Rising Condo Prices In Toronto: A Threat To Investors
An alarming headline from The Star, Toronto read– “Condo prices are set to put many investors in the red as rents fail to meet carrying costs, experts warn.” This alarming headline in the Toronto Star has put investors in doubt with their condo investments.
Although there is no shortage of people willing to invest, there are majorly two categories of investors. The two categories are ‘mom and pop investors’ and ‘retirement investors.’ The first category of investors looks at the condominium rental units as insurance for their offspring against the ever more exorbitant property in Toronto. These people are securing their children’s future by viewing their condo investments as future cushions. The retirement investors, on the other hand, look at the condo investments as a part of their pension plan. They invest in condos so that it can provide for regular money inflow, similar to a pension during retirement.
How does the report affect the future scenario of Condo rental?
You must be wondering how the report will affect the pricing pattern. According to the report published by The Star, rent prices collected will not be able to cover the carrying costs of owning a condo. Well, the biggest expense when it comes to owning a condo is the mortgage payment. Mortgage payment has two parts, principal and interest. The article gives a warning against the twenty-five percent down payment and three-point-five percent interest rate.
If you are worried about these overwhelming prices, you must consider a thirty-five percent minimum for the down payment. At least, this way, your principal will be paid off even though you’ll have to chip in a couple of hundreds extra for your running costs.
Does this mean the condo investment space is dying? No. Several developments are coming up in the rental market in Toronto, and condos are here to stay.
Should you invest in Condos?
Canada has been named as the world’s second-best country according to the “US News and World” report. In comparison to the rental yield, Toronto stands at 3.91%, and Geneva in Switzerland stands at 3.33%.
There are more factors to consider when seeing condos as investments like appreciation, entry price, and country stability. Initially, when we spoke about the two types of investors, the country stability makes a huge factor in their condo investments. The mom and pop investors do not care about the rental yield. They prefer the option of the second-best country in the world for their children’s future. As for the retirement investors, they prefer stability concerning the country, and there is none better than Canada.
Shaun Hildebrand, President of market research firm Urbanation, told The Star that there is a “big shift” in the investor demands. The buyer’s needs are shifting to smaller spaces like studios and micro-units, as they are under $2000 a month. This shift will affect the condo investment space as people prefer to move downtown to cheaper living accommodations. Older buildings also provide the same comfort of a cheaper alternative to the condos in terms of price point.
Future scope of condo rental in Toronto
Real estate experts have the foresight that the investment scene is bound to shift in the next five years. This shift is largely because the cost of condos in Toronto keeps increasing while the tenants struggle to pay.
Average millennials cannot even afford the current average housing in Toronto, which sits at triple, so it doesn’t matter much anyway. The rising prices are a result of the ever-growing demand for condominium places in Toronto. Zoocasa, a leading real estate listing provider in Canada, predicts the mortgage rates to remain cheap as we step into this new decade.
Toronto is outnumbering Chicago in the number of skyscrapers. This will, in turn, increase the already rapid growth of the condo market. There will be more condos in Toronto nearing completion and ready for occupancy in 2020 than in the past two decades. Although there is a warning set out, it will marginally affect the buying market. The running costs are easier to cover up with a higher down payment.
To sum it up!
The condo market is investors’ dream in Toronto. With the high demand for condos, owners are renting their space to cover up the principal and bring in more money.
The government’s “First-Time Home Buyer Incentive” may also see some changes to facilitate easy buying schemes of condos in Toronto. This scheme makes it easier for people looking for condos to buy one. This will spike the demand for condos in 2020, which is already expected to increase since last year.
With the demand for condos being met by the increase in skyscrapers, the condo market is here to flourish. Although the warning should be taken as a cautionary step, the market for condos will most likely remain stable.
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