The challenges of converting condominium developments to purposebuilt rentals By David Gargaro
Two key trends are affecting the Canadian housing market: a lack of affordable housing (especially purpose-built rentals (PBRs)) and declining demand in purchasing condominiums. Some property developers are trying to solve both problems by converting their condo developments into PBRs. It seems like an obvious solution, as it involves changing one type of multifamily building into another. However, as experienced apartment building developers already know, there’s a lot that goes into getting these types of projects approved and built. There are also many essential differences between the two property types and making the conversion is easier said than done.
What’s happening in the condo market? For decades, the Greater Toronto and Hamilton area was the centre of Canada’s condo development boom. However, the numbers have shifted considerably in recent years. According to the Toronto Regional Real Estate Board (TRREB), Q1 2025 condominium apartment sales are down 21.7 per cent year-over-year (3,794 vs. 4,843), while listings are up 25.2 per cent over the same time (14,544 vs. 11,614). Condo developers have taken notice of what is happening in the market. According to Urbanation, from 2022 to 2024, 33 new condo projects that were actively selling have either been converted to rental property developments, postponed, cancelled or placed in receivership. That equals almost 6,800 new condo units that would have come into the market. In the third quarter of 2024, more than 1,100 units that were launched into presale were converted into PBRs.
24 | June 2025
Fewer new condo projects are beginning construction than in previous years. Urbanation data found that, in the third quarter of 2024, there were 2,163 recorded starts, which is down 13 per cent year-over-year. This is also the slowest third quarter for condo starts in more than 10 years. Shifting market conditions have significantly affected the appraised value of preconstruction condos, which is making them less attractive to investors. Some projects have seen their appraised values fall by 10 to 30 per cent below their original purchase price. Since financing depends on the property’s appraised value, the buyer must make up the shortfall. Some buyers are walking away from contracts, forfeiting their deposits rather than take on a mortgage for more than the condo unit’s appraised value. Fewer investors and homebuyers are willing to purchase preconstruction condo units, and more buildings are entering the pool. There’s too much supply and not enough demand to justify the cost of building new condos. As a result, some condo developers are looking to convert their projects to PBRs.