Big Banks Pressed to Lower 70% Condo Presale Threshold as Construction Starts Hit 15-Year Low

A presale is a binding contract to buy a condo unit before construction starts. Banks treat the percentage of units pre-sold as the single most important market-viability test before they will fund a tower's construction loan. Per Connect CRE reporting on Vancouver-based developer and former CMHC official Michael Geller, the historical norm was that developers could move forward with marketing once 40 to 50% of units were spoken for. Lenders today often expect 60 to 70%. That upward drift is the gap developers are now asking to close in the other direction.

There is a real reason presales exist. They give the developer a contractual book of buyers that — in theory — covers carrying costs if some units remain unsold at completion: property taxes, borrowing costs, condo fees, and the rest of the line items that accrue on every tower until the last unit closes. Presales are not purely a regulatory artefact. They are also a cash-flow tool.

The complaint is not that the tool exists. It is that the threshold has migrated upward into territory where the marketing model that produced rapid presale absorption — the splashy presentation centre, the named realtor who could move 35% of a building over a weekend, the investor segment that absorbed large blocks of units — no longer functions at scale. Geller frames it as banks having become "addicted" to presales as the primary viability test, displacing the project-by-project feasibility analysis and assessment of developer financial strength that used to share the load. The proposed reform is not to abandon the test. It is to weight it differently against fundamentals.

Most public conversation about OSFI focuses on the consumer-facing mortgage stress test. The mechanism that sits behind the presale threshold is different and has had much less coverage. In February 2023, OSFI updated its capital requirements under the Basel III reforms in its annual risk outlook, introducing more granular capital requirements for commercial real estate lending. The framework explicitly requires banks to hold additional capital against higher-risk CRE exposures — land development and projects with higher loan-to-value ratios in particular.

The chain from regulation to lending standard is mechanical. A project with a higher presale ratio is treated as lower risk on the bank's balance sheet, which means less capital is consumed by the loan, which means the loan is more profitable for the bank to make. A project below the bank's preferred presale threshold gets the opposite treatment: more capital held, lower return on capital, weaker case to approve. The threshold a bank publicly tells a developer is the threshold its internal capital model wants the loan to sit above.

That is the structural feature that makes this a regulatory story even when the regulator is silent on presales specifically. OSFI does not name a presale percentage in its capital rules. It does not need to. The capital math creates a strong economic incentive for banks to converge on a high threshold, and they have.

This is the second time in roughly two weeks that OSFI's existing capital-treatment guidance — not its public-facing rules — has moved to the centre of a Canadian housing story. Homeowner.ca covered the OSFI warning to banks that blanket condo appraisals may breach the federal 80% LTV rule as prices crash earlier this month. Both stories sit in the same structural place: prudential rules written for one purpose now shaping how a softening condo market actually clears.

The "why now" of this story is the data on presales, not the data on starts. CMHC's Fall 2025 Housing Supply Report notes that the Toronto CMA is tracking to its lowest level of housing starts in 30 years as of mid-2025, with pre-construction sales continuing to fall by double digits and developers delaying launches and scaling back land acquisitions. In the Vancouver area, CMHC reports condominium apartment starts fell 13.4% in the first half of 2025, and identifies failure to hit "the roughly 70% presale threshold needed for financing" as a direct cause of project cancellations and pauses. The language is the regulator's own.

The presale numbers underneath those starts numbers are worse. Urbanation data summarized in pre-construction market reports puts 2025 new pre-construction condo sales in the GTA at 1,599 units — the lowest level since 1991, roughly 91% below the 10-year average. A Q2 2025 read on the same data set has the GTA at 502 new condo sales for the quarter, with new condo starts down 57% year-over-year and 84% versus two years prior. Those are the numbers that have to clear a 70% presale bar.

In the resale market, the price line is the one existing condo owners feel directly. The Toronto Regional Real Estate Board's April 2026 report has the GTA average selling price at $1,051,969, down 4.9% year-over-year, with the average condo apartment price across the region at $635,653 — down 6.3%. CMHC's 2025 market-risk analysis adds the comparison window: between 2022 and Q1 2025, average resale condo apartment prices fell about 13.4% in Toronto and 2.7% in Vancouver, and Toronto's months of inventory for pre-construction condos in Q1 2025 was more than 14 times higher than in 2022, with roughly 55% of pre-construction units unsold.

