For nearly 20 years, condominiums in the Greater Toronto Area have been sold before they have been built – in some cases before the developer has even secured the land – significantly impacting the housing market, and that needs to change, says Dr. Diana Mok, professor of real estate at the University of Guelph.
Mok, a professor in the Department of Marketing and Consumer Studies at the Gordon S. Lang School of Business and Economics, specializes in real estate finances, focusing on urban economic geography and real estate economics.
“The pre-construction condo market is crumbling,” Mok says, citing how sales have dropped to historic lows not seen since the mid-1990s. The result? More than 25,000 unsold units in the second quarter of 2024 in the GTA, where approximately 70-80% of all new condos are sold before the units are built.
“Amid the housing crisis,” Mok says, “Toronto is seeing a housing paradox in the condo market: pre-construction condos are unsold, while unaffordability keeps households priced out.”
Pre-construction condos are attractive, Mok says, because they are typically priced at, or slightly below, current market prices. Deposits and down payments are staggered in installments, or sometimes over a couple of years. Pre-construction sales can make home ownership more accessible, particularly for younger homebuyers, with protection against loss ingrained in law: the Ontario Condominium Act holds the buyers’ payments in a trust.
However, pre-construction sales download the risk onto the consumer, as opposed to the bank or developers. And pre-construction sales – often exceedingly small condos – tend to be more attractive to investors, not prospective buyers in search of a long-term home.
“The problem is a lack of disincentives, especially for speculators, to engage in arbitrage – risky activities that pour fuel on the fire during the housing crisis,” she says. “These speculative activities arbitrarily increased prices, spilling over to other housing submarkets, making housing less affordable to Canadians at large.”
Mok suggests re-evaluating the duties and responsibilities brokers have to their clients under the Trust in Real Estate Services Act. Brokers play a large part in the Canadian housing market, she says, and should be required to be more transparent. “Households need to be better informed about the risk involved in buying pre-construction sales.”
Mok is available for interviews.
Contact:
Dr. Diana Mok
mokd@uoguelph.ca