Over the past year, a growing concern has emerged in Toronto’s condo market: that a wave of investor defaults could cause major damage to newly completed condo projects.
Many investors who bought pre-construction units four or five years ago are now closing on condos that are worth far less than what they agreed to pay.
Take a typical example: an investor who purchased a 650-square-foot condo in 2020 for $1 million may now find that the unit is only worth $700,000 in today’s resale market. That’s a $300,000 gap, and with the bank’s appraisal coming in well below the purchase price, it leaves the buyer unable or unwilling to close.
This disconnect stems from the speculative frenzy that gripped the pre-construction market in the late 2010s and early 2020s. Back then, many investors paid a massive premium over existing resale values, betting that condo prices would keep rising rapidly. But the opposite has happened. Prices have stagnated—or in many cases, fallen - leaving pre-construction condo buyers holding the bag.
This has led to real concerns that newly completed buildings could face a wave of failed closings, jeopardizing the condo corporation’s ability to register and operate. If too many units in a building remain unsold or unclosed, the entire project could unravel.
But here’s why I don’t think that worst-case scenario is likely to materialize at scale.
Sophisticated capital is quietly stepping in.
In recent months, I’ve heard of multiple examples of wealthy family offices and other deep-pocketed investors who have started quietly acquiring blocks of condos in newly completed buildings at a significant discount to original sale prices.
These bulk deals are mostly happening off-market, with little publicity. But they’re effectively plugging the gap left by mom-and-pop investors who can no longer (or no longer want to) close on overpriced units.
As I’ve said in interviews before, this crisis is unlikely to play out in public. It’s being quietly resolved behind closed doors, with capital quietly reallocating from unsophisticated retail investors to institutional and semi-institutional players with a higher risk tolerance - and better access to discounted deals.
That’s not to say every project will be saved. Some buildings with the steepest valuation gaps may still face challenges. But broadly speaking, this isn’t shaping up to be a systemic collapse. It’s a distressed market—but one with enough liquidity and opportunistic capital to prevent total failure.
The mom-and-pop investor might be out of the game - but in moments of distress like this, that’s exactly when sophisticated investors step in. When the amateurs get squeezed, the pros see opportunity.
John Pasalis is President of Realosophy Realty. A specialist in real estate data analysis, John’s research focuses on unlocking micro trends in the Greater Toronto Area real estate market. His research has been utilized by the Bank of Canada, the Canadian Mortgage and Housing Corporation (CMHC) and the International Monetary Fund (IMF).
Have questions about your own moves in the Toronto area as a buyer, seller, investor or renter? Book a no-obligation consult with John and his team at a Realosophy here: https://www.movesmartly.com/meetjohn