Investing in New Condos Increasingly Popular as Home Prices Rise

March 1, 2014 Updated: March 1, 2014

Toronto—Currently, Mark Cohen is a principal at The Condo Store, but he gained experience working for names like Bramalea Limited, Menkes Developments, Concord Adex Developments, and Tribute Communities. 

As a VP of Concord Adex during the early days of City Place, Cohen was there in 1998 at the beginning of a paradigm shift that is still in motion—buyers are priced out of ground-based homes and as a result condos are picking up the slack.

“I think we’re entering the 16th year in a 7-year cycle,” jokes Cohen, something Central 1 Credit Union economist Helmut Pastrick recently affirmed in his December forecast for 2014 and beyond.

“Housing in Toronto is expensive but not overvalued, especially from a long-term perspective,” Pastrick said. “Today’s record high prices will seem inexpensive in 25 years. Housing affordability will worsen with the price-to-income ratio rising in coming years.”

We hear a lot about the effect of high prices on end-users, but will investors who buy houses and rent them out turn to condos as an affordable alternative?

According to RealNet, the spread between house price and condo price will continue to increase. The cost of borrowing may rise slightly, but will also remain fairly stable. The vacancy rate for rental will remain quite low, making an investment condo in a good area easy to rent out. If the down payment is large enough, rental income should cover the mortgage payments, with potential for a little extra each month.

Besides dollars and cents, condos are easier to maintain. “Not much goes wrong,” said Cohen. 

New units are structurally warrantied for seven years under Tarion, and the finishes are warrantied for a year at least. The appliances are all new, as are the systems. Small issues go straight to the concierge, not to you.

“When there is a maintenance issue with a house it’s usually a big one. … Condos are really turnkey,” Cohen said.

People are paying attention, and condo sales for Q4 of 2013 saw a marked increase. “It’s not just the savvy investors—it’s people from all over,” Cohen said.

The biggest benefits accrue when you buy early in the pre-construction stage. Cohen offers us an example of a project for which he is currently handling the assignment sales. 

Allegra, a project in Woodbridge by Nova Trimax, was launched in 2011. Units that sold pre-construction for $225,000 are now being assigned at $275,000. If a down payment of $33,000 is put on the unit, the unit appreciates by $50,000. That certainly is an excellent return.