Micro condos create financing issues

Micro condos may be one of the biggest Canadian real estate trends on the horizon, but financing continues to be an issue, warns one expert.
 
“The concern is the type of buyers who are interested in these condos," said Chris Molder of the Mortgage Centre in an interview with CREW sister site, MortgageBrokerNews.ca.  

"Many are being marketed as great rental opportunities, and that’s not something that, in case of a downturn in the market, lenders want heavily on their books. Rentals become a bit of a luxury when markets become repressed.”
 
According to the CMHC, condo demand is going to increase as more immigrants flock to larger cities like Toronto and Vancouver. Faced with that demand, many builders are increasingly focusing on maximizing space, which means building lower-priced micro units.
 
However, while the idea of smaller, more affordable units in the city core is attractive to first-time buyers, many are surprised by the lack of options when the time comes for financing.
 
“With these micro condos there hasn’t really been a market established for them in terms of resale, so they have no idea [what the resale market will be like], so lenders are playing it safe to see how it all pans out,” said Molder. “That’s really what I think is happening: No one wants to be a chump. Some lenders are doing it, some aren’t.”
 
The issue isn’t with mortgage insurance, according to Molder, who added that insurers don’t have minimum square footage requirements. It’s the lenders that are shying away.
 
And with fewer lending options out there, micro-condo investors will be forced to pay higher rates.
 
“You don’t always get your first choice lender or the rates you would want,” said Molder. “You just don’t get the flexibility or the options.”

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