Developers could cancel the construction of approximately 5,000 new condominiums in Toronto in response to rising material and labor costs, according to an analysis by real estate research firm Urbanation.
Urbanation President Sean Hildebrand shared the results of the analysis with CP24 on Tuesday.
He said construction costs, which have risen by about 20% year-on-year, are now rising “much faster” than real estate, which could lead to some projects “no longer being economically viable to continue”. .
Rising labor costs amid record low unemployment is also a factor, according to Hildebrand.
“This is exacerbated by the supply chain problems caused by the pandemic and the war in Ukraine and contributes to a very, very strong increase in costs to the point where the cost of building apartments has risen by 20 percent on an annual basis. and they are growing much faster than prices, “he said. “Not only the 5,000 units that are already on the market can be canceled, but all the projects that were supposed to start in the next short time will no longer enter the market. So that limits deliveries not only today, but years later, when those projects are finally delivered. “
Real estate prices have already begun to decline amid an aggressive interest rate tightening cycle undertaken by the Bank of Canada.
Hildebrand said Toronto has been in the midst of an apartment boom for some time, so overall supply should remain strong, with about 87,000 units currently under construction and another 33,000 under construction.
But he warned that there would be some “concomitant damage” due to the fact that “costs are rising very fast at a time when prices are starting to soften.”
In this case, he said, buyers will be entitled to a refund of their deposits under Ontario law, but not necessarily with gratitude.
“Unfortunately, it can take years between the repayment of this deposit and the moment they actually get their money back, and intermediate prices could escalate a lot and they are usually unable to get this estimate from this deposit, which in some “cases are pushing buyers out of the market,” he said.
Data from the real estate board in the Toronto region previously suggested that house prices have already fallen for three consecutive months. However, the average house price in Toronto still rose 10% year on year in May.
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