What’s behind the slowdown in Toronto’s condo market

Strong population growth, low interest rates and robust investor demand drove an expansion in Toronto’s condo market over the past decade. But times have changed. Toronto’s condos are no longer providing substantial returns for short‑term investors because population growth has eased and interest rates have risen. This is challenging the business models of condo builders.

Toronto’s skyline has changed dramatically over the past 10 years as the number of new condo towers reached new heights. This construction boom added much‑needed supply to the city’s housing market, with condos accounting for more than half of new housing units built in Toronto over this period.

But construction activity faded significantly in 2024 and 2025: the number of condos at the beginning stage of construction—called condo starts—declined sharply (Chart 1). In 2025, condo starts reached lows not seen since the 1990s. A key factor for this decline was that the number of units sold before construction, known as presales, plummeted. Presales have shifted from being a key building block in Toronto’s condo boom to a stumbling block for further growth.

Investing in presale condos no longer adds up financially

Condo presales have traditionally been an important source of funding for builders, bringing in cash early in the process. As well, as a condition to finance the construction of a new condo project, banks have required builders to have around 70% of the units presold.

For real estate investors, presales were a chance to get a bargain on a unit whose value they believed would likely appreciate over the three-to-five-year construction period. This allowed an investor to sell the unit for a profit at or before completion or to rent it out at relatively high market rents.

And for a time, this investment strategy worked. Between 2015 and 2022, condo investors benefited from low interest rates and strong price increases—more than 40% on average—between when they purchased the unit in presale and when construction ended (Chart 2).

Another factor that helped investors earn large profits over this period was that they simply needed to provide a deposit worth 20% of the purchase price for a presale unit. The ability to secure a unit by paying a fraction of the cost up front resulted in investments that created the potential for large returns as a share of the initial cost. This was especially true for short‑term investors. In many cases, these investors never needed to finance the full purchase price since they were able to sell the unit before it was completed.

Here's a simple example of how an investor could have generated a large return.

Let’s say an investor bought a presale condo worth $1 million in 2016, putting down the $200,000 deposit up front. Just before construction wrapped up three years later, the value of the unit had increased by 40% to $1.4 million. The investor sold the unit at this new price and earned a profit of $400,000, doubling their initial investment. This average return is much stronger than more traditional investment vehicles like stocks or bonds.

But this strategy could also lead to large percentage losses. Let’s say that same condo investor in 2022 put down a $200,000 deposit to buy a presale unit valued at $1 million. Three years later, the prevailing market price had dropped to about $700,000. Despite this decline, the investor still legally owes the builder $1 million, as per the initial contract. An investor choosing to sell would then lose about $300,000—the initial deposit and then some.

Shifts in demographics and interest rates are contributing factors in this change in circumstances.

During the COVID‑19 pandemic, high population growth and low interest rates propelled demand and resale prices to record highs. The rapid growth in demand also put upward pressure on rents, which made owning a condo to rent out more financially attractive.

However, over the past few years, interest rates have increased and population growth has fallen sharply, while the supply of condos has expanded due to a surge in new construction over 2021–22. The result has been price declines, with many new condos worth less than their presale purchase price—making these units a less attractive investment than they were during the preceding decade.

This combination of factors has led to substantially fewer purchases of presale units (Chart 3), which is causing builders to hold off on future projects.

The past boom in investment contributed to an oversupply of small condo units

For years, builders tried to boost presales by lowering the price point for these investments. They did this by building lots of small condo units.

This approach made sense during times when Toronto—which typically draws roughly 30% of Canada's immigrants—experienced significant inflows of newcomers in 2022 and 2023. The high number of new non‑permanent residents, which includes international students, created a demand for these smaller condos ideal for one or two people.

But demand for small condos has fallen considerably over the past year as the net number of newcomers to Canada dropped from 1.4 million in 2023 to under 300,000 between the fourth quarter of 2024 and the third quarter of 2025. A weaker labour market has likely also played a role. This has led to a sizable mismatch between supply and demand: the market has too many small units and not enough large units that buyers want. Specifically, we estimate that micro units—those with three or fewer rooms—represent 60% of new condo units coming onto the market. However, only 30% of new households have the characteristics typically associated with buyers of micro units. This mismatch is resulting in lower prices and rents for these small units.

Builders in Toronto are struggling to sell existing and planned units amid both an exodus of short‑term investors from the market and the mismatch between supply and demand. The slowdown in Toronto’s condo market is just the latest challenge facing the largest housing market in the country, which was already struggling with persistent affordability issues.

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