Historically, new construction condominiums have commanded a premium, reflecting buyer expectations of price appreciation by the time the project is completed. Four or more years ago, when buyers purchased condos slated for completion in 2025, this premium was 30–40 per cent over comparable resale units.
Typically, when property values decline below the purchase price, buyers are required to increase their down payment to cover the shortfall. Last year, however, many banks appeared to kick this issue down the road by using “blanket appraisals,” which assumed the unit was valued at the original purchase price. As prices have continued to decline, this approach has become harder to justify.
Even if banks don’t require a larger down payment to cover the shortfall, buyers may face challenges if they try to assign the property or arrange a mortgage.
During the financial crisis, a similar situation unfolded. As property values declined, buyers were required to increase their down payments to cover the shortfall, and mortgage insurers demanded higher down payments as well. This led to a rise in default rates among buyers. Could this happen again? It seems likely.
Such a scenario could result in an increased supply of condos in some markets, such as the GTA. It would also make it harder to secure funding for new projects, as pre-sales will slow.
This increase in supply will also affect rental rates in the condo market. Many of the Toronto condos set to be completed in 2025 were purchased by investors, which will boost rental supply once they are built. According to Toronto Real Estate Board data, a record number of properties were listed for lease at the end of 2024. Meanwhile, a reduction in non-permanent residents, including international students, has cooled demand in this period of elevated supply.
This is particularly challenging in the small condo market where units are typically owned by investors. In 2024, there was a surge in listings within this segment of the Toronto condo market. Flat condo prices, falling rents, and relatively high interest rates have made these units a less attractive investment option. With more investors exiting the market than entering, inventory levels will remain elevated in 2025.
For years, the GTA condo rental market has relied on price appreciation to make the economics work for investors. However, with weaker demand and softer prices, the market has become more nuanced. Understanding these risks will be a key factor in lending decisions within this segment.
Housing Affordability Watch
CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis
The federal government’s Housing Accelerator Fund (HAF) aims to remove barriers to missing middle housing, but progress has been slow, with unclear CMHC funding guidelines complicating the process. At the same time, development charges (DCs) continue to pose challenges, especially in Ontario.
The real question: Can HAF deliver real change or is it more about optics?
Read more in our latest Housing Affordability Watch: Canada’s Housing Accelerator Fund – HAF-way to Nowhere
Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any person or organization in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice including investment advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication. Readers are cautioned to always seek independent professional advice from a qualified professional before making any investment decisions.