For broader supply context, the Ontario government's revised housing start forecast down to 64,800 units — 30,000 behind its 1.5-million-home target pace shows the gap is not closing on its own.

When a project cannot get financed, it does not break ground. When it does not break ground, two things happen: the local pipeline of new supply thins (eventually), and the developer either shelves the land or pivots the project to purpose-built rental. Geller's reading of the current market is that meaningful pivots to rental are already underway — partly because the investor segment that used to absorb condo presale units has been discouraged by policy changes and broader market conditions, and partly because tenants increasingly prefer purpose-built rental's larger suites and amenities to investor-owned condo units.

That is the supply side. The demand side is where the loop closes for existing owners. CMHC's Spring 2026 Housing Supply Report flags rising unsold-at-completion condo inventory in Toronto and Vancouver and explicitly warns that difficulty reaching presale thresholds is putting future condo supply at risk. CMHC's 2025 condo-risk analysis adds that developers are increasingly converting projects and unsold units into rentals as the condo market softens. The Vancouver detached-versus-condo split Homeowner.ca covered earlier in May — detached sales up 14%, condos sinking — is the same split visible in the price data, with the same root cause on the condo side.

Two recent capital-markets moves give the conversion dynamic a number. Jesta Group, a Montreal-based real estate firm, has begun buying blocks of newly built Toronto condos — an initial portfolio of 62 units near Toronto Metropolitan University for about $30 million — as the first step in a roughly $500-million, 1,000-plus-unit program intended to operate as long-term rentals. High Art Capital, in partnership with Ontario's Building Ontario Fund, has launched a GTA initiative expected to be capitalized at $1.3 billion or more, with $300 million in mezzanine debt and a nominal equity stake from BOF, to acquire newly built unsold condos and convert them to rental — provincial communications suggest support for roughly 2,200 units.

The brand-spin loop in plain form: high presale threshold → fewer starts → unsold inventory takes longer to clear → resale condo prices keep softening → presale demand weakens further → conversion funds step in to clear inventory at institutional pricing → building tenure shifts → resale comps in the area absorb that pricing. None of the links in that chain are speculative individually. The question for the next several quarters is whether they keep firing in sequence or whether something — bank lending standards, OSFI capital treatment, government supply policy, or a return of presale demand — interrupts the loop.

Three things, roughly, would have to shift for the de facto 70% bar to come down materially without other risks reappearing.

First, the OSFI side. The 2023 capital framework would have to be revisited, or its application to mid-construction loans softened, to change the capital math that makes high-presale projects so much more profitable for banks to fund. This is a regulatory decision, not a market one, and OSFI has not signalled appetite for it.

Second, the bank-practice side. Geller's argument — that lenders could substitute more rigorous project-feasibility analysis and developer-strength assessment for raw presale counts — would have to be picked up internally at the Big Six. That is a workflow and risk-appetite change, not a public policy change, and it tends to follow either regulatory pressure or a competitive move by one lender.

Third, the demand side. CMHC's 2026 Housing Market Outlook projects continued weakness in condo starts, especially in Toronto, attributing it to a combination of high construction costs, weaker demand, and rising inventories. Even a meaningful threshold reform does not produce starts unless presale demand recovers. The CMHC warning that government homebuyer incentives could push prices higher without 28,000 extra housing starts per year is the parallel framing on the policy side: any demand-side push, including a threshold reform, lands harder if the supply side is also moving.

For now, the developer call recorded by Connect CRE is the public opening move. The bank response, the OSFI response, and the next quarter of CMHC pre-construction data will tell us whether this is the start of an actual policy shift or whether the 70% threshold continues to function as the quiet rule that, more than any consumer-facing housing policy, determines what gets built in Canada's three biggest condo markets — and what existing owners see on their next resale appraisal.