16 June 2010 ~ 0 Comments

The Future of Rent in Toronto Three Years From Now

I was reading an article the other day that was discussing the high volume of new condo sales during the first quarter of the year (January-March) in and around highly desirable rental (living) neighbourhoods. A little background first. Brand new rental apartment buildings have been a void in Toronto pretty much since the 1970’s and from what I hear was mainly caused by broken promises