Unprecedented gains in the Toronto condo market

Recently, I’ve witnessed unprecedented gains in the condo market, particularly with condos below the $500K mark. It seems that they could be the bastion of hope for those on a smaller budget.

Condo market in Toronto

Recently, I’ve seen a 500+ sq. ft. condo listed for $408K at Bathurst & Bloor end up with 18 offers and sell for $509K on offer night. Another condo in the Dupont & Lansdowne area listed for $441K sold for $500k after 3 offers on offer night. The spectacular thing about that condo was that the status certificate (financials of the building) was not available and the buyer removed their status certificate condition in order to make their deal go firm that night.

I regularly tell clients to make sure that their lawyer has reviewed the status certificate and to never waive that condition, unless they live in the building and are already familiar with the building’s financials. Unfortunately, seeing a great condo doesn’t really give us any insight into what’s under the hood, so to speak. The status certificate contains the financials of the building, balance sheet, income statement, financials of the reserve fund, how much is in the reserve fund and how much should be in the reserve fund. If there is a difference between how much is in the reserve fund and how much should be in the reserve fund, then a special assessment could be needed. Special assessment is when the board of directors decide that each owner needs to pay the condo corporation an additional amount (e.g. $2,000, $5,000, $25,000 or more) on top of their regular maintenance fees to ensure that all of the necessary repairs on a building can be done.

Recently, a friend told me about how shocked she was to find out in a condo that she owned and was renting out that all of a sudden a $25,000 special assessment fee had been imposed on all owners. She had to pull it out of her line of credit because she didn’t have a spare $25,000 hanging around.

So the fear of a special assessment is a real thing that prospective buyers should be concerned about.

As the condo market climbs, it’s important for buyers to not lose their heads by removing a status condition. But it’s also important for buyers to remember that as the prices climb, this is the new normal and there will not be any deals to be had in this market. In 2017, we saw the condo market in Toronto increase by 20%-35% depending on what building you were looking at. The increase was partly fueled by the stress test that the government imposed in October 2016. Everyone putting a down payment of 20% or less would face an additional stress test when qualifying for a mortgage. What this means is that the lender will evaluate their ability to qualify for a mortgage based on a higher 5-year fixed rate against a 3-year fixed rate or a variable rate which would be cheaper. If evaluated at a 3 year rate, they would have the ability to get a larger mortgage. Evaluating people at a 5-year fixed rate inevitably means that they would be qualified to spend less.

Many buyers were forced to spend less money on their mortgage during Fall of 2016. Which forced them to turn to the condo market as opposed to the more expensive housing market. Hence the reason for the sharp price increases in condos in 2017. In addition, the number of condo buildings completed by developers had gone down. It was the perfect storm to see sharp increases in the condo market.

In January of 2018, the government imposed a new stress test. This would affects the ones putting down more than 20% mortgage. Thus a new group of buyers have been pushed down from the housing market and into the condo market. Coupled with a scarcity of condo listings in January, February and March, it’s the perfect storm for another year of sharp increases. Buyers will try their hardest to grab onto any kind of affordable condo that they can find in Toronto.

I’m seeing it with almost every condo listing. A starting price of $500K in the west of the city, and after 10 offers, a sale price of $615,000. I remember seeing this happen in years past in the housing market. I kept thinking that it was an anomaly with a particular house until it finally dawned on me that this is the new norm. It is that time now for the condo market. The huge price swing is the new norm and it’s just March.

Recently elected Ontario PC Leader, Doug Ford, has stated that he plans on removing the Foreign  Buyer’s tax if he gets elected as the premier of Ontario. If he does remove the Foreign Buyer’s tax in Ontario, then condo sellers will be in for more price gains and condo buyers will be in for more competition. So judge your strategy accordingly depending on which side of the fence you’re on.

If I were a condo buyer, I’d be buying something now.

I am an owner of an investment condo. I will be putting my own place on the market soon to take advantage of the demand right now. It wouldn’t be wise to wait a few months to see what happens with the market.

Here’s a quick video of me explaining what’s happening with Toronto’s condo market right now.

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