The real estate market is faced with a dire conundrum that’s causing the price to shoot up despite falling sales and rising inventory. Are investors also to blame for the negative market trend?
As per new data released by Statistics Canada, nearly 40% of all Toronto condo units are owned by investors. StatsCan reports that 65% of Toronto’s smaller condo units with an area under 600 sq ft. are investment properties. In comparison, only 44% of bigger units with an area over 800 sq. ft. are owned by investors.
Investors hold on to these waiting for better prices – and that might be one of the causes of rising inventory in the market. The prices quoted by the investors are oftentimes beyond what’s anticipated by the customers – and the units are also the desirable ones.
Vancouver is also experiencing similar trends with 58.4% of small units and 38.9% of larger units being owned by investors.
Investors enter into the picture even before the developer breaks ground. Developers seeking investments sell the pre-construction units to investors at a significantly lower price. As per the report, in Toronto and Vancouver, “new condominium apartment projects often rely on presales to investors to be built. Investors buy pre-construction units with the goal of making a profit when the buildings are complete—either by renting them out or by selling the units at a higher price. These pre-construction sales are used by developers to secure financing for the projects. This dynamic means that investor preferences may have an influence on the type of buildings that get built.”
The share of units being used as investment property has risen significantly. It happens because there are profits involved. “A potential explanation for these results is that some large condominium apartment buildings are owned entirely by a single business entity and are run as if they are rental apartment buildings. This phenomenon emerged in part because of tax incentives that used to prevail in some Ontario cities, whereby buildings split into distinct condominium apartments could face lower municipal tax rates than rental buildings. As a result, developers of large apartment buildings would sometimes classify them differently for tax purposes, rather than treat them as a single rental property,” writes StanCan.
