Are condos still a good investment?
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In a soft condo market, investors are learning to adapt and develop new strategies
While Toronto’s once red-hot condominium investment market has slowed down to a gentle simmer with no prospects things will improve any time soon, opportunities do still exist.
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Ryan Coyle, co-founder of Toronto-based Connect.ca Realty, a real estate brokerage that specializes in investment strategies, says buyers have more leverage today than they have for much of the last 15 years — provided they look in the right places.
“There’s a ton of assignments out there,” Coyle said. “I recently bought one at Nobu Residences, that was at 2017 prices, after the purchaser couldn’t close on the unit because they couldn’t qualify for a mortgage.”
A condo assignment in real estate refers to the transfer of a pre-construction purchase from the original buyer to a new buyer, the transaction occurs before the condo unit is completed and the title is registered.
And the longer the condo has been on the market the better, new investors benefit from not having to carry the costs of condo while prices were declining.
Data from the Toronto Regional Real Estate Board (TRREB) reveals a surplus of condo supply. There were 17,400 condo rentals reported through the MLS last quarter, increasing by 25.2 per cent from Q2-2023, while rents for one-bedroom units fell by 3.1 per cent to $2,452.
Coyle added that cash-strapped investors aren’t the only ones flipping assignments.
“There are deals out there like the one I got — it ended up helping the seller, but I got a great deal too,” he said, adding “even people who can close are selling on the resale market, because while they can close, they can’t afford the payments.”
The problem for condo investors is that, between maintenance fees and mortgage rates, carrying costs leave them in the red. This is especially true for unit-owners in buildings registered no later than November 15, 2018, which are rent-controlled.
“These people are paying interest rates in excess of six, seven per cent, and the yearly rent increase is about three per cent, but many of them struggle finding qualified renters,” said Leah Zlatkin, a mortgage broker with Mortgageoutlet.ca and a Lowestrates.ca expert.
Zlatkin points to research from the Canadian Housing Statistics Program indicating 43 per cent of Toronto condos are investor owned.
“The dollars and cents aren’t necessarily there for a lot of condo investors right now,” she says.
Families comprise a growing share of the rental pool, but Zlatkin added most inventory on the secondary rental market is insufficiently sized.
“[Families] can’t fit into these 400-, 500-, 600-sq. ft condos when it’s two adults and kids,” she continued. “And the people who can afford to buy these units need more room than a condo offers them.”
Moreover, investors typically prefer variable-rate mortgages for the flexibility to sell their units on a dime, should they ever need to, rather than pay hefty penalties for breaking fixed terms.
However, with variable rates the highest they’ve been in nearly two decades, investors are trying to offload their properties, but there aren’t many buyers.
According to the Building Industry and Land Development Association (BILD), there were only 287 condominium apartment —which include low-, medium- and high-rise buildings, stacked townhouses and lofts — sales in July, plunging by 67 year-over-year and 81 per cent from the 10-year average.
“This can prove a little bit stressful for many homeowners, especially those who are looking to list their properties,” Zlatkin said.
New condo listings surged by 36.5 per cent year-over-year in Q2 to 16,917, vastly outstripping sales, which fell by 19.8 per cent year-over-year to 5,474. But that only resulted in a nominal price decline of 1.2 per cent to $729,005.
Demand hasn’t dried up, says Daniel Johanis, owner of Pekoe Mortgages — it’s shifted west.
“There’s a lot of interprovincial investment happening — people in Ontario, especially the GTA, are buying in Calgary and Edmonton,” he said.
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