There is not one industry that has not been affected by COVID-19. Such is the nature of this pandemic, its impact has been non discriminating.
COVID-19 has had a significant impact on Toronto’s real estate market as well. The number of showings and listings has decreased, sales have dropped significantly since the city declared a State of Emergency in mid-March 2020. Prices have softened but still holding steady and the industry is evolving and adopting a virtual contactless model of conducting real estate business. It is, however, still early days to see the depth of the pandemic’s impact on the market.
Many businesses have shut their doors for the interim or adapted a work from home model. For real estate as well, it isn’t business as usual. Real Estate sales and residential construction were identified as an essential service allowing many condominium developers to continue with construction on their projects – this permission to continue construction has its restrictions and limitations however. Those under construction are employing safety measures for their workers and have scaled back their work – the lack of construction material, delay in supplies, decreased number of employees is causing construction delays – more later in this blog, on what that means for delivery dates for these developments.
How is the new home real estate industry operating during these times?
Things have dramatically changed for the world of pre-c0nstruction developments. There are no sales events with over 2,000 realtors lined up in parking lots to pick up price lists and brochures, no more black-tie new condo launches – new launches have been delayed likely to this fall but none on our radar have been cancelled altogether. Although things are operating very differently, it does not mean that builders and realtors cannot continue to make sales. Here’s how the new condo home industry has adapted:
What does this mean for new development that is already under construction?
On March 24th, Ontario announced a closure of all non-essential businesses. Residential construction was considered an essential business and was allowed to stay open.
On April 2nd, the government announced residential construction that is near completion will be allowed to continue but no new residential building will be allowed to start construction.
According to ConstructConnect, the following is allowed for construction of condominium development:
Construction groups have been supportive of this announcement and see this as a healthy balance in protecting construction workers and allowing the builders and developers to meet the contractural commitments and responsibilities the industry has to homebuyers. Allowing construction to continue also means the city is supporting the delivery of new homes – although delayed – this is critical housing supply to the market.
Many homebuyers and investors are waiting for their homes and properties to be competed over the next month or so. Myself, included. In February earlier this year, I completed a Pre-Delivery Inspection PDI for an investment property condo at the Garrison Point development which was delayed for two weeks (from early March to late March) due to issues with the building’s water pipes. In the middle of that, the pandemic occurred and the builder mailed out letters citing ‘unavoidable delay’ under Tarion with an unspecified occupancy date. For now, I am waiting to hear from the builder for a revised occupancy date – TBD at the moment.
For those who have already purchased pre-construction expect additional delays to your occupancy dates.
What impact does this have on construction costs?
According to Urbanation, 28,000 new homes were scheduled to be delivered to the market this year to supply critical housing to the market. This delay will exacerbate the already lack of supply in the market. The construction delays and freezes are all going to add to the lack of housing supply in the city while demand for housing will still continue climb.
Ten years ago, the entire residential development process took 5-6 years. Now it takes 7-8 years because zoning and construction processes are now taking longer – projects are not getting approved, not enough trades etc. From what we’ve learned due to COVID-19 and some city offices closures, zoning and building permits are not being processed at the moment and have been delayed until the end of June. This means for those builders who were hoping to have all that under their belts for a fall launch of new condo projects they will have to wait longer in queue once the city offices reopen. As a result, these project launches will get pushed back to the following year.
Construction costs are always rising. There was a projected annual increase of 10% in construction costs for 2020. It will be interesting what the exact increase in costs will be this year factoring in the impact of COVID-19. Subsequently, land costs were projected to increase to $300/ Sq. Ft. from $250/Sq. Ft. in 2017 – 2019.
As construction prices rise, condo prices rise as well to make projects financially viable. Builders will likely not be dropping prices on pre-construction condos. In fact prices will continue to hold steady for the time being with high likelihood of increasing as the entire industry attempts to recuperate for the impacts of COVID-19.
This is good news for those who have already purchased pre-construction property. By the time you take occupancy of your new condo 3-5 years from today, the economy would’ve rebounded and we would be living in times known as PC Post-COVID-19, your property price would have appreciated in value aligned with the future market value at that time.
For now, in these uncertain times as your already purchased pre-construction is under construction, you do not have to worry about taking a mortgage or looking for new tenants or dealing with tenants who may be in tricky situations and are unable to pay rent. Timing is everything!
This blog post is written by Madiha Khan founder of Toronto Condo Investments, a real estate investor and realtor with Century 21 Atria Realty Inc.
