High borrowing costs, record condo completions lead to oversupply in Toronto area

GTA real estate watchers say the combination of high interest rates and an uptick in new condo units coming online has led to an oversupply that will take time to balance out.

Greater Toronto Area-real estate watchers say the combination of high interest rates and an uptick in new condo units coming online has led to an oversupply that will take time to balance out.

A report by TD economist Rishi Sondhi said sales activity hasn’t been absorbing supply fast enough, with July condo resales in the GTA down 25 per cent from pre-pandemic levels.

Sondhi said the trend is tied to factors such as a wave of newly built condos hitting the market, elevated borrowing rates that have made it difficult for some buyers to close on their mortgages, and investors looking to sell properties as declining rents and negative cash flow make them unprofitable.

“The relatively elevated interest rate backdrop means that the gap between the rate of return from a condo in the GTA … and from a risk-free’ government bond has narrowed,” he said in the Sept. 5 report.

“This may have reduced the incentive to hold a condo as an investment, although the recent drop in yields could be helping to re-widen this spread.”

Sondhi’s report showed there were around 19,000 condo completions in the region between January and July of this year, up from about 12,000 during the same seven-month period in 2023 and 10,000 the year before.

The pace suggests this year could see “record high” condo completions in the GTA, said Brendon Cowans, a sales representative for Toronto-based brokerages Property.ca.

“You can just imagine all of this supply coming in a high interest rate environment. It’s not a lovely combination,” he said.