Welcome to Part Two of my Overview Of The 2020 Toronto Condo Market And What Lies Ahead. If you missed the initial post, here's Part One of this two-part series, where I reviewed the mitigating factors that shaped the Toronto condo market over the past couple of years, in addition to the impact of the COVID-19 pandemic in 2020, as well as what I anticipate is in store for this market segment. In this installment, I’m here to support Buyers who are toying with the idea of getting into the condo market in the near future, in light of the data and observations gathered in my prior post.
Understanding that we are in turbulent times and the inherent challenges that come when supply and demand are out of whack (as is the case with the condo market at the moment thanks to COVID-19), here are some special considerations for Buyers who are on the dwell hunt.
Advice For Condo Buyers
These criteria can help to mitigate risk as part of an overall strategy and to safeguard against major market fluctuations, whether you are looking to purchase a condominium as an investment or to occupy it personally.
First, choose a unit with an intelligent layout, that has good outdoor space, has elevated or custom finishes, and other rarer to market features like high ceilings, the loft aesthetic, or a protected panoramic view. As an investor or end-user, it has never made sense to determine your purchase price predicated on future or potential value, but rather consider the tried and true proven fundamental of cash flow from income. If you're an end-user, still ensure that your carrying costs are not substantially more than the rent the unit might garner so that you aren't forced to sell if you relocate or cohabitate with a partner.
Low-rise smaller boutique buildings are already deemed more desirable than larger high-rises, simply based on the number of residents using common areas and the risks associated with it. And suites which are closer to ground-level, and accessible by a few flights of stairs are more likely to retain their value. I've also been documenting The Increased Desire For Outdoor Space In Toronto Condos During The Covid-19 Pandemic, so units with terraces where people can socially distance outside will remain coveted moving forward. And while I don't mean to be an alarmist, I would exercise caution if you believe none of this matters now that a vaccine is imminent. After all, should the virus mutate and return in a new incarnation - or the vaccine doesn't protect us from all the potential issues as discussed by Canada's Immunity Task Force on CBC - it will only exacerbate the perception that high-density housing is riskier as a housing type and investment.
Be forward-thinking and cautious by taking into consideration how different housing types will be viewed if the virus were to impact us for longer than anticipated.
• Where Is The Condominium Located?
You’ve heard the mantra “location, location, location”? This is because proximity to lifestyle-enhancing amenities remains a key component of maintaining and growing your home’s asset value. However, in the context of the pandemic, what are considered necessary and enjoyable amenities close to home have shifted during the pandemic.
First, I've long counseled clients to consider purchasing condominiums in neighbourhood settings where there are fewer buildings, and in particular, those located along the Main Streets of Toronto's urban villages. Examples include College Street, Ossington Avenue, St. Clair West, The Danforth, Carlaw Avenue in Leslieville, and Sorauren Avenue in Roncesvalles. Established neighbourhoods with modest numbers of mid-rise buildings remain limited, which means you're more likely to protect the value of your condominium when the likelihood of direct competition is diminished. That's not to say one shouldn't purchase in communities where there are larger concentrations of high-density housing, but it's important to recognize that the resale value of any condominium is dependent on the number of comparable properties for sale in proximity to yours.
Right now, when it comes to amenities in proximity to a building, at the top of Buyers' lists are retailers that sell what's essential, like food, libations, and home necessities for utility and decor. I've also found that proximity to bike lanes and cycling paths, and expansive public green spaces with off-leash dog zones, outdoor farmer's markets, and natural eco-systems where it's easy and accessible to get away from the maddening crowds, is more on the radar of Buyers than pre-pandemic.
• Be Wary of Towers
Looking at the oversupply of condominiums in Toronto, much of the stock can be found right now in high-rise condo buildings, in specific downtown locations, where units have historically been largely investor-owned.
It is these high-rise high-density towers that are most prone to dropping values due to an oversupply of this product, in part because of the City of Toronto policy restrictions on what can be posted on Airbnb (now limited to owner-occupied units as explained in my Dear Urbaneer: So Why Are There New Airbnb Regulations For Toronto?), and because these buildings have higher incidences of COVID-19. These two factors, in particular, have led to the retraction of Mom and Pop investors from the market, plus the decline of first-time buyers actively looking who are less financially secure and more prone to job insecurity.
Did you know there are around 400 of these towers in the original City of Toronto? Check out this great Globe article from 2017 that documents 5 decades of condo growth in 5 map photos, plus view the 3-minute video (with dramatic music!) on Toronto Storeys (created by Point2Homes ) that shows "the evolution of the Toronto skyline starting in 2005 to 2019 and beyond".
