Condominium developers have quickly reacted to a downturn in the housing market by cancelling or delaying projects, according to a new survey which says sales dropped 30% in one quarter.
Urbanation Inc. said there 3,317 condominium apartment sales in the third quarter, a sharp decline from just three months earlier and reflecting the increasing amount of unsold inventory in the country’s largest housing market.
“With slowing sales and a record level of unsold inventory in the market in the second quarter, condominium developers reacted quickly by delaying their project launches, especially in the ‘416’ area,” says Ben Myers, executive vice-president of Urbanation, in a release. “Just five projects launched in Toronto in Q3-2012, as developers choose to review their pricing assumptions and unit mix.”
Prices are also being impacted. The average unsold unit in the Toronto census area was being offered at $573 per-square-foot at the end third quarter, up just 2% year over year. Unsold inventory in what was the former city of Toronto was being offered at $670 per square foot, up from $668 a square foot from a year ago.
The good news is the lack of new supply is helping to reduce inventory levels as unsold inventory hit a record 18,123 in the second quarter of 2012. It dropped to 17,182 in the third quarter.
“With 20% of the 86,108 units (341 projects) unsold, the share of unsold inventory in the Toronto [metro area] remains below the 10-year average of 22%,” said Urbanation, in its release.
In the interim, condominiums in the pipeline continue to get built. There were 207 projects with 56,336 under construction in the metro area. The eight consecutive quarter apartment construction starts have outpaced completions.
“The number of unit completions in 2012 are well below our forecasts, as construction delays have pushed back occupancy on a number of projects” said Mr. Myers. “The average project that completed construction in 2012 took 3.85 years from sales launch to occupancy, compare that to 2003, when the average took just 2.68 years for a similarly sized project (205 units versus 197 units).”
The market for resale market also continues to soften. There were 5,050 sales of existing units in the third quarter, a 32% decline from 3,413 units sold in the second quarter. Prices are also flat with the average unit selling for $407 per square foot, the same as the second quarter.
Investors might have resorted to smaller units to combat the high prices, says Mr. Myers. The average size of a unit sold shrunk from 910 square feet to 891 square feet, reducing the average end sale price from $370,000 to $362,000.
“The change in the mortgage insurance rules may have forced many buyers to settle for smaller units then they had previously desired,” he said. “The number of resale transactions for units priced over $400,000 fell 40% compared to last quarter, while there was a 38% quarterly drop in units traded over 1,000 square feet.”