Thriving strategies for the current pre-construction real estate market

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By Michael Klassen
1111 Realty

Change is a constant in pre-construction real estate. Learning to adapt to accommodate market fluctuations makes all the difference in achieving ongoing success. Occasionally, patience is the upmost virtue in that regard. The onset of COVID is a perfect example of how developers rose to the challenge and came up with strategies to thrive during that difficult period. Once the initial panic was over, they ramped up their technology to sell entirely virtually. Physical sales centres morphed into online showcases, and interactive tours of model renderings became common. This resulted in a surprising success story, with 2021 sales in the GTA being the second highest on record since 2002.

More recently, increases in interest rates and ongoing supply issues have resulted in a dip in sales. So, how can industry professionals adapt?

Temporary cycle

Frankly, a little patience goes a long way. Remember back in 2017, when Ontario implemented the Fair Housing Plan? It introduced measures, including a 15-per-cent non-resident speculation tax (which was questionable, as a small percentage of buyers are foreign), a vacant homes property tax, and the disabling of increasing rents more than the base of inflation, among others. People listed their rentals and took away much of our rental stock. This didn’t help prices; it created more competition and cost more to get into the investment market. In short, people panicked for a while and the market stopped.

Then, as the media focused on different topics and government intervention came to an end, things picked up. Currently, interest rises have not stopped the market, but the response is similar. Waiting out the next couple months until the Bank of Canada stops raising rates will result in a robust market once again. Good thing, as immigration continues to drive the demand for new stock of homes and condominiums. I don’t have a crystal ball, but I believe that this cycle is temporary. And contrary to some naysayers, we are nowhere near the situation we faced in 2008. We have not repeated the mechanism that got us there, so that will not happen.

The government is suggesting reducing the size of product, but how salable would those homes and condos be? We have already seen reductions in size to improve affordability. We need more stock to accomplish that goal, and until municipal and provincial governments reduce the red tape they require for approvals, that likely won’t happen to any substantial degree.

Robust market

We are in the midst of a cycle, and when the dust settles, we’ll be back to a robust market again. In the meantime, builders and developers should look at strategies from their previous playbooks that resonate with buyers in our current market. Perception is reality in the minds of the consumer so we must be mindful of this. Sales centres become more valuable in this market as do pricing, deposit amounts and deposit structures. We are back to some of the most tried and true “analog” sales techniques, yet at the same time, we must continue to embrace the virtual/digital approach that is here to stay.

Fortunately, our robust southern Ontario real estate market will continue to be buoyed by the fact that people will always buy and rent homes and condominiums, even during a slowdown. They immigrate to Canada, move for jobs, increase the size of their families, retire or invest as part of their financial portfolios. Pent-up demand will have a major effect in the near future, so patience is the key word right now. Real estate is a cyclical industry, and as savvy professionals we will develop strategies to ride out this cycle.

Michael Klassen

Michael Klassen is the Broker of Record and Partner at Eleven Eleven Real Estate Services, Toronto. 1111realty.ca