Buyers of new condos will have to pay higher deposits, making resale condos, like Palace Place, far more appealing.

Palace Place New Condo Construction

(Above photo is the copyright of Luke Dalinda.)

Canadian banks have tightened lending conditions yet again. This time the focus is on the builders of new condominiums amid fears of a condominium market bubble.

According to the Canada Mortgage and Housing Corporation, multiple-unit starts in Toronto had more than doubled in January 2012 to 2,999 units compared with January 2011, while starts had risen 4 % in Vancouver to 1,261 units.

Increasing home sales and prices driven by the lowest interest rates in decades have pushed household debt to record levels, leaving many families defenseless to an expected rise in borrowing costs.

To help the market, Canadian banks have begun to demand that a higher percentage of condominium units must be pre-sold and to demand higher deposits, as conditions for financing.

OSFI, the regulator of Canadian banks, has already increased supervision of residential lending practices.

“The Toronto market is dominated by a small number of very powerful developers,” OSFI had stated in June 2011. “Their role in supporting or discouraging pre-sale speculative activities would appear to be very inconsistent, with little transparency,” OSFI had added.

“Less well-established companies may have difficulty getting loans from the top Canadian banks, even if they have pre-sold 70% of the units, collected 20% of the total purchase price in deposits, and can offer 15% of the project’s value in equity,” a top expert had noted.

“There may, for instance, be some vulnerability in the condo markets of Vancouver and Toronto,” Royal Bank CEO Gordon Nixon had said recently.

“The large number of construction cranes crowding Toronto’s skyline is raising concern of an emerging oversupply of high-rise housing,” Bank of Nova Scotia economist Adrienne Warren had said this past week. “Slowing price appreciation should dampen investor demand and new product launches,” she had added.

Surprisingly, Toronto has more skyscrapers and high-rises under construction than any other North American city and almost three times as many as in New York City.

Despite such concern, the World Economic Forum has ranked the Canadian banks as the soundest in the globe.

For Palace Place, this news is good.

Having to pay larger deposits for new construction will make resale condominiums, such as Palace Place, far more appealing to buyers.

This is just yet another of the many benefits of buying at Palace Place.

It may also help to derail some of the many shoebox condominiums going up in the Humber Bay Shores area, which would serve the over developed area well.

This will also encourage better condominium proposals from developers looking for financing. Developers will have to become more creative in demonstrating the market for what they intend to build.

Written by Luke Dalinda, with assistance from Ian Baird, Mobile Mortgage Specialist at TD Canada Trust