As excess inventory and plummeting sales continue to test Toronto’s condo market, industry insiders say the downturn is poised to get even worse before it gets better.

Just 502 new condo sales were completed in the Greater Toronto Area (GTA) and Hamilton in the second quarter of 2025, according to an analysis by Urbanation, a real estate consulting firm. That’s 91 per cent below the 10-year average, and the lowest market activity in 30 years.

At the same time, lagging pre-construction sales threaten to sabotage future projects as money to construct more towers dries up. The Canada Mortgage and Housing Corporation reported that just 45 per cent of Toronto’s pre-construction units had buyers in Q1 2025—a slight improvement from the record low 44 per cent reported at the end of 2024, but well below the 70 per cent presale benchmark lenders typically require to approve project financing.

Toronto is now being hit by a surge in construction delays and project cancellations, leaving both developers and investors unsure of their next moves. Casey Gallagher, a senior member of CBRE Capital Markets’ National Investment Team, sums it up plainly. “To say that the market is cold is an understatement. It is a block of ice.”

The current crisis started to unfold around 2010, when pre-construction condos achieved—and then surpassed—the price of resales. Investors profited by purchasing units several years before completion and later flipping them, often without ever taking possession or getting a mortgage. Between 2015 and 2017, low interest rates created a surge in speculative buying, setting the stage for an investor frenzy once the COVID-19 pandemic drove down interest rates even further. By 2021, presale prices soared as high as $1,600 per square foot for units that were often tiny and awkwardly laid out, despite rents not supporting their mortgages, taxes, and maintenance costs.

Toronto’s condo crisis is similar to the Dutch “tulip mania” of the 1630s, according to Ron Butler, principal broker at Butler Mortgage. Back then, speculators drove up the price of tulip bulbs to more than 20 times a carpenter’s annual salary to get rich. Butler said the presale prices paid for condos in Toronto from late 2020 until 2022 made “absolutely no sense.”

“To break even on rent for a 525-square-foot studio at, say, $1,400 a square foot, a tenant needs to pay $4,100 a month,” Butler said. “No one’s paying $4,100 a month for 525 square feet.” But, for some reason, investors kept at it. “Just like the last guy with that tulip bulb in his hand thought, ‘I’ve got nothing to worry about.’”

As with the tulips, the bountiful returns on condos proved short-lived. As rising interest rates and global instability halted economic growth, investors—who typically make up at least 70 per cent of buyers in the GTA —have grown wary. Meanwhile, high construction costs have left developers with little pricing flexibility and few good options to get building. By July 2024, a report by CIBC and Urbanation claimed Toronto’s condo market was in a state of “economic lockdown.”

The outlook has only gotten bleaker. With declining rents unable to cover the costs of new units, developers now struggle to finalize sales. Yet, despite rising contract terminations and failed closings, some developers are refusing to let investors back out of their contracts and are upholding pre-crash prices to preserve the value of previously sold units. Some developers have even sued investors who wouldn’t—or couldn’t—close.

Perhaps no other development encapsulates the boom-bust rollercoaster of Toronto’s condo market as vividly as The One, the luxury 85-storey tower at Bloor and Yonge. Initially helmed by developer Sam Mizrahi and pitched as Canada’s first “supertall” condo building, its presale inventory included a penthouse suite priced at nearly $4,000 per square foot.

Behind the scenes, the project was beset by a slew of construction delays and cost overruns. It eventually went into receivership in late 2023—six years after breaking ground in 2017, and almost a year past its projected completion. By then, the project had reportedly gone over budget by about $600 million and amassed approximately $1.7 billion in debt. Tridel, a real estate developer specializing in luxury condos, took over the project earlier this year, though it remains to be seen whether the building’s units will actually sell.

Developers and big investors aren’t the only ones feeling the pain. Realtor Zhen Liang, the owner and lead broker for PrimePropertiesTO, argues that “regular” buyers have also been hit hard by the condo collapse. Many now recognize that they sunk their cash into a losing bet and are coming to Liang in search of options. In many cases, they have none.

“When you have mom-and-pops with families who bought one property—maybe for their kids or for retirement—and were sold a bill of goods that was wrong, I empathize with them,” Liang said. “I feel bad.”

With traditional condo development effectively on pause in the GTA, high-rise residential developers are faced with a stack of money-losing prospects. Those who can afford it are choosing to wait out the storm, which may take several years. Others are trying to recoup whatever they can by backing out of blighted builds. Urbanation reports that 21 condo projects have been cancelled in the Toronto and Hamilton region since the start of 2024, with nine being converted to rentals.

At present, purpose-built rental developments are the only high-rise projects reliably attracting financing, primarily from large institutional investors that are willing—and able—to absorb near-term losses. Despite some analysts’ predictions, Gallagher is skeptical that a mass “pivot to rental” is on the horizon. With the high equity requirements and construction costs involved in major builds, many developers likely won’t see the typical 4 or 5 per cent returns on rentals as being worth the risk. And that’s before factoring Toronto’s falling rents—or the likelihood that renters will prove less-than enthusiastic about moving into tiny condo units they don’t even own. Gallagher predicts that many developers will assess the situation and decide to sit on the sidelines as they wait for the condo market to “hopefully” bounce back, or pivot to something else.

Nobody knows what will happen next. There is, however, some industry consensus that future projects will need to be more conservatively planned—and better aligned with what buyers and renters, not just investors, actually want. As Butler sees it, that means focusing on larger, better-designed units with fewer luxury amenities and prioritizing the needs of owner-occupants. It may also require new policy measures that reward long-term holding and discourage flipping, such as lower development fees.

“If you want to be an investor and own a rental condo, you better be committed to having long-term tenants and therefore not build or buy a garbage product that nobody ever would want to live in,” Butler said.

Gallagher, on the other hand, believes the best way forward is to make it as easy as possible for developers to build new condos. In his view, all levels of government should aim to reverse cooling measures: lifting foreign buyer bans, cutting Airbnb restrictions, and selling to whoever is willing to buy. “Just get the units built. They won’t be perfect for absolutely everybody, but they will cycle and turn over as opposed to building nothing—which I think, in a lot of cases in Canada, is a pretty good thing to settle for.”