What Does Toronto's Pre-Construction Condo Boom Mean for Investors?


You’ve probably heard the big news: right now, we’re having the biggest pre-construction condo boom Toronto has ever seen. This fall, i.e. over the next two months, 17,000 new units will be entering the market.

That’s a lot of new supply over a very short timeframe. And it has some condo investors concerned (which is totally understandable). So, the question begs, are condos still a safe bet?

Supply’s the Limit

First thing’s first—let’s take a look at supply.

According to Census 2016, from 2011 – 2016 Toronto’s population increased at an average rate of 68,995 people every year. Modest growth, sure—but keep in mind, those 17,000 new units won’t impact housing supply for another 3-7 years. In other words, while this launching season is among the city’s hottest, it’s still just a drop in the ocean.

Which brings me to Toronto’s lack of purpose-built rentals. According to a new report from the Federation of Rental-Housing Providers of Ontario, the Liberal Government’s Fair Housing Plan has negatively impacted the supply of new rentals in the city—by an estimated 1000 units, to be exact. We’ll probably see this number climb, as developers cancel rentals or convert them to condos and sell them off.

All of this is bad news for renters. Really bad news. If at least 6,250 new rental units aren’t built each year for the next decade in addition to planned developments, the city’s vacancy rate will reach a critical low. Right now, it’s at 1.3%... The City of Toronto doesn’t have the money to add rental properties themselves, which means things aren’t looking so good on that front.

This all tells me one thing: future rental supply from investor-owned condos will account for a big slice of the pie. Currently, it makes up around a third of Toronto’s rental stock. Good news if you’re holding a unit. With average rents in the city at over $2000 right now, you can rest assured; condos are still a great investment.

Although rent increases are capped at 2.5%, there are still ways you can maximize your returns. For one, a higher rental turnover means you can reset your rental prices each time you take on a new tenant. Another thing I’ve seen landlords do is include carrying costs in their leases.

Most importantly, you’ll be contributing to solving this city’s serious rental shortage problem.

What about condo resales?

It’s difficult, if impossible, to determine how a boost of 17,000 new units will affect future condo prices. Remember: no two developments are the same, and right now there’s plenty of competition to court buyers. That means there’s also a lot of variety out there. Now more than ever, it’s important to find the right project to invest in.

Generally, I invest in projects that have building value—a development like Kingly Condos, for example. My reasoning is simple: developments like these come from strong builders, offer boutique designs, and they’re well located. In other words, they build value over time. If you want advice on projects I believe will do well in this marketplace, get in touch.

Condos won’t indefinitely appreciate by 20% every year, but I do believe there’s still plenty of growth left. All this new supply represents an opportunity—to find the right investment for you. The rest is, as they say, money in the bank.

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