Developers in Canada’s largest city are typically required to pre-sell 70 percent of a project’s units in order to financing. But construction costs have risen since many developments were penciled out. And condo prices have climbed too, meaning developers in many cases are leaving money on the table with contracts inked when values were lower, Bloomberg News reported.
“Many projects launched for pre-sales prior to having their proper approvals in place,” said Shaun Hildebrand, a senior vice president at Urbanation Inc. “By rushing to bring units into a hot market, some projects jumped the gun and added risk to the development.”
The cancellations could be a boon for other developers, who will see demand spill over into under-construction projects. But it will be costly for buyers, who will see equity erode because the price of a new condo is higher than when they signed contracts.
And experts say that given demand that remains strong, it’s likely many cancelled projects will be revived.
“We haven’t seen an increase in supply yet,” said Mike Czestochowski, executive vice president of the Land Services Group at CBRE. “It would be hard to imagine what else they do with the site.” [Bloomberg] – Rich Bockmann