Regulator's quiet warning put blanket condo appraisals under the microscope amid a sharp condo slump
Canada’s banking watchdog quietly warned major lenders in October that a common method of valuing pre‑construction condos could breach federal mortgage rules.
The caution came just as a once‑booming condo segment slipped into a sharp correction, according to internal minutes obtained by Reuters, which first broke the story.
In those minutes, the Office of the Superintendent of Financial Institutions (OSFI) said that failure to respect the 80% loan‑to‑value expectation on uninsured mortgages “could result in uninsured mortgage loans exceeding 80% of the market value of the property at origination and constituting a potential breach of the Bank Act,” the regulator said.
Blanket appraisals – using the purchase‑agreement value rather than the value at closing, often across multiple units in a project – “work well when property values are increasing but are definitely more challenging when the property market softens,” OSFI said.
OSFI scrutiny meets a condo market under pressure
Reuters reported that pre‑construction prices dropped by roughly 10%–30% from their 2022 peak in some projects, leaving lenders exposed if buyers walk away from units now worth less than contracted prices.
Canada also “experienced one of the largest housing market price declines among the world's major economies last year, with prices falling 2.7%,” according to those minutes.
New data from the Toronto Regional Real Estate Board (TRREB) shows the average price has tumbled to $626,650 – a dive of about 21.7% from its 2022 peak – as the stunning correction at play in the city’s condo market continues.
GTA condo sales last month slid to 1,088, a drop of more than 60% from the same time four years back, as investors and other buyers continued to desert the market in droves.
GTA condos face a prolonged correction, with February sales dropping and average prices falling sharply. Mike Kazarian notes the sector will eventually recover, but inventory shortages and affordability pressures suggest the turnaround will be slow.https://t.co/SDMAsn7Jeo
— Canadian Mortgage Professional Magazine (@CMPmagazine) March 6, 2026
RBC’s marketing shift shows changing risk calculus
At a November follow‑up, OSFI pointed to lender marketing that assured buyers “Once approved, you stay approved until your closing date” on pre‑construction mortgages, warning that the timing of blanket appraisals is a problem in a falling market.
That language appeared on Royal Bank of Canada’s pre‑construction mortgage website; after the meeting, RBC changed the wording to: “At RBC, we offer mortgage approvals based on the closing date provided by the builder.”
In a statement to Reuters, RBC said it worked closely with regulators to ensure it met their expectations. The Canadian Bankers Association said it is in talks with OSFI “to ensure any possible financial implications are taken into account” as expectations around blanket appraisals evolve.
Condo correction ripples through rents and construction
The warning came as Toronto’s condo slowdown pushed more investor‑owned units into the rental pool, with average Toronto rents down 7.1% in 2024 and condo rents falling 5.2% nationwide, according to Rentals.ca and Urbanation data cited by Canada Mortgage and Housing Corporation (CMHC).
“We’ve seen a big increase in supply, and that has kind of resulted in some markets being a little bit less tight,” CMHC deputy chief economist Kevin Hughes said, even as he stressed that “overall in Canada, we’re still facing a very tight rental market.”
Those dynamics are unlikely to stay confined to the Greater Toronto Area.
“I think a lot of the condo markets in many cities will face some relatively strong headwinds over the next two years,” Charles St‑Arnaud, chief economist at Alberta Central, said in a separate interview with Canadian Mortgage Professional, pointing to weaker investor demand and fewer non‑permanent residents as key drivers.
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