Size matters when it comes to mortgaging micro condos

Size does matter, apparently, when it comes to micro condos – specifically, when it comes to mortgaging one of these mini units. Popular in densely populated cities in Japan, and even in New York, these units that measure 500 sq. ft. or less are slowly growing market share in Canada.A micro condo with a mini mortgage may appeal to some buyers, notably young professionals who want to live in the downtown core. Bankers, on the other hand, see the issue a little differently. Lenders such as Scotiabank and TD reportedly have policies that restrict mortgages for units of less than 600 sq. ft.“Lenders are hesitant about these units, as many are not familiar with this type of asset,” says James Laird of CanWise Financial. “They continue to look at the asset and assess each (application) on a case-by-case analysis. For example, if it is a project that has sold out – or is near to selling out – and in a good part of the city, lenders will be more inclined to finance it.”“If a buyer walks into some banks and just asks for a mortgage on a micro condo, without knowing these individual restrictions, they could be denied straight away,” says Laird. “Only an experienced mortgage broker will know which lenders are more open to lending on these units.”As these condos become more popular, lenders are likely to relax their restrictions, Laird says. The industry is trending in the direction of smaller unit sizes, to address buyer demands for more affordable options. Smaller units mean lower prices.“Ten years ago, the average size of a condo was 800 to 900 square feet. Five years ago, the average was 500 to 800 square feet. But now those same units cost between $650,000 and $700,000 (in Toronto),” says Roy Bhandari from TalkCondo, a realty firm specializing in pre-construction condos. “Not everyone can afford this size of units, so developers started building condos to match the budgets and lifestyles of new buyers.”Developers are also being creative with their designs, Bhandari says. Micro condos typically offer features that maximize space, such as built-in closets and integrated appliances such as combination washer and dryer.With some micro condos starting at just $220,000, the price tag appeals to young buyers. Many of them prefer location and proximity to amenities over space. Smaller units also mean lower condo fees, further addressing the affordability concern.“These smaller units are not a passing trend," says Bhandari, adding that they may soon become the ‘norm’ in major Canadian cities. Consumer demand, then, may cause more lenders to loosen their financing restrictions on micro condos.Related readingCompact spaces make big waves among lenders, investors