Federal and provincial governments have also stepped in with measures to boost supply and discourage speculation. Canada’s Liberal-led government last month took aim at pre-construction investors,adding sales taxes to any profit made on units flipped before completion. There were nearly 7% fewer pre-construction units for sale across Toronto in March and April this year compared with a year earlier, according to Altus Group data. Inventories rose 14% from the prior two months, versus numbers that more than tripled last year. Meanwhile, pre-construction condo prices increased nearly 2% in April from February, when the broader market peaked, according to Altus. But shifting buyer sentiment and shrinking affordability are hitting housing demand. Construction costs have risen about 7% this year, and are likely to be up 10% by year-end from 2021, said Jim Ritchie, chief operating officer of Tridel, one of Canada’s biggest developers.
“The economics have to work,” Ritchie said, adding that the company has some project launches planned for the second half of 2022. “If they don’t work, we’ll look at other strategies, and one of those could be delaying going to the marketplace.” Costs are rising so rapidly that many contractors are willing to commit to prices for only seven days, The company, in turn, has raised prices on new projects and, on one complicated development already under construction, went back to buyers asking for higher prices after costs jumped. Firm prices mean the premium for pre-construction condos over resale homes is now about 20%, from 10% historically. While this means buyers can find better deals in resale homes, shrinking inventory as developers hold back is likely to keep a floor under prices, he said.
Despite the slowdown, demand for pre-construction units is unlikely to wane significantly as buyers bet the current economic headwinds will have ebbed, and prices will rise, by completion, market-watchers said. “The pre-construction market is the only way to go.” said Juvan Mariathasan, CEO of “Preconstruction.info Team”. “The slower traction isn’t going to last long as the alternatives for investors that love the property markets is limited.”