For years, savvy Torontonians have turned to real estate investment as a tried-and-true method for building wealth. The classic playbook? Buy a condo, rent it out, and watch your equity grow. But hold on, because the game has changed in a big way – at least in the short term.

Let’s dive into why many Toronto real estate investors are stepping back from the condo market, and what it means for you if you’re thinking about buying or selling.

The Pre-Construction Condo Market: Is It Just Too Pricey?

Here’s the current snaphsot: Pre-construction condos are currently priced way above market value. We’re talking about prices that are up to 30% higher than what you might expect to pay for a similar resale unit. In the pre-con sector, sales are down 70% from last year in Toronto. That is a significant decrease year over year.

Why is this happening? It’s all about timing and speculation. Pre-construction prices are based on what developers think the condo will be worth in the future—before it’s even built. So if a condo was sold in 2019, the price was based on projections for 2024. Unfortunately, with the surprises of COVID and skyrocketing interest rates, those future prices are now looking a bit too rosy.

Even though developers are throwing in perks like free parking or storage lockers, it’s just not enough to make the high prices appealing.

Why the Numbers Aren’t Adding Up for Investors

If you’re considering investing in a resale condo, you might find better deals right now than you would with pre-construction. But there’s a catch: higher mortgage rates and a dip in rental income are causing some investors to sell off their resale properties.

As interest rates have climbed, many investors are seeing their mortgage payments shoot up, putting them in the red. This has led to more condos on the market and a flattening or even slight decrease in prices, especially in downtown Toronto where investor-owned condos are more bountiful.

The Tenant-Landlord Board: A Bit of a Headache for Investors

Let’s face it: dealing with difficult tenants and a slow-moving tenant-landlord board can be a real pain. The current system can be tough on landlords, with long wait times and tenants who know how to game the system.

This has made the idea of owning rental properties a bit less attractive. Investors are feeling the strain and some are choosing to sell rather than deal with the risks of tenant disputes and extended legal battles.

New Capital Gains Tax Rules: A Tough Break for Investors

Capital gains taxes are going up for profits over $250,000. As of June 2024, the capital gains over $250,000 is now 67% of the gain as opposed to 50% of the gain where it used to be. This new rule is aimed at the wealthiest investors, but it will also impact many who rely on real estate investments for their financial future and retirement with no

With higher taxes on the horizon, investors are re-evaluating whether they want to continue to buy more investment condos.

What Does This Mean for You? Is There Opportunity in This Market?

With fewer new condos being built due to high costs and project cancellations, we might see a tighter housing market in the long term. If you’re looking to buy a condo, this might be a great time to explore options and find a deal before the market rebounds.

Looking Ahead: What’s Next for Toronto’s Condo Market?

In the short term, the pre-construction market will likely remain bumpy. For resale condos, keep an eye on inventory trends and interest rate changes. If rates drop, we could see a surge in buyers and a bounce back in prices.