To say that real estate is a cyclical business is an understatement. Our current market is challenging, and in response, real estate professionals are finding ways to adapt. We always do. 

Some resale condos are being rented, plus we have a lot of newly built, unsold inventory condominiums to deal with. At Baker Real Estate Incorporated, we rent suites for many of our newly built condominium clients.

The surplus of inventory is dwindling, and with no new construction happening, pent-up demand is eventually going to explode. Savvy, forward-thinking purchasers are acting NOW, many as investors, before that reckoning comes.

Along that line, there is something interesting happening with a new kind of investor. We are seeing companies selling to institutional funds to free up capital for rental conversions.

Jesta, High Art Capital bulk buying

Recently, it was reported in the media that Jesta Group is buying more than 1,000 unsold Toronto condo units, to absorb some of the excess supply. 

That firm’s plan is to pay $500 million over 12 months. Their first bulk purchase of $30 million will be near Toronto Metropolitan University, which makes a lot of sense.

High Art Capital plans on purchasing about 2,200 new unsold condos to convert to long-term rentals. The firm has launched a $1.3 million fund with this in mind.

These private equity firms understand that now is a great time to buy with prices the way they are. It is a rare opportunity to deploy capital at scale and work toward stabilizing the housing market by transforming supply into rental housing.

In a couple of years, when there is no inventory left, these investors know prices will rise. End-users would do well to follow this kind of logic, but they tend to think emotionally rather than like a business.

As more companies see the benefits of this kind of purchase, we may see an even quicker disappearance of inventory.

Qualifications for financing must ease

So, the object now is to get new condo construction underway again. In order to do that, developers need the easing of qualifications for financing (typically having to pre-sell approximately 70 per cent of the units in the building), so they can get shovels into the ground. 

The banks see pre-selling as a way of ensuring that the value of the sales is approximately the amount of the construction loan. That worked well in the past, but it is unreasonable nowadays. Canada’s biggest banks must come around and change that 70 per cent target.

A more reasonable goal would be 50 per cent, or even lower. In other countries, banks lend without presales, which is interesting. Certainly, people feel more confident buying into a building that is partially or all built. They can see designs in person rather than translating from a brochure, and they would be able to move in more quickly.

Although the Office of the Superintendent of Financial Institutions (OSFI), Canada’s banking regulator, does not have a requirement for construction financing, it is said that more than 50 per cent in presales will get a developer further toward receiving financing.

It is up to the banks to determine how and to whom they provide construction financing, so we need to see a real effort from them to get the industry moving again. Certainly, banks have to do due diligence before lending, but the past track records of developers should stand for a lot.

High-end seniors housing

Another interesting development in the industry is that some architects and developers are working on designing high-end seniors’ housing. Our aging population is in desperate need of more accommodations that address accessibility needs. Although these are not by any means subsidized housing, they will fulfill yet another gap in our current marketplace.

I have said many times that we need creative thinking and public-private cooperation in today’s new home industry. Multi-tasking is handy too. We have standing inventory, so our attitude is – let’s get it out there to renters.

One thing is for sure: when the market slows, real estate professionals rise up to adapt and keep going. We have come through recessions, a pandemic and other challenges along the way and not only survived but thrived.

Homeownership remains the Canadian dream. Renting is one step on the way to owning. Home buyers have a lot of help to turn to when it comes to knowing where they stand with mortgages and purchasing procedures.

Savvy buyers look at the big picture and realize that in the long run, real estate ownership can be a lucrative life step. And those who can are purchasing now!