The luxury condo market is a small one, but is it soon to become extinct? Or is the appetite for high-end still enough to keep the cash rolling in?
Reporter: Build it and they will buy. Well some will anyway. The luxury condo market is a small one, but does it seem to be a dead one? We find out in this week’s episode of Investor Insight on CREW TV.
Luxury condos make look pretty, but their cap rates are not too hot. What does the future hold for this market?
Adam Brind, Owner Core Assets Inc., Real Estate Brokerage
Adam Brind: I see that the developers are noticing that the demand is not there anymore. You know we have seen a massive increase in this product in the marketplace, you know but we have not seen that they have been snapped up as quickly as they were before. And I think the biggest reason for that is that people are noticing that the cap rates aren’t there on the rental front. So what’s happened is you know people can go to the market, buy a resale property, same size, same units and get better cap rates, I think that over next 3 or 5 years we might see demand even slow even more for that. I think that people that bought at the head of the market in the last couple of years might be in a bit of trouble as demand slows even further, but you know in the next 5 to 10 years I am fairly bullish on where that market is going. I think that you know, as the rates for housing outpaces the demand, I think that will see those luxury condo units, those bigger condo units become more popular and we will see sales increase.
Reporter: Some believe that as average condos get smaller, the market for bigger units gets stronger.
Erica Smith, Broker of Record, Co-founder of Condo Chicks
Erica Smith: I think right now that we have a lot of concern regarding an abundance of luxury condos on the market, just because it’s that time of the year, what people have to try and understand is that there is always going to be more inventory at certain times of the year. For example there is lot of reconstruction developments that were sold in 2007 - 2008 and they are ready to occupy now, so naturally there will be a surplus of those units on the market. I personally don’t have a fear when it comes to these type of units, because the trend that I see is that, we have a lot of people moving from the suburbs into the city and they are accustomed to larger homes, a 1,000 sq.ft. to 2,000 sq.ft. homes and as we all know condo units are becoming smaller and smaller. Therefore the luxury unit which have a tendency to be 1500 sq.ft. and above are naturally a better fit for those people moving into city.