Although the city’s glut of unsold condos is easing and local realtors reported a sharp jump in November sales compared with a year earlier, Ottawa real estate experts don’t see a great condo comeback on the horizon in 2017.
The number of unsold condo units in the Ottawa market fell to 529 in November from 699 in February, according to the Canada Mortgage and Housing Corp.
Meanwhile, the Ottawa Real Estate Board reported its members had sold 16 per cent more condo units in November 2016 than in the same month a year earlier, prompting new board president Rick Eisert to declare that the local condo market “appears to be on the rise.”
While there does indeed seem to be a bit of a thaw in the condo market deep freeze, it will likely be a while before sunny days are truly here again, many observers say – and it definitely won’t happen in the next 12 months.
“That market is still overbuilt,” argues John Herbert, the executive director of the Greater Ottawa Home Builders’ Association. “It’s going to take a few years to absorb the product in that sector. We probably won’t see quite as many new projects coming online next year or the year after as we have in the past, but they’ll start to make a comeback at that point. I think it’ll be a couple of years until we see some action on that front again.”
The overall numbers on condo construction in Ottawa seem to bear out Mr. Herbert’s prediction.
According to CMHC, there were 583 new condo starts in the city in the first 11 months of 2016, down from 776 over the same period a year earlier. Those 2015 numbers had already fallen significantly from the total of 1,301 starts for the same 11-month stretch in 2014.
Part of the reason for that decline is the rise in the number of projects purposely designed for the rental market over the past couple of years, says Claridge Homes vice-president Neil Malhotra. According to CMHC, there were 526 apartment starts from January to November 2016, down from 654 a year earlier but almost on par with the number of condo starts.
Claridge has one purpose-built rental project – a 100-unit building on Lisgar Street – already on the go and plans to break ground on a 230-unit apartment complex on Gloucester Street later this year.
Meanwhile, the company is still working on its Icon and Tribeca condo projects in the central core of the city but has no immediate plans to launch any others in the near future, Mr. Malhotra says.
“There was a period where the condo market got really hot because it was being a little bit fed by a marketplace that was buying units to rent them out,” he explains.
“That sort of changed. You’re just seeing the purpose-built rental markets being built now by developers and institutional (investors) and it’s taken away from those condominium units filling up that marketplace.”
Changing tastes among both younger and older would-be homeowners have helped fuel the shift away from condos toward rental units, experts say.
Faced with the daunting prospect of saving up a down payment in addition to a host of other fees and taxes, many potential first-time condo buyers have decided to put their dreams of ownership on hold and rent instead, Mr. Herbert explains.
“Housing affordability has become such a problem that a lot of people simply can’t afford to buy,” he says. “Their only option is to rent, so I think that’s really helped the rental market.”
But it’s not only millennials looking to enter the market for the first time who are shying away from condos, notes Oliver Tighe, managing director of Colliers International’s valuation and advisory services branch in Ottawa.
Turned off by the thought of shelling out monthly condo fees and paying hefty property taxes, more and more downsizing baby boomers are also opting to rent rather than buy another home or condo, he says.
“I think the value proposition of purpose-built rentals is good, and we’re seeing more and more developers continue to explore purpose-built apartment rentals as an option in Ottawa.”
As a result, many major condo projects that were on the books – such as Domicile Developments’ proposed 127-unit tower in Little Italy and Azure Urban Developments’ flagship Azure highrise, a 93-unit building on Richmond Road that was supposed to be completed in late 2015 – are now in limbo.
“A lot of the inventory that was coming on stream is no longer coming on stream,” Mr. Tighe says. “I think it’s going to get worse before it gets better.”
Still, the 2017 forecast for Ottawa’s housing market isn’t all bad.
Fuelled by a surge in row houses and semi-detached dwellings, this year’s total number of housing starts is expected to be similar to 2016’s tally of about 5,000, CMHC says. Developers say they sense the overall housing outlook is “getting more positive” in the region.
“The change in government made a pretty significant difference in the city,” Mr. Malhotra says, referring to the federal election that brought the Liberals to power in October 2015. “I think it (eased) a lot of job fears within the public service. That’s bound to trickle through the economy.”
Fears that rising interest rates south of the border could trigger rate hikes in Canada might also prompt potential homebuyers to jump into the market sooner, some experts suggest.
“There could be a brief sort of burst for people who have been thinking about buying to get in before any interest rate increases, for sure,” Mr. Herbert says.