Cash gifts, a free phone, maybe even a new car.
They’re not prizes on the Price is Right, but incentives for new GTA condos and pre-construction homes, meant to entice buyers into making an offer in a shaky market.
“They’ve intensified since the start of the (housing market) fall,” said Pauline Lierman, vice president of market research at Zonda Urban (formerly Urban Analytics), a housing data platform. They are typically from developers, but sometimes offered by realtors.
“They know that they have to offer more to get that smaller pool of buyers,” Lierman said.
She has seen everything from an iPhone, to cash back offered for new build condos, and said incentives are a little more aggressive within the city of Toronto. They’re available across the board in new buildings, but especially in projects that, for example, need to get the first 100 sales or need a few more sales before they can start construction. Sales targets are usually a part of construction financing.
According to Zonda’s market research, out of 199 active condo sites in the fourth quarter of 2022, 130 included incentives.
Developers need financing “in place to keep going, to make it work for them and they’re on a tight time frame — another four months could really set them back in costs,” Lierman said.
One popular incentive at the moment is for Raglan House Condos, a 28-storey tower planned for Bathurst and St. Clair West. The first 100 buyers will get $20,000 cash back on closing, as well as $2,500 to $3,000 a month for 24 months after final closing, depending on the size of the unit, said Christopher Castellano, the vice-president of sales and marketing at developer Camrost Felcorp.
“The way it works is, we’ve got to get to a point that we hit our construction financing,” he said. “It incentivizes both us and the purchasers to get that velocity of deals up front in order to get under construction.”
Although he declined to comment on sales, Castellano said the incentives have “been a success” so far. The idea is that they will top up rental income for an investor, or assist a first-time buyer with the costs of the first year. Occupancy is slated for 2027.
“I think when you look at the market today there’s a lot of people who are sorting out this weird flux because of the uncertainty by the Bank of Canada and the rapid increase and all that,” he said.
“What we felt would be interesting and effective for Raglan House specifically was to really find a way to help the purchaser even though it was the first two years of home ownership.”
Average GTA condo prices have fallen about 13 per cent from last March, to $703,566, according to numbers from the Toronto Regional Real Estate Board — slightly more in the 905 (15 per cent to $645,305) and slightly less in the 416 (about 12 per cents, to $732,944).
Condo sales have fallen even more, by about 33 per cent across the GTA since the market peak, to just 2,121 in March. Meanwhile interest rates have soared. Although the last two Bank of Canada announcements held the overnight rate at 4.5 per cent, that followed eight consecutive hikes, meaning aspiring buyers need bigger down payments and may worry about meeting monthly mortgage payments.
There are some signs of the sluggish market coming back to life — the average home price and number of sales increased slightly month over month, in March. But pre-construction conditions have been particularly hard hit by the slump.
The incentives to buy come at a time when rising rates and living costs have already been put on some homeowners, especially those with variable mortgages and mortgages coming up for renewal, under enormous stress. There’s been a notable rise in forced sales, as well as assignment sales of condos.
Buyers are “thinking about their interest rates that they’re going to close at within this frame, expecting interest rates not to really fall until early next year,” Lierman said. “And they’re not going to fall a ton either, it’s not going to be instantaneous back where we were, so I think that they’re trying to kind of mitigate that.”
Developer Tridel took a slightly different approach at standing out on a recent project. Studios at its new Queen Church Condos can come furnished by a designer — for an upgraded price tag.
“These were just ways for us to really kind of show what the space can do,” said Samson Fung, vice president of sales and marketing at Tridel.
“I know in the industry right now incentives are kind of the big thing, but for us we’re looking, not necessarily at incentives, but where can we add value?” he said.
Other offers are more flashy.
The incentive of a free Mercedes with the purchase of a pre-construction home in Hillsdale, near Barrie, raised eyebrows last summer.
Mohsin Shaikh, the director of sales and marketing for realtor group Team Realty Bulls, said they introduced this idea, not the developer.
“It was not a Mercedes-Benz car completely free, it was a lease for two years – we were covering the rental lease payment for the first two years,” he said. (The Facebook ad for the new car deal did not specify this).
“It was an incentive we were doing out of our own pocket,” he added.
They tried it for about a month but “we couldn’t make a sale out of it,” because by that time the market had already started falling.
“Sometimes builders add quick incentives, sometimes they remove them, based on the market situation and based on the pressure builders have,” Shaikh said. “Same thing with us.”
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