A “shadow market” of unlisted, unsold condo inventory is emerging in both Toronto and Vancouver, Realtors say, that could worsen the current condo crisis both cities are facing.

The shadow market consists of both presale condo units that are available before the building has been constructed, and the units that are leftover from the presale period but are still not listed on the MLS.

“(Presale inventory) doesn’t get picked up in the real estate boards’ monthly analysis,” Vancouver Realtor Steve Saretsky told Real Estate Magazine. “There’s never any discussion that the preconstruction market also has all-time record high inventory, and none of that gets tracked publicly.”

He said that the large amount of shadow inventory is putting more pressure on prices and is straining developers, and predicts housing starts will continue to fall off aggressively since developers aren’t selling the inventory they already have. 

This is a fairly new phenomenon, according to Saretsky, because condos used to sell out very quickly in the presale period due to a strong bull market and the presence of investors. Now, investors have fled the market, and most buyers are end users who are less interested in the small condos on offer, meaning many developers can’t sell all their units before the building is complete and are left with shadow inventory.

“(The shadow market has) never really been a conversation,” Saretsky said. “I think it matters.”

 

Developers holding back inventory

 

Toronto Realtor Tom Storey told REM that typically a developer won’t list their inventory on the MLS because they don’t want to overwhelm the market and compete with themselves, or make previous buyers aware that they’re now offering a discounted price on their units. Instead, they’ll list just a handful of units so buyers know they exist, but often buyers will have to find out about the full extent of shadow inventory through their Realtor.

The problem is that this glut of presale inventory hasn’t been competitive with the already extensive amount of resale inventory on the market due to its higher price, according to Saretsky and Storey.

That makes the shadow inventory a hard sell for developers,, and some have had to offer big discounts to get it moving.

Storey said there was a one-day flash sale in Surrey, B.C., where the developer of one building took 25 per cent off all of their remaining inventory, and it sold out in one day. Even with the new Liberal federal government axing the GST for first-time homebuyers, resale condos are still cheaper and attracting most of the buyers, according to Storey.

Storey said much of the shadow inventory skews to more luxurious, large units that may appeal to downsizers who can wait a few years before moving in, rather than more budget-minded buyers who usually want a place that is move-in ready immediately.

He estimated based on data from Urbanation that there are roughly 2,500 shadow inventory units in the GTA that are not listed on the MLS, compared to about 7,000 listed resale units.

“It’s nowhere near the MLS numbers, but it’s not nothing,” Storey said. “It’s building.”

 

Market pressures forcing new sales tactics

 

Vancouver Realtor Hasan Juma told REM that his city will likely have 3,500 shadow inventory units by the end of 2025, compared to about 10,000 unsold resale listings. That’s according to data from real estate agency Rennie.

He said that developers may begin to change their sales habits due to growing shadow inventory. Typically, they might try to sell up to 70 per cent of their units in presale to secure funding to build, then try to sell the rest later at a higher price. Now that they’re not selling those leftover units, they may not be as willing to keep them for later as they have been before.

“A lot of developers have been burned in that process,” Juma said. “It’s probably going to change how they do that moving forward.”

Juma said that a lot of resale inventory now has barely been lived in, so shadow inventory has a hard time competing with it given its main advantage is it is new.

In all, the Realtors say that shadow inventory only exacerbates the current condo crisis, though Juma noted that most industry experts factor in shadow inventory when talking about the situation. 

“The general public … don’t know the full scope of how big and how great the amount of supply is,” Juma said. “Buyers have a good amount of options.”