• Limited Access
Another factor impacting these buildings is, that with COVID-19 present, most common amenity spaces like swimming pools, roof terraces, lounge areas, and fitness centres are closed in condominium complexes until further notice. With many of the features of these buildings no longer available for use, buyers are expressing resistance to not being able to see the amenity spaces to determine their condition and personal appeal. They're also balking at paying common fees for amenities that are inaccessible, especially when those fees are on the higher side. Also compounding the situation is that the limited number of elevator banks in high-density towers are slow at the best of times - but now they are restricted to only a few occupants for safety - which means long wait-times to get in and out of a building. I'm also aware that some condominium boards have told owners that realtors cannot show any suites for sale or rent, which is legally tenuous but occurring.
What were once selling features for these lifestyle condominiums are now considered liabilities by many, so anticipate a period of time where the residual fear of the pandemic prevents Buyers from attaching the same premium they once did for these kinds of amenities.
• Evaluate The Building As A Whole
More broadly, it's important to be cognizant of the number of suites, and their unit mix, in a large condominium building. The more suites there are of a similar size, layout, and condition in a tower, the more prone a seller's unit can be to value fluctuations. For example, if a 30-storey complex has ten suites per floor, and four of them are one bed + den layouts and you purchase one, your future market value is dependent on the most motivated of sellers of the other 119 units at any given time. This can serve you well when negotiating a purchase but be more problematic when selling. When purchasing a unit in a larger complex, I recommend buying the units which have more desirable qualities, whether that's an unobstructed protected view, a good aspect for natural light, a terrace (some units on lower floors will have terraces on top of a podium portion of a tower), or an intelligent layout. Also, there can be the benefit of purchasing a unit that has been substantially upgraded or one that is tired and ready for elevation, if either has been priced at a discount due to a seller's motivation --> Dear Urbaneer: How Do I Boost The Value Of My Condominium?.
• The Age & Condition Of The Building
Pay attention to when the building you are looking at was built. If you really want a crash course about all the high-rise towers built in the 2000's, check out this tell-all documentary on CBC's Doc Zone called The Condo Game.
This documentary explains how a prominent number of condo towers constructed as production housing for profit - a la CityPlace - were developed over two decades. These investment vehicles were constructed cheaply and have been used mostly as rental units, so the buildings tend not to be as well-maintained or upgraded (though they are legally required to follow the protocol of the Condominium Act 1998 with updates underway since 2012). Furthermore, many buildings constructed in the 1990s have Kitec plumbing, a questionable plumbing material that requires replacement. Some condos have only recently disclosed their presence over the past few years. Here's my post on the subject --> Dear Urbaneer: I’m Buying A Condo – Should I Be Worried About Kitec Plumbing?
• Owner Versus Tenanted Buildings
By and large, I would recommend purchasing in a building that has a greater percentage of owners to tenants, as owners are more invested in the day to day maintenance, their tenure is less transient, and they are more likely to be committed to community-building.
Although there is an obligation of a condominium owner to notify the property management if their unit is being rented, it's not enforced so, therefore, the Status Certificate disclosure on the number of units that are rented can be wildly inaccurate. This was particularly the case with Airbnb rentals which are now prohibited (in case you missed the link above here is it again --> Dear Urbaneer: So Why Are There New Airbnb Regulations For Toronto?).
I do think that owners may also be reluctant to advise the property management firms of any condo that they have rented their suite to reduce any paper trail of it being used as an investment property, so on resale, the Seller can tenuously disclose it as being 'owner-occupied' in order to avoid paying capital gains tax when the property is sold (the Canada Revenue Agency now requires at tax filing disclosure when a property is sold in an effort to find flippers and shadow investors).
Buy For The Long Term
When a real estate market presents challenges, it also presents opportunities. But it's also important to keep in mind the factors that have contributed to the market shift. The Toronto real estate market has long been subject to investor confidence and speculation, such that Toronto condo values no longer align with the basic fundamentals of income to expenses, but instead rely on the notion that its growth in value is what will ultimately generate a profit. With this approach no longer reliable, it implies both investors and end-users need to have all the facts at hand, know which questions to ask as it pertains to their needs and objective, and having a realtor with a particularly critical eye when on the dwell hunt in the context of the current market and in what lies ahead. That’s why a detailed strategy - driven by data and experience - in the real estate trenches is so crucial.
With 28 years of experience in navigating the-at times-choppy waters of Toronto real estate, my team and I are here to help!
Now more than ever, it is essential to plan a well-researched, data-driven, tactical strategy if you are in the market for a condominium. The pandemic has required a shift in focus, which I am happy to help guide you towards as you reach your real estate goals. I’m here to help!
May we be of assistance to you, or someone you love?
Thanks for reading!
-Steve & The Urbaneer Team
Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage - (416) 322-8000
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