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Toronto’s Parkdale neighborhood might be getting a new addition in the form of a brand new affordable infill.
According to a report by Urbanation and CIBC Capital Markets, Toronto’s condo investment market is experiencing a significant transition as rising interest rates result in negative cash flow for the majority of investors. In 2022, only 48% of newly built condominiums will generate positive cash flow, a decrease from 56% in 2021 and 60% in 2020. This demonstrates that the investors’ rental income was insufficient to cover mortgage costs, condo fees, and property taxes. This is highlighted in the report as a significant change that may indicate a transition in investor behavior.
The decline in cash flow is attributable to rising interest rates and subsequent increases in mortgage costs, which in 2022 were sufficient to counterbalance the increase in rents. Three-quarters of condos used as rentals had a mortgage. The change in financial flow has been significant, with investors losing an average of $223 per month in 2022 compared to earning an average of $63 per month in 2020. By the first quarter of 2023, the average investor would be short $400 per month. Some investors suffered monthly losses of $1,000 or more, causing concern for their future investments.
The situation is anticipated to deteriorate as a large number of pre-sold, high-priced condominiums attain completion in an environment with higher interest rates than when they were sold. Although a decline in interest rates and potential rent increases may mitigate the impact, it is unlikely that they will completely reverse the investors’ financial difficulties. As a result, the report suggests that investors may become less willing or able to purchase pre-sale condos, which could result in a decrease in the demand for new condos, construction, deliveries, and rental supply.
In Toronto’s housing market, rental investors play a significant role, accounting for 39% of the total condo stock and 59% of units erected within the past five years. The report highlights the critical significance of investor demand for the overall supply outlook, stating that if investors do not purchase, builders will not construct. Even though there are a record number of 101,000 condo units currently under construction in the Greater Toronto Area, the report suggests that more purpose-built rental projects are required to resolve the market’s ongoing supply-demand mismatch.
Source: https://storeys.com/toronot-condo-investors-losing-money/
According to a report by Urbanation and CIBC Capital Markets, Toronto’s condo investment market is experiencing a significant transition as rising interest rates result in negative cash flow for the majority of investors.