Condo developers are urging Canada’s major banks to lower the presale thresholds required for construction financing as weak new-home sales continue to stall projects and reduce housing starts, The Globe and Mail reported.

Developers contend that the current practice of requiring roughly 70% of condo units to be presold before financing is approved has become increasingly unrealistic amid a prolonged slowdown in the preconstruction market.

Company leaders told the newspaper that the financing model has contributed to project postponements, cancellations and a rise in receiverships, while also pushing some builders to convert planned condominium projects into purpose-built rental developments.

“We need to take another look at how the financing model works for condominium construction,” Ian MacLeod, senior vice-president of residential at Dorsay Development, told the Globe. “The lenders that I have spoken with have been interested and expressed a desire to work to find a solution to this,” he said.

The report said Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, does not impose a mandatory presale threshold for construction financing. However, OSFI guidance introduced in 2023 provides more favourable capital treatment for loans where presales exceed 50% of a project’s total contracts, according to the Globe.

Cory Harding, a spokesmanlm for the Canadian Bankers Association told his interviewer decisions to impose stricter lending requirements beyond OSFI expectations are made independently by banks based on their risk tolerance.

“The level of presales may inform a financial institution’s assessment of project risk and, in turn, may lower its capital requirements,” he told the Globe.

If a bank doesn’t have to hold as much capital against a loan, it has the ability to increase its lending.

Branthaven Homes President Steve Stipsits said in an interview with the Globe that developers are struggling to achieve the presale levels banks require to gain confidence in repayment.

The Toronto Star reported recently that power-of-sale listings in the Greater Toronto Area reached a two year high in April. More than 300 power-of-sale listings were recorded across Ontario in April as falling home prices and a sluggish spring housing market leave more homeowners unable to cover their mortgage obligations, according to the Star, which cited data from publicly available IDX and VOW property-listing databases.

As Connect has reported, lenders across the country have pushed many condo developers and projects across the country into creditor protection and receivership due to missed construction-loan payments. And, several developers have sold completed units in bulk at discount to help easer their financing pressures.

As Connect also reported recently, Jesta has launched a $500-million bulk-condo investment program in Toronto’s core as part of a buy-sell-rent strategy designed to capitalize on the market’s improvement. The company recently purchased an unsold number of units at an unidentified condo tower in downtown Toronto for $30 million, marking the first investment in the program.

Jesta also aims to buy bulk-condo portfolios in Montreal, where the firm is actively seeking assets, and Vancouver. Anthony O’Brien, senior managing director at Montreal-based Jesta, told Connect bulk-condo investments are likely to increase as more developers seek to divest unsold newly built units to ease their financial pressures.

Meanwhile,Vancouver-based multi-residential and development-site sales specialist Goodman Commercial has launched a new bulk-condo sales service line.

In March, High Art Capital launched a GTA-focused fund expected to be capitalized with at least $1.3 billion to acquire large blocks of newly completed, unsold condo suites and convert approximately 2,000 units into rental apartments. The company said about 550 of those units would become affordable-housing residences through a partnership with the Building Ontario Fund, which has anchored the fund with a commitment of up to $300 million commitment in mezzanine debt fimamcimg. The affordable-housing units will be protected in perpetuity through title-based mechanisms and related agreements, said High Art Capital.

Polygon Realty President Neil Chrystal told the Globe it is uFnrealistic for condo tower developers to reach the 70% presale threshold in the current market environment. The company recently secured financing for a project in Coquitlam without reaching that level, although the development was not a condo tower.

Devron Developments President Pouyan Safapour told his Globe interviewer that some international markets allow developers to secure financing with far lower presale levels or without presales altogether. He suggested lenders reduce requirements to between 30% and 40% to allow more units to be sold after construction is complete.

According to the Globe, GTA condo presales have fallen more than 90% from pandemic-era peaks, contributing to a sharp decline in condo construction activity. Data from Canada Mortgage and Housing Corporation showed condo starts last year were at their lowest level since 2010, the Globe noted.

Pauline Lierman, vice-president at Zonda Urban, told the media outlet that banks could continue conducting due diligence while easing presale requirements for experienced developers.

MacLeod also wants the federal government could play a larger role in condo construction financing, according to the Globe. While CMHC currently provides insurance and low-cost financing for purpose-built rental housing, similar support is not available for condominium developments.

The developers’ calls for reduce presale thresholds come after XXX Michael told Connect that presale requirements.

“I’m surprised it has taken so long for others to start speaking up about this,” Geller told Connect after the

“As I have been trying to argue, the world has changed and most small investors are gone and end-users are not going to enter presale agreements to purchase units even two years, let alone three or four years, in advance of completion,” he said. “There’s also too much uncertainty in the world.”

Pictured: The One Bloor West project, fromerly known as The One in downtown Toronto. The project was pushed into receivership in 2024.

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