Developers Brace for End of Montreal’s Condo Boom

Developers Brace for End of Montreal’s Condo Boom

Sales Are Well off the Pace of Previous Years

DAVID GEORGE-COSH

Nov. 5, 2013 6:12 p.m. ET

With signs that Montreal’s more than decadelong condominium boom could be fading, some local developers are repositioning or even pulling projects due to waning demand. In the downtown core, quarterly presales of new condos have averaged nine units per project this year, according to Altus Group Ltd. AIF.T -0.07% , a real-estate consultancy. That is well below the pace of such sales in both 2012 and 2011, when the average was 16 units.Meanwhile, only 10 new condo projects were announced in Canada’s second-largest city in the first half of 2013, compared with 14 such projects in the first half of 2012. At the current pace, Montreal isn’t likely to match the 25 project launches announced last year, and could fall below the 2011 total of 14 projects, Altus Group says.

Developers have noticed. “There’s starting to be a lot of uncertainty in the marketplace,” said Sam Scalia, chief executive of Samcon Inc., one of the city’s biggest developers with 13 projects in the works.

Nearly 1,500 people signed up for information on Samcon’s 190-unit Drummond Condominiums project when the developer began presales in January, Mr. Scalia said. But sales were slow, and Samcon pulled the project from the market in May for a full redesign with a new architect.

“When we came out on the market, there was a glut of units that were launched in our district downtown,” Mr. Scalia said.

When Samcon puts the Drummond project back on the market in January, units will be roughly 10% smaller and one-bedroom units will be priced nearly 33,000 Canadian dollars ($31,578) less than the initial C$275,000, Mr. Scalia said. The project is slated for completion by the end of 2016, one year later than first planned.

Montreal’s condo boom, like those in Toronto and Vancouver, was fueled by ultralow interest rates that put homeownership within the reach of more Canadians. The resilience of Canada’s housing sector was a key factor in helping the country weather the global financial crisis better than many of its industrialized peers.

But it also led to record household-debt accumulation, a concern for Canadian policy makers. Canadian Finance Minister Jim Flaherty singled out the overheated condo markets in Toronto, Vancouver and Montreal as areas of particular concern when he tightened mortgage-financing rules to put the brakes on the sector.

A slowdown appears to be under way. “While overall sales are good, [the condo market is] moving at a more muted pace,” said Colin Johnston, president of Altus Group’s Canadian research, valuation and advisory department.

Montreal’s condo-resale market also is showing strain. Listings have soared 24% in the past 12 months, according to the Greater Montreal Real Estate Board. Sales, though, have fallen by 15%.

Canada Mortgage and Housing Corp., a government-owned housing agency, forecasts 10,000 new condo units will be built in the Greater Montreal area in 2013, down 16% from last year and the second annual decline in a row. CMHC attributes the slowdown to a surplus of new condos and a rise in resale listings.

“It feels like everyone who had to consider buying a condo has already done so,” said Stéphane Côté, president of DevMcGill, a developer with four projects under construction. “Right now, we’re on the tail end of the market.”

Mr. Côté said DevMcGill has positioned its projects to withstand a slowdown. Development of the condos is structured in several phases, and if sales begin to trickle, DevMcGill can redesign units to adjust to lower demand.

Mitchell Abrahams, owner of Benvenuto Group, a Toronto-based developer, said sales of condos he is developing in Montreal are mixed. Le Peterson, a 31-story tower in the heart of Montreal, has had “slow but steady” sales with 53% of the development sold. Meanwhile, the Belvedere, a luxury development in Montreal’s tony Hampstead neighborhood, closed its sales center earlier this year due to poor sales, Mr. Abrahams said, declining to elaborate.

“Montreal’s a hard market for people to make a decision,” he said. “But fundamentally, it’s still a great condo market.”

The slowdown has a silver lining. Samcon’s Mr. Scalia said he is in talks with at least three developers to take on projects that haven’t sold well, though he declined to identify them.

Some developers predict it will take several years for the market to absorb the excess inventory. Michael Engels, vice president of sales at Inca Development, said the slowdown isn’t much of a surprise. After a rush of product coming to the market, developments still need some time to be digested by home buyers.

Montreal’s condo sector has become a buyer’s market. Mr. Engels expects his current project, a development along the city’s trendy Crescent Street downtown, to begin construction next year after selling over 40% of his inventory so far. “Competition is always subjective, even in this tough environment,” he said.