reaching record highs, the market is facing significant challenges. However, this downturn may also offer opportunities for buyers who are willing to navigate a changing landscape.

As we look ahead, the future of the preconstruction condo market will depend on how investors, developers, and policymakers respond to the current challenges. While the road to recovery may be long, the market’s eventual stabilization could provide a more balanced and sustainable environment for both buyers and sellers alike.