Is the Toronto Condo Market Overbuilt? No, According CMHC - Mirvish_Gehry_Hero

Is the Toronto Condo Market Overbuilt? No, According CMHC


Market Updates

New data has been released by the Canadian Mortgage and Housing Corporation (CMHC). We hate to brag, but they have confirmed what we have been saying for a while now. Very often I get asked by friends, “is the Toronto condo market overbuilt?”

The short answer is no, and CMHC is injecting themselves into this ongoing debate.

CMHC recently released their July 2016 Housing Market Outlook report for Toronto. And oh boy, there are some fascinating conclusions worth exploring.

CMHC Data: The ‘Overbuilt’ Fears are Wrong

For years we have heard so-called experts report about Toronto being an ‘overbuilt’ condo market. Well, according to CMHC, those predictions are wrong.

Just in May, we saw RBC coming out with analysis that the Toronto condo market was in a “high-risk zone” of overbuilding. Not so fast RBC.

The CMHC report disagrees, and concludes that there is no overbuilding issue in Toronto. This is primarily because developers hold off on construction until the majority of units are sold. This is a risk mitigation measure by developers, and one which makes condo investing in Toronto even more appealing.

CMHC notes that: “In general, our research shows that the majority of builders wait until a higher sales threshold is reached prior to commencing construction thus mitigating risks associated with speculative building. A tight resale condo market and strong rental demand have helped to absorb some of the completed and unsold units.”

Is the Toronto Condo Market Overbuilt? No, According CMHC - is-the-toronto-condo-market-overbuilt-1


CMHC and TREB: Strong Sales Data Continue

Further, we are seeing a continued strong demand in Toronto from buyers and renters of condo units. Specifically, the report notes that in Q1 of 2016, 43,860 condo units were under construction with only 1,373 units being labeled as completed and unsold.

So, despite the fact that we see a lot of condo developments coming online, both developer practices and strong demand have led to a healthy condo market.

Specifically, the CMHC report states that 79% of projects are only started when 70% of the units have been sold. CMHC was making a connection between the overbuilt condo market in Toronto in the late 1980s, which played a big role in a subsequent housing crash. But not this time says CMHC, the condo market is not in the state it was in the 80s.

As investors and advisors, we knew this. But it’s always nice to get an official government body that reaffirms your observations.

And, the Toronto Real Estate Board (TREB) also released their Q2 results on the heels of this exciting CMHC data. TREB reports that condos sales are up 17% from Q2 in 2015.

The bottom line for condo investors is that the Toronto condo market is healthy with well-managed developers, low speculation, and high demand. Couple this with a healthy yearly increase in condo values across the GTA of 5%, as opposed to the astronomic appreciation rates in single-family housing. All of this should be music to any investors ears.

Happy investing!

Ryan Coyle, Co-Founder CONNECT Asset Management

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