Investors cashing in on condo rental surge

Strong rental demand is the primary reason supply won’t outpace demand for long in Vancouver and Toronto, where condo vacancy rates are just 1.3 per cent. This trend, in fact, is driving investor demand.

“Severe (property) pricing pressure is driving numerous individuals and families to rent, instead of buying,” reads a new report from HQ Realty Services, a real estate services company specializing in rental apartment building sales.

HQ’s David Goodman projects an incoming “rent increase tsunami” with more landlords hiking the rents to better reflect market value.

Investors have an opportunity to cash in on people who can’t afford homes or those who have downsized and moved into the downtown core, specifically condos for boomers, millennials and immigrants.

In Toronto, unsold inventory, meanwhile, fell 13 per cent year-over-year to 17,709 units across all development stages. Completed unabsorbed inventory fell to 1,425 units at the end of June, down from a high of 1,647 in March.

The same can be said for Vancouver, where $1 million for a detached home has all but destroyed the hopes of many from being able to become homeowners in the city.

Goodman and his partner and son, Mark Goodman, have been monitoring rent increases in the past year and have noticed “sizable rent increases, of 10 to 20 per cent, are regularly occurring on turnover. Is this an aberration, or a harbinger of things to come?”

While the province has been limiting rental increases for existing tenants in Vancouver to inflation plus two per cent, the government did allow for a maximum increase of 2.5 per cent in 2015.

With rental pools becoming larger in both cities, and population growth and immigration fuelling demand, landlords are looking to cash in on the opportunity to elevate rents when new tenants come in.

As a result, the demand among those who wish to both own and occupy has been weaker, largely because non-investors don’t believe they will see the appropriate level of price appreciation down the line.

“In all rental groups there’s still a lingering level of skepticism for the market,” Shaun Hildebrand of Urbanation said in a recent article in the National Post.

“Despite its strong performances and resilience, I think there’s a level of worry over whether or not it’s a wise financial decision to invest in the condo market and purchase.”

That decision from many consumers is drawing investors who can afford the risk to capitalize on strong rental demand in Vancouver and Toronto.

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