Rumours of the imminent collapse of the Toronto condo market have circulated for years, but, so far at least, have proven to be exaggerated. That's saying something, considering how many hundreds of new units go on the market each month throughout the GTA. On top of that, there are many more that return to the market as resale units. Yet somehow, for the time being at least, the demand seems to have kept pace. How is this possible?
Well, many of those units are being bought not as homes, but as investments. On the surface, a condo may seem like a sound investment: preconstruction prices are usually a bargain, and it's an easier way to get into the Toronto real estate market than buying a house. Condos aren't rising in value at quite the same rate as detached houses, but for the most part they have roughly held steady. (September figures from RealNet Canada Inc. offer a snapshot of the volatile Toronto market: newbuild home prices rose a whopping 18 per cent, while the price of condo units went down two per cent.)
If a unit's carrying costs (including the maintenance fee) are lower than the rent it produces, it can be a source of income. Certainly the rental market is very active: Urbanation says condo rentals grew by 18 per cent year over year as of October, representing a vacancy rate of just 0.6 per cent, compared to an overall city vacancy rate of 1.7 per cent, though average rent remained nearly flat.
What makes a good investment building? Especially in Toronto, where home ownership has always been something of a rite of passage into adulthood, renters have tended to be younger, single and less affluent; they may work downtown and usually do not own a car. Public transportation, particularly subways, is therefore paramount. Traditionally, that has meant downtown, but according to Larry Blankenstein of Lash Group of Companies, it may not stay that way.
"Investment buildings are, basically, based on affordability, and the farther out from the core they are, the more affordable they tend to be," he observes. "But as long as it is near a subway, it will be of interest (to a renter)."
Generally speaking, buildings that are attractive to investors tend to have fewer amenities and perks, and to be smaller.
"Investors don't want to carry a lot of maintenance in their units; they want to spend their money wisely," Blankenstein points out. However, nofrills, Spartan designs are not necessarily the answer. "We try to look at which amenities people will actually use. One example is an exercise room; it's a fairly low maintenance item, so it's a popular option. Another is party rooms; these are things that are frequently used by residents, so we will generally include them."
Surprisingly, the cuttingedge Modernist design of some urban condos, often marketed to appeal to the tastes of hip young singles, has a practical aspect for an investor, says Amy Wang of H&W Development, whose latest project is Fontana Markham, a 692unit combination townhome and condo community in MarkhamUnionville. "A lot of investment units are modern in design, because not only is it less expensive to build in Modernist style, but it's often lowermaintenance," she observes. "For a unit that may be turning over more frequently, buyers want to keep down the cost of 'refreshing' it between tenants, and modern design is good for that."
The cachet of a neighbourhood is another consideration both for investors and end users. For example, The Barrington, shortly about to commence construction in the St. Clair/Bathurst area, is a prime example of a neighbourhood condo with what might be termed "urbanhip potential." The area around this intersection, and west, has been undergoing a revitalization that started about ten years ago when the Wychwood Barns opened a few blocks away. A number of chic buildings are in various states of completion along this strip of St. Clair; it may well become the YongeEglinton singles' mecca of the future.
To appeal to both markets, The Barrington (a coventure between The Goldman Group and Lash Group of Companies) has a mix of units that range from investor and entrylevelfriendly smaller units, to larger, quite luxurious suites with multiple balconies and attractive views.
With a building aimed at endusers, the developer may have conducted more extensive research into the type of buyer a project is likely to attract, and the focus may be more finely tuned to a specific audience, such as neighbourhood residents. That was the case with Tazyia Lakkotrypis, who was one of the first to buy into the On The Danforth development.
"I've always been a house person, actually," Lakkotrypis explains. "I feel like On The Danforth was designed for me; it's in the same neighbourhood, a small building with only 135 units, and at 815 square feet with a 525squarefoot terrace, it's a good size. I love to barbecue, and I have a big fat Greek family! So it's nice having a kitchen that faces right out on the terrace that can take the overflow when family comes over."
According to Amy Wang, developments like the Fontana Markham are designed to appeal to an audience that ranges from millennials to downsizers to families with kids, with larger units that start at 700 square feet for a oneplusden, and move up from there. "One thing we have discovered was an interest in multigenerational living; one way to cater to that is with townhomes with two storeys, and a groundfloor bedroom and bath. But it also has access to parking and public spaces basically right out the back door."
Bryan Walchuk and Melanie Recel are a typical example of this kind of enduser buyer. Former Toronto condo owners, they recently upsized to a townhouse in Branthaven's Oakvillage development in Oakville. "We originally wanted to buy a house in Toronto, but after bidding on six houses, we decided to look outside of the city," says Walchuk. "We are looking to put down some roots, so schools, community centres and so on were very high on our list."
Ultimately, the line between what makes a great investor building and what makes a great home may become increasingly blurred, or at least more complicated. The main attractions of a condo purchased to rent out low maintenance (including low maintenance fees), fewer amenities, proximity to public transportation, unfussy design also make them attractive to a young, firsttime purchaser, and can help sell out a building quickly.
But as the market continues to get more and more crowded, it's how you differentiate yourself that matters, and increasingly this means taking a more nuanced view of who's buying. Whether it's an empty nester who wants to stay close to the grandkids, or an upwardly mobile single wanting to walk to work and local hotspots, a building that is tuned to a specific demographic may be the best investment in the long run.