What is the best condo unit to buy?

In mid-November, I had the pleasure of presenting the latest market data and statistics to a small industry group at BILD’s educational summit event. The Building Industry and Land Development Association (BILD) is the voice of the home building, land development and professional renovation industry in the Greater Toronto Area and has over 1,500 members. I spoke to the crowd about the demographics driving the industry, including the Baby Boomers trading down to smaller single-family homes, and buying luxury apartments. I also spoke about Millennials, which include first-time homebuyers, and move-up buyers looking to accommodate a growing family.

Despite the shifting demographics, rising prices, and changing preferences, I showed that the unit mix of popular floorplans for new Toronto condominiums was virtually unchanged from 2018 to 2019. I found this very strange, as price growth has not been consistent across new condominiums by bedroom type. Asking prices for new studio apartments are up 23per cent annually in the City of Toronto, while one-bedroom-plus-den suites are up 19 per cent. On the other hand, growth for two-bedroom-plus-den units was just two per cent year-over-year in October. When looking at year-to-date figures, the average price for suites from 300 to 400 sq. ft. are up 34 per cent annually and suites from 400 to 500 sq. ft. are up 25 per cent. Yet builders are not programming more of these micro suites than they did last year.

Let’s be honest; most people don’t want to live in a 350-sq.-ft. unit, but as an investment it can be a very desirable option. The price is obviously much lower than other unit types, and because the price is inexpensive, more people can qualify to buy it in the resale market when you decide to ultimately sell it. Just because you wouldn’t want to live in it, doesn’t mean a person just starting out would not want to.

Some tenants and first-time buyers just want access to the city. They live in the neighbourhood first, and their unit second. The trade off of living in a tiny new condo is everything is new, the appliances are stainless steel, the countertop is granite, the ceiling is high, and the building has all the new bells and whistles. A tenant or young buyer will take into consideration the money they’re saving by having a state-of-the-art gym, a theatre, and most importantly these days, a co-working space!

It might not be their forever home, but it’s a good place to start out. And it might be a great investment, too.

There is no doubt in my mind that part of the reason that developers haven’t programmed more studios is cost related, as they need more kitchens, more bathrooms, more front doors for three 300-sq.-ft. units, in comparison to a 900-sq.-ft. open-concept, two-bedroom-plus-den unit. The other factor is the planning process and public consultation that tries to shame developers into building larger units (which cost more!) and projecting their desires and preferences on a building they’ll never step foot in. If someone wants to live in 350 sq. ft., that’s their business. They have the choice of a larger and less luxurious unit in an older project, or a brand-new small unit.

With all this said, I really haven’t answered the question posed in the title of this article. Price appreciation has been greatest for the smallest units, so if you’re concerned about price growth, studios and one-bedroom suites might be the way to go, as affordability worsens, having a less expensive unit opens the market up to a wider range of future buyers and tenants.

However, the latest data from the Rentals.ca National Rent Report shows that the highest rent growth in Canada went to two-bedroom suites. If you’re an investor looking to hold for 10-20 years, two- bedroom suites have historically been the most popular rental units in most markets across the country. If you’re reasonable with your rent request, you shouldn’t have trouble finding tenants.

If you’re in the market for a new home for yourself or as an investor, do your research on the area, the builder, and the market. Most importantly, surround yourself with a team of experts, including a realtor that specializes in the new-home market, a mortgage broker, and a lawyer. Lastly, buy what you can afford, and only buy for the long term. Good luck.