Condo investment returns in this city are struggling

As a new report highlights the increasingly low returns of investing in a Calgary condo, experts are divided on whether it is a wise investment choice, pointing to flaws in the report's calculation methods.

“The comparison only used market values and did not account for a real estate investment model, which factors in the actual cash investment or down payment and the return on the actual investment with a tenant covering the carrying costs,” said Susanita De Diego, owner/broker at Coldwell Banker Complete Real Estate in Calgary.

“In my opinion, [once these factors are included] it clearly makes an actual purchase a much better investment.”

The new report, by RBC Capital Markets, compares the returns of investing in a Calgary-based Real Estate Investment Trust to investing in a city condo.

Between 2008 and 2014, the REIT returned eight per cent, while condos delivered just 1.7 per cent, according to the report. On an average annual basis, the REIT returned 9.4 per cent with condos at 4.6 per cent.

“Unquestionably, the sharp decline in oil prices since mid-2014 has had a negative impact on housing prices, but the impact to [the REIT] has been greater and swifter,” stated the report.

“We believe this is because the capital markets almost always move faster through the housing market. In our view, this sets the stage for outperformance of an investment in [the REIT] over a Calgary condo.”

Tim Mangat, an investor and agent at CIR Realtor in Calgary, agrees with the report. "Currently, Calgary is saturated with condos and lots of good deals, but they are still not good investments," he said.

“The price of investment homes is still less than $400 per square foot, which is what lower-end condos sell for,” he said. “So purchasing a single-family home in Calgary will get you a much better rate of return.”

But Richard Fraser, a condo specialist and agent at The Fraser Group in the city, believes that investment in the condo market in Calgary remains a smart decision.

“When oil prices are stable the buying power is very strong in the Calgary market, which will cause the condo and single-family inventory to drop quickly, returning an upward pressure on prices," he added.

"While oil was in the low $40 range the market was at nearly a standstill; however, with prices seeming to stabilize in the mid to low 50s there has been a promising rise in activity over the past few weeks."

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