Preconstruction faces significant headwinds
As interest rates continue to rise, developers have pulled back on launching new projects. Developers face a combination of rising costs and slowdown in demand.
In Greater Toronto Area, Urbanation reports that the number of units in new project launches was down 67% in the third quarter from the same period last year.
According to CBRE, lenders have imposed stricter conditions on financing for condo development projects. These conditions often include requirements for larger deposits and shorter payment schedules, as well as more equity upfront. As a result, many developers have struggled to secure the financing they need to move forward with their projects.
Rising costs have also made it more expensive for developers to complete projects. Earlier this year, Hazelton Development Corporation, the developer for Highlight of Mississauga filed for creditor protection when twelve out of fourteen floors were constructed.
The current market environment serves as a reminder for buyers to thoroughly research builders before making an investment in a preconstruction property. Preconstruction can be a good investment, but project cancellations can leave buyers with a long and difficult process to recover their deposits. In addition, rising prices may make it difficult for these buyers to afford another property.
