The condo market is confusing, no argument there. All the talk in the media of market corrections and rising mortgage rates can be discouraging to a buyer. So what do you do? How do you know whether you’re making a sound investment? I can tell you that a condo is still a good investment in Toronto, but you have to be smart about it. So if you’re considering making the big move to owning, but you’re afraid that you’ll be spending a fortune on a property that might bottom out in a year, here are a few tips to navigate the market and help you make a savvy investment.
1. A Credit Union Might Be a Good Alternative
The federal government has been applying a number of restrictions making it more difficult to acquire a mortgage, especially for first-time buyers and self-employed buyers. Although these restrictions keep the lenders from over lending, sending the housing market on a down spiral, unfortunately for the buyers it might take longer to purchase a property. The good news is that although Credit Unions’ interest rates are often higher than banks and charge a small fee to join, there are less lending restrictions as Credit Unions are exempt from many conditions that apply to the federally regulated lenders.
2. What to Buy – New or Resale
I’m not a big proponent of buying pre-construction, especially in this supply-heavy market. However, since it takes about 3 years on average for a condo development to reach occupancy stage, this provides buyers with time to save up for a unit that might be out of reach in the resale market. If you like the idea of a brand new, never lived in condo unit, an opportunity to pick your finishes and having time on your side, buying new might be the way to go. But there are some downsides, too. Toronto units are shrinking. A one-bedroom unit under 500sq.ft. is no longer a space planning case study we read about in an NYC design magazine, it’s reality. Older condo units, 5 years and older, often offer more square footage for your buck, if you’re willing to forgo the designer furniture and the commissioned art installation in the lobby.
3. Don’t Fall For The Sparkle of Low Fees
As with anything, when maintenance fees are too good to be true, it’s usually a marketing gimmick. Of course, maintenance fees vary depending on the building amenities, size, and age. Older buildings may be dealing with major repairs that are reflected in the higher maintenance fees. But often units in those buildings will cost significantly less than units in the comparable building next door. Typically new buildings’ fees range around $0.50/per sq.ft. and shouldn’t rise much faster than the rate of inflation. If you’re considering buying Pre-Construction, be wary of developers advertising “estimated” maintenance fees well under $0.50/per sq.ft. which typically rise 50% within the first few years after occupancy.
4. Dig Deep Into Maintenance Fees
When condo bidding wars were common in the Toronto condo market, buyers tried to get a leg up on the competition with unconditional purchase offers. For the most part those days are gone, but I have seen this happen recently a few times. Typically, and especially for first time buyers, I would advise against it. Among various other conditions in a purchase offer, be sure to include a condition that allows your lawyer to review the building’s status certificate. A status certificate is a snap shot of what is happening in the condo – financial stability, existing litigations against the condo, reserve fund and special assessments, if any. And if your lawyer spots issues, you want the option to withdraw your offer. Not taking advantage of this condition may cost you thousands down the road and potentially affect the resale value of your property.
5. It’s All About Transit and Walkability
Best locations to buy in Toronto always come down to transit access and walkability. Increasing number of listings include walkability score to attract buyers. Whether you’re looking to sell or rent, a neighbourhood with good TTC access, near restaurants, shops and parks will keep your condo desirable even in a cool market. Remember that condo renters want the same things as condo owners in terms of location and accessibility.