“I do think we have a major problem brewing with the current low interest policy,” said Kenny Wong, real estate broker with Tradeworld Realty.
“The value of properties keeps increasing to unsustainable levels and the income ratios do not move in line with earning.”
In short, he argues that most people now jumping on the bandwagon, especially in the low-rise market, will eventually sell these units. That translates into limited upside potential in the long-term and yet there is the challenge of cash flowing newer condo units in the short-term.
Toronto alone has witnessed a significant increase in the amount of rental buildings under construction with more than 45 either being built or planned for neighbourhoods scattered across the city. That figure, at 75 per centt, is a significant increase to what’s been seen over the last decade, according to Urbanation.
In fact, some projects originally slated for condos have now become rental buildings
as developers and investors see more upside for their pocketbooks and maintaining tenants in the long term.
Urbancorp’s Kingsclub condo complex on King Street West and a proposed 49-storey tower at Bloor and Sherbourne called The Selby are examples of building shifts.
With home prices at record levels, demand for rental properties are on the rise while interest in condos wanes for a number of reasons, says Wong.
“Closing costs are a huge issue that’s starting to deter investors,” he said. “I was just looking at a closing statement from a client who purchased a condo in Calgary and the closing cost was a mere $2,000. He was looking at the same size unit at 295 Adelaide Street which cost more than $25,000 to close.”
Despite these factors, the Colliers report highlights a large market for condo rentals, a boon for investors in the market. According to the report, growth near public transit stations on Yonge Street, Bathurst and Highway 7, as well as the development of East Toronto, will lead to significant growth that outweigh negative sentiments from potential renters.
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Strong condo numbers released by Colliers International recently show that investors will soon be in for major profits as prices rise but the outlook isn’t all good, says one industry vet.