In the past few weeks, I’ve been deep in conversation with several developers, and I’ve got some exclusive insights that you don’t want to miss.
These could help you navigate what’s going on while real estate investors are in hibernation mode.
The market has shifted significantly from a few years ago, and developers are making some strategic adjustments to adapt.
So, what are they thinking and what is my prediction for the next 10 years?
When the market was hot, everyone wanted to be a developer.
But those days are over.
Today, being a developer is no joke.
Developers face all kinds of challenges—high interest rates, rising labor and material costs, and, most importantly, slower sales.
If they don’t have the financial strength or enough sales to get projects off the ground, they could find themselves in one of three situations:
1. Receivership
Even if developers sell 70-80% of their units, many are still struggling.
Rising interest rates and construction costs have put tremendous pressure on their budgets.
As of 2024, at least 27 Ontario developers have gone into receivership—a significant increase from previous years.
This puts hundreds of units in jeopardy, leaving pre-construction buyers uncertain about their investments.
It will also slash the projected number of unit completions budgeted for that year.
2. Cancel or Sell the Project
For smaller developers, it’s becoming increasingly difficult to get projects to completion.
When pre-sales don’t reach the necessary threshold, they may have to either cancel or sell their sites to bigger players.
For instance, in May 2024, a mid-sized developer near Sheppard Avenue sold their site to a larger, financially stronger firm.
This has become a common strategy as financing tightens up.
3. Convert Condos to Rental Buildings
Larger developers are shifting gears, turning condo projects into rental buildings.
But this move isn’t cheap; it can require 2-3 times more investment from the developer.
Unlike condo projects, where pre-sale deposits help offset costs, rentals need the developer’s own capital, often at high financing rates.
Despite the challenges, this strategy helps them ride out market volatility and keep cash flow steady.
So, what’s the game plan now?
With fewer investors in the market, developers are focusing more on end-users who actually plan to live in the units rather than rent them out or flip them.
What do end-users want?
Based on trends this year, we know they’re looking for:
Larger units:
Buyers are leaning toward 900 sq. ft. two-bedrooms instead of smaller 450 sq. ft. micro-condos.
Faster project delivery:
With interest rates all over the place, buyers prefer projects that finish within two years rather than being tied into longer commitments.
Smaller, boutique buildings:
Developments with fewer than 200 units have seen stronger demand.
A good example is Tridel Royal Bayview, a luxury condo with less than 100 units per building. This kind of rare product is flying off the shelves.
This shift aligns with developers’ new strategies too.
Remember 2011-2021?
Developers were all about 600-unit towers to maximize sales volume.
But with fewer investors now, they want smaller buildings.
Smaller projects mean shorter construction times, lower interest costs, and less market risk.
With 200-unit buildings, they can secure financing with fewer pre-sales, reduce exposure to market shifts, and see quicker returns.
Some top-tier developers are even using their own funds to complete projects before opening sales.
They are able to wrap up construction on a project before launching sales.
This offering buyers more confidence and reducing their own risk.
Here’s what I expect in the next decade:
Smaller, end-user-focused projects will dominate as developers cater to those who can afford to buy now.
More condo projects will either be canceled or converted to rentals.
Condo completions will taper off by 2026. As fewer projects break ground today, completions could drop by over 40% in 2027-2028, creating a tighter supply.
With this lower supply and buyers returning to the market, condo prices could rise by 2028, especially if interest rates stabilize or drop.
Post-2029, we’ll see fewer high-rise towers aimed at investors and more end-user-focused medium-sized condo end-user-focused developments.
The era of investor-driven mega-towers is gone, giving way to more exclusive, smaller-scale projects.
So, What does this mean for current condo owners?
If you own a condo, hold onto it if you can.
The best time to sell might be around 2027 or later, when inventory drops and prices start to recover.
That dip in completions could be your opportunity, especially if you’ve been patient through the slower market.
I hope this episode helps you understand the strategies developers are using and what it means for you.
Staying ahead of these shifts can give you a real edge in planning your next move.
See you next time!
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