Skip To Content

GTA Condo Market – Investors Needed

30 May 2023

A recent report from CIBC and Urbanation paints a challenging future for new condo investors and the prospects for condo construction in the GTA.

According to their analysis, nearly three-quarters (72%) of condo rental investors tend to buy new units as opposed to resale, with an average gap of five years between the purchase and completion of the unit. New condos reaching completion have appreciated in value; however, the key issue is the cash flow performance of these units. 

According to the report, only  25% of these units did not have a mortgage. Of the levered units, just over half (51%) were not cash flow positive – rents were less than the combined cost of mortgage payments, condo fees and property taxes. This compares to 44% in 2021 and 40% in 2020. For resale units, the economics are even less appealing. In 2022, only 18% of condos bought in the resale market and subsequently rented were cash flow positive.

Negative cash flow has been a challenge for the Toronto condo rental market for some time. The capital appreciation of these units has been the payoff that has kept investors in this market. However, continuing to rely on potential capital gains makes this a less compelling investment.

If investors are less willing to participate in the market, this could slow housing development in the GTA. While completions are currently at a record high, a sharp drop in presales will eventually slow them down. Developers rely on the presale market to arrange bank financing for projects. If presales fall, projects will get pushed out into the future.  With immigration driving population growth, this could lead to greater supply/demand imbalances.

Condos represent the majority of new home development and new rental supply. What outcomes are possible?:

  • A slight reduction in mortgage rates and further growth in rents will improve future rental economics. Whether these changes occur in time to support the presale market – or at all – is an open question.
  • Toronto reverses its increase in development charges. (In 2022, Toronto increased the development charge for building a bachelor or one-bedroom apartment from $35,910 to $52,367.) We believe there is no chance of this happening.
  • Investors look to lower priced markets where positive cash flow is more attainable. This will likely be projects in the 905 or the areas surrounding the GTA. We could also see Ontario investors looking at other markets. Calgary’s condo market is seeing an influx of Ontario investors.

Without ongoing demand from investors for presales, condo development in the GTA could slow. This raises the potential for further pressure to the rental market and housing affordability in the GTA.


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.

Contact Us

Contact us today to set up an appointment.

    Thanks for contacting us! We will get in touch with you shortly.