Look up... look way up and you're bound to see a big construction crane towering in the midst of downtown Toronto, Canada. It’s not a novel sight. For some years now the residents of the city have grown accustomed to seeing the metal hulks looming overhead, bringing dramatic changes to the streets as new condominium apartment towers continue to multiply in leaps and bounds. There seems to be no end in sight to the construction despite occasional dips in market demand for condo units.
CBC News reports that Toronto is now a mecca for so-called Millennials who through condo living wish to embrace the big city, downtown lifestyle. It’s estimated that about a quarter of a million condo units now exist in the city’s core, many of them set amidst what once was an industrial wasteland along the shores of Lake Ontario. In the past decade alone, 1,300 condo buildings have materialized in the place that I call home. It’s a construction craze unprecedented in North American history, market analysts say.
But concerns about the condo craze also are growing.
Condo developers are coming under fire for putting profit before people. Increasingly, everyday folks who go deeply into debt to purchase condominiums are voicing anger about misleading condo sales pitches, inscrutable contracts, broken promises, and buildings that are falling to pieces as a result of shoddy workmanship. Ontario Government policies designed to slow urban sprawl - by encouraging condo development through business and tax incentives - are being blamed for much of the trouble. Critics maintain the policies have set the basis for a market chock full of “investment plays” by developers and foreign investors who really could care less about creating quality alternative housing. They treat the condos like commodities promising to bring a quick buck. Property flips, bulk buying of units, tax dodges and other financial tricks figure into the picture. Last November the CBC ’s The Doc Zone presented a very interesting and comprehensive documentary called The Condo Game which covers issues touched on in this blog and much more besides in relation to the whole condo phenomenon. If you missed the program then I urge you to watch it and provide us with your thoughts in the comments below.
In addition to troubling industry issues – and particularly in this time of low interest rates - I think that many condo buyers are perhaps looking before they leap in relation to longer-term personal money management issues. Already there are rumblings in Canada that the days of cheap credit (and cheap mortgages) will soon be over. When that moment comes, we can expect the condo boom to seriously falter, and along with it a market once full of investment promise for honest buyers. At the same time, a number of Canadians will likely have to come to grips with monthly household budgets that are not so easily managed. Let’s just remember, Bank of Canada policymakers warned as recently as last December that many Canadians would be unable to withstand a sudden spike in interest rates that raise debt services charges, which of course could lead to a sharp correction in home prices.
Given the outlook, I foresee a time when many of today’s condo buyers could end up seeking debt management help through the professional credit counselling and financial coaching programs we offer at Credit Canada.
That day could come sooner than we realize. But for the time being it’s generally business as usual in the realm of condo hopes and dreams. Again according to CBC News, even with a slight dip in sales over the past year, condo construction continues apace along with rising unit prices, which were up 9.7 per cent over 2013. Today, average record condo prices hover in the $440,000 range, which only seems high until you compare the figure to average low-rise home prices in Toronto, which hover in the range of $660,000. Eight years ago, both a low-rise and a high-rise property could have been purchased for $660,000, according to a BMO Nesbitt Burns analyst.
For any would-be condo owner who’s looking for a home rather than just an opportunity for an “investment play”, I think the bottom line is knowing fully what you are getting yourself into, particularly in relation to condo developers, contracts, promises, and the future security of your personal finances. To this end, I’ve discovered a link through styleathome.com that may be of interest. It features 25 condo buying tips – including sound financial advice - from industry insider Kathy Monahan, a Canadian realty agent who has been helping people buy and sell condos for almost 30 years: 25 Tips For Those Buying A Condo
Put it this way in terms of condos: before opening new doors, do your best to determine where they might lead.