Particularly if you’re in the market for your first real estate investment, you have to wonder — and worry — about the Canadian condo market. Are condos still a good buy?
Condominiums have become the most sensible way to get into the market for first-time home buyers. They’re more affordable than detached homes and, as a bonus, they require a whole lot less maintenance. Many are situated in hip, downtown neighbourhoods that allow you to even walk to work.
Across the country, supplies of new condos are up, but sales are down. That means the market is going soft and could be headed for a major tumble. Will it happen?
The Toronto Condo Market
Toronto’s condo market is the largest in North America. In August, 633 new condos were sold in the GTA, down 18 per cent from the same month in 2012 and the worst sales numbers in a decade.
The supply and demand imbalance in the city is likely to continue with estimates saying there are 55,000 condo units under construction in the GTA, about 25,000 of which will be completed in 2013 and the rest later on. The Toronto condo market 2013 still has lot of supply to work through for fewer buyers.
The Good News?
While those numbers look worrisome, a recent report by the Conference Board of Canada predicts that the Canadian condo market will recover. The report suggests the national market is set to get a small correction, as many cities such as Toronto, Ottawa and Montreal are becoming overbuilt. But the group predicts that good employment and immigration numbers over the next few years in big Canadian cities will fuel demand for condos and there will be no crash.
Why Are Condo Sales Down?
Last year, the government brought in strict new rules regarding first-time home buyers. There are no longer 30-year amortizations, and other rules that make it harder to get a mortgage or a refinancing. Read more about these new rules here. Meanwhile, Canada’s housing market overall has been on a tear for the last decade or so with prices skyrocketing, so generally speaking our housing market might be due for a corrections. Add to that the realization by many real estate developers that building condos is a lucrative market.
The Bottom Line For Buyers
For first-time home buyers such as single people, young couples and new immigrants, condos offer an appealing, affordable choice — that’s not going to change in coming years. But as our cities become heavily saturated with condos, some will inevitably fall out of favour while other developments will hold their value long term. Here are some tips for selecting a condo that will have staying power:
1. Consider a resale condo with more square footage than a fancy new build. You can upgrade the kitchen and put down nice tiles in the bathroom, but you can never create closets where there are none.
2. Research the condo by looking at its “status certificate,” which will tell you all that’s going on, including lawsuits, big repairs and the like. If things are messy at the condo, walk away.
3. Be wary of perks at a new build. If the developer is willing to throw in parking, a storage locker and upgrades for free, find out why. Could be there’s a cash problem and your dream condo won’t be ready for years and years.
4. Buy close to transit. No matter what, access to buses or subways will ensure your unit stays valuable over time.
So you want to buy a condo? If it’s a great option for you, chances are it’s a great option for others too and condos will remain a smart way to get into the Canadian real estate market for years to come.