Condo Investor Woes Could Help Canada’s First-Time Homebuyers

Condo investors are having trouble making the numbers work, and that may benefit first-time homebuyers in Canada’s priciest markets.

By Josh Sherman | 3 minute read

The number of condos actively listed for sale are way up in Vancouver and Toronto as investors look to offload unprofitable units.

Higher borrowing costs and flattening rents are pushing more and more condo investors into the red.

In fact, investors who purchased units last year in the Greater Toronto Area are losing about $600 a month on average as ownership costs have increased much more rapidly than rents, according to a recent Urbanation report. “ Quite simply, new condo investment doesn’t work at the current market average price of close to $1,400 [per square foot],” the report reads.

That’s bad news for professional landlords and home flippers hoping to make a quick buck, but it could be a rare stroke of luck for first-time buyers — and affordability overall. 

“I think there’s definitely opportunity for those who have been on the outside looking in,” Mark Savel, a Toronto-based Realtor for Sage Real Estate Ltd., tells Wahi. “I’ve had to have very tough conversations with sellers,” he continues. 

Savel says he’s recently had to prepare sellers to accept lower prices or conditions on offers, such as home inspections or financing clauses, a trend that Wahi Partner Realtor Grant Allardyce has also observed recently. “Most people have been pretty receptive to the realities,” Savel adds, explaining that motivated sellers are making concessions. 

Toronto and Vancouver Investors Are Scrambling to Sell

As developers continue to top off new Toronto condos, the number of investors looking for a way out climbs, suggests RBC Assistant Chief Economist Robert Hogue, in a recent report. “Supply… continues to grow. In some cases, such as in Toronto, it reflects the completion of many newly built units (mainly condos) that owners (mainly investors) are looking to offload.”

By the end of the second quarter, developers in the Greater Toronto and Hamilton Area had wrapped up construction of 28,163 condo units in the previous 12 months, a near-record amount of completed housing, according Urbanation’s Q2-2024 Condominium Market Survey. There were also a historically high 25,893 new condos for sale across the Greater Toronto and Hamilton Area in the second quarter, as per the survey.

But the Toronto area isn’t the only market where investments are flopping, the RBC report suggests. “High interest rates exert tremendous stress on many existing homeowners (including investors), and a growing share may be forced to sell—fueling supply,” Hogue writes of Vancouver in his commentary.

In the resale segment, active listings for condo apartments totalled 8,879 in the GTA last month compared to 6,185 in Greater Vancouver, according to the local real estate boards. In Toronto, active listings are up 63.9% from July 2023, while Vancouver’s total represented a 47.5% year-over-year increase.

Both metro areas have a similar share of investor-owned condos. In Toronto, 36.2% of condos are being used as an investment, while Vancouver’s share of investment units is 34%, according to Statistics Canada.

With so many listings (and cash-strapped investors) and so few buyers, Savel doesn’t see the tide turning for the market this year. “When you look at the downtown [Toronto] market as a whole, there is just so much inventory that I don’t think in three months those opportunities are going to be gone,” he says.

However, homebuyers hoping for price discounts will want to pounce sooner rather than later, he suggests.

With many anticipating more rate cuts from the Bank of Canada — possibly as soon as monetary policymakers’ next scheduled announcement Sept. 4 —  the market should begin to rebound in the not-too-distant future.

“I think activity’s definitely going to pick up in the New Year,” says Savel, “but maybe not catch up with the amount of supply that we have out there.”