The cancellation of a ten-storey Toronto condominium development that has thrust would-be owners back into an increasingly competitive condo market has renewed calls for tighter regulations and more protections for buyers of pre-construction projects.
The Museum FLTS condominium cancelled earlier this month is the latest condo project to be shelved. Developer Castlepoint Numa cited lengthy delays in obtaining the necessary approvals, building permits and, in turn, financing, as reasons for the halt.
“Recently, the industry has been experiencing the most significant cost increases in a decade,” the developer said in a post on its website.
Castlepoint Numa is returning deposits to original purchasers and giving them the first opportunity and a discount on the next residential phase of its greater Lower Junction neighbourhood project.
But those promises are cold comfort for Michael Lynn, a 47-year-old musician and university instructor who bought a one-bedroom unit in Museum FLTS 18 months ago. He received a registered letter on his birthday earlier this month, his first inkling that anything was awry.
He was refunded his nearly $60,000 deposit, along with $400 in interest, but does not think he will be able to afford a similar property in the same neighbourhood.
Lynn believes developers should be forced to meet a higher bar before they start selling units and taking deposits.
“At the moment, they can promise the world just to get the buyer in and then, say, ‘I’m sorry we couldn’t do that’.”
In Toronto, 23 condominium projects have been cancelled since 2012 _ five of them in the last year, according to real estate consultancy Urbanation.
“I would say this year is a bit higher _ most are due to zoning, costs have risen to build relative to what they sold for, and developer insolvency,” said Urbanation’s director of research, Pauline Lierman. “Some of the 2017 cancellations are already sites purchased by another developer and will move forward in a comparable form.”
Toronto Councillor Ana Bailao, whose represents the ward where Museum FLTS was to be built, believes such situations are on the rise. All stakeholders must come together to protect the consumer, she said, while also being mindful not to constrain the industry.
Municipalities don’t have the jurisdiction to regulate the practice, but the City of Toronto has urged the Ontario government to make changes.
Councillor Josh Matlow, who tabled a motion at city hall in 2013 calling on the province to prohibit developers from advertising condos that haven’t received all the necessary permits and approvals, is calling for more clarity to convey to the buyer the project is conditional. There must also be more disclosure when a project does go belly up about what happened, he said.
“For some people, believing that they have a home being built and finding out at the last minute as they have arranged their lives around it that it has disappeared can be devastating,” he said.
The Ontario government is taking a closer look these issues. The Ministry of Government and Consumer Services introduced the Protecting Condominium Owners Act in late 2015, which makes amendments to the Condo Act and leaves the door open for more changes.
“Future regulations could address matters relating to disclosures that condo purchasers must receive from a developer. This could address matters such as the status of the project, planning approvals for the proposal, etc.,” the ministry said in a statement.
As well, the ministry introduced Bill 166 which, if passed, would bring in regulations to specify the information a vendor or builder must disclose to a purchaser or owner of a new home and would also allow the regulations to specify mandatory or prohibited terms and conditions in agreements regarding new homes.
Linda Pinizzotto, the president of the Ontario Condo Owners Association argues the provincial government should also consider protections such as an insurance program for appreciation lost in cases like these, similar to one that covers deposits up to $20,000.
She said more measures should be put in place to protect pre-construction buyers who may find themselves priced out of the housing market if their purchase falls flat after years of appreciation.
The condo market is now driving price growth in both Toronto and Vancouver.
The average price of a Toronto condominium in October rose 21.8 per cent year-over-year to $523,041, while the Vancouver benchmark price rose 22.7 per cent to $642,000.
The momentum has swung towards condos as municipal policy drives higher density housing, and the price gap between low-rise and high rise housing grows. This pattern has had developers increasingly eyeing the condo segment of the housing market, said Frank Magliocco, national real estate leader for consultancy PwC Canada.
“There have been new players who have clearly come to the table, who weren’t in the condo space but have moved there because of the opportunity,” he said.
Still, he added, the cancellation rate of projects across all types of housing in Canada is fairly low, at one to two per cent.