Rising rates and record pre-construction condos: How will the GTA market fare in 2023?

Ani Imastounian

Are you considering investing in a pre-construction condo in the GTA? With rising interest rates making it harder for buyers to qualify for mortgages and a new “anti-flipping” law making it more costly for investors to flip properties, what can we expect for the pre-construction market this year?

My name is Ani Imastounian, and I would like to welcome you all to my new monthly column in Torontohye, Ani’s real estate roundup, where I will be exploring and discussing these and other topics pertaining to the Toronto real estate market. 

Urbanation reported that 32,000 condominium units are to be completed in the GTA in 2023; 18,000 of them will be built in the first half of the year. The majority of these units are owned by investors and thus will be available on the rental market.

In 2022, the rental increase year over year was 20 percent, meaning that the demand for rental units exceeded the supply. This year, there will be added demand for rental units as the population of the GTA will grow by at least 60,000 people. The extra supply may help keep the rental prices more stable this year.

According to Rob Carrick, a personal finance columnist at the Globe and Mail, many buyers have problems qualifying for a mortgage with five-year interest rates topping five percent. According to him, lenders are also appraising units at lower prices, which means that buyers have to come up with extra funds to make up the difference. To obtain a mortgage, all buyers must pass a stress test to determine how much they can afford to borrow and pay each month in case interest rates go up.

Some investors will face challenges and look to find private lenders to complete their deals. Some investors will also try to liquidate their units before closing by way of assignments. Will this be a good time to look for good deals? Yes, absolutely, as many investors will let their units go before closing. So, if it’s possible to close on a property, my best advice would be to do so and hold it for at least a year. 

The federal government recently introduced a new “anti-flipping law” to crack down on flipping properties. In effect since Jan. 1, the new measures apply to residential properties sold on or after the first day of 2023.

Whether it’s your primary residence or not, anybody who sells a property they have owned for less than a year must consider the sale amount as business income while filing their income taxes. In the past, the flip amount was treated as capital gains income, which meant that only half of your profit was taxed. As a result of this new law, if you are considered a “flipper,” you essentially pay double the taxes.

With the prices of pre-construction condos in Toronto on the rise, we may begin to see an increase in the number of buyers looking to the resale market for already-built condos. The price gap between the two markets has widened significantly this past year, with the resale market tending to offer more affordability.

As interest rates continue to rise and the new “anti-flipping law” goes into effect, the pre-construction condo market in the GTA may see some challenges in 2023. However, with a record number of units set to be completed and a growing population in need of rental units, there may also be opportunities for savvy investors to find deals. It’s important to weigh the potential risks and rewards before making any investment decisions. How will the interest rate hikes affect the preconstruction market while a record number of pre-construction condos are set to be completed in 2023? Only time will tell!

In the meantime, I am happy to hear your feedback about the first installment of my column. You can write to me with your thoughts, questions, or suggestions at anirighthome@gmail.com. I look forward to hearing from you!