Condo investors betting on Toronto market – and winning

When would-be condo investors discuss the idea with a friend or relative, they're often met with disapproving furrowed brows, eye rolls, and head-shaking. There is a lot of skepticism about investing in real estate. Is it really a big gamble?

A lot of people I know like to bet on the condo market in Canada, especially pre-construction highrise projects in Vancouver and Toronto. In the Vancouver CMA over the past 12 months, approximately 7,000 condominium apartments have been completed. In the Toronto CMA, a record high of nearly 28,000 units have completed, and there has been much talk of both markets being over-supplied. Despite this talk, condo investors have continued to buy, and many existing investors still believe the value of their units will continue to go up. A Canada Mortgage and Housing Corp. (CMHC) survey of almost 43,000 condominium owners in those two metro areas revealed that 55 per cent of investors believe the value of their property will increase over the next year. Naysayers might respond by saying: investors tend to be overly optimistic. That is not the case. Sixty per cent of condo owners that live in their units (end-users) also anticipate that their home will appreciate in value over the next 12 months.

Another common hypothesis is that condo investors have less to lose, they are not putting much down and are leveraging themselves through the roof. Many also believe that these investors are in it for the short term, and are more likely to get hurt if the market takes a turn for the worse. The results of the CMHC survey indicate that neither of these theories are correct. Only 36 per cent of condo investors made a down payments of less than 20 per cent on their suite, while 41 per cent of end-users did. Nearly one-quarter of all condo investors have held their unit for over 10 years, and 53 per cent of investors plan to hold their suites for five years or more.

If you are betting on the Toronto condominium market, I would suggest holding the unit for five or more years, and making a down payment of 20 per cent or greater. This approach has worked well for many investors during this current condo boom. These private landlords don’t think the boom is ending in 2015 either. Sixty-four per cent of Toronto condo investors believe the value of their unit will increase over the next year, up from 56 per cent last year. With April condominium resale values up six per cent annually, it looks like folks that have bet on condos have won again.