Softening market puts condo projects in doubt
New home building falls in 2012
There are condo projects like the Tour des Canadiens that will undoubtedly be built, with the only lingering question surrounding their final height.
But a decline in new home construction in Greater Montreal last year is increasingly raising doubts about the viability of the record number of condo buildings announced for the region: Last summer, the city’s Ville Marie borough identified projects with 3,000 units destined for downtown alone.
“You talk to the different developers and they are all confident that their project will go forward,” Carlos Leitao, chief economist at Laurentian Bank, said. “But I don’t think that all the projects will come to fruition. I would be extremely surprised to see presales advancing for every project, so some of them will have to drop off.”
In 2012, a more balanced resale market led new home construction to decline nine per cent in the Greater Montreal Area and analysts are expecting a further 12 per cent drop in housing starts for the region in 2013, the Canada Mortgage and Housing Corp. said Wednesday.
In December, the decline in housing starts, compared with the corresponding month in 2011, was fuelled by a 65 per cent drop in new home construction on the island.
So even as the sold-out Tour des Canadiens near the Bell Centre is looking to add floors, the steep drop in new Montreal Island housing starts reflects the growing array of choices for buyers in the resale market.
While Greater Montreal Real Estate Board data are not yet available for December, November resales tanked 19 per cent. Meanwhile, figures reported Tuesday by Royal Le Page Real Estate Services showed condo inventory has shot up 30 per cent at the end of 2012, compared with a year earlier.
The numbers suggest Montreal’s current low interest rate-fuelled real estate boom peaked in 2011, even though demand still far exceeds historic norms.
Compared with recordbreaking 2011, new condo construction dropped six per cent to 11,880 units in 2012 — still the second-highest year in Greater Montreal for condo building.
To put that number in context, Greater Montreal developers were only building about 2,000 to 3,000 units a year before the last condo boom of the early 2000s that peaked with 10,000 units in 2004, explained CMHC analyst David L’Heureux.
For the province of Quebec, new home construction dropped three per cent last year to 40,526 units above 2011, CMHC data show. Quebec and Nova Scotia were the only two provinces in Canada to report a decline in total housing starts for 2012.
Nationally, housing starts declined for the fourth consecutive month in December but remained well above sustainable levels, leading to fur- ther fears the economically important sector could be headed for a hard landing.
The pace of housing starts slowed by a modest 1.7 per cent last month to 197,976 on an annual basis, the fourth drop in as many months.
In a note, BMO economist Robert Kavcic said that “2012 was a strong year for homebuilding in Canada, but it was distinctly a tale of two halves — we judge that 2013 will look more like the second half (cooling) than the first.”