11:15 AM EDT, 08/12/2024 (MT Newswires) -- Residential property developers are facing rising insolvencies as they struggle with higher borrowing and construction costs -- and industry experts warn the trend is likely to worsen as interest expenses remain elevated, The Globe and Mail newspaper has reported.

The number of insolvent real estate companies and projects has been rapidly climbing over the past year and is now on track to surpass levels of the global financial crisis, according to data from the federal Office of the Superintendent of Bankruptcy.

"This has been a long time coming," said Colin Doran, head of development advisory for commercial real estate firm Altus Group, who has been providing advice on distressed real estate projects for 15 years.

"There are no doubt more real estate projects in distress but it's hard to tell how many can be worked out before ending up in an insolvency position. We expect there will continue to be more unsophisticated developers in trouble," he said.

From January to May this year, the report noted, there was an average of 20 real estate, rental or leasing insolvencies in Canada every month. Companies either sought bankruptcy protection or filed creditor proposals to make it easier for them to manage their debts under the Bankruptcy and Insolvency Act.

At this pace, the report said, Canada is on track to reach about 240 real estate insolvencies this year, which would be 57% higher than 2023 and 13% higher than 2009, when a wide swath of businesses ran into problems owing to the financial crisis and global recession.

And that, the report noted, does not include the number of developers and projects that have been forced into receivership for not paying bills. The Office of the Superintendent of Bankruptcy does not include receiverships with its publicly available bankruptcy statistics. However, insolvency experts say they are seeing more projects go into receivership.

So far this year, the real estate sector accounts for 55% of the receiverships recorded by Insolvency Insider Canada, a website that tracks the largest insolvencies in the country. That compares to 30% last year and 33% in 2022.

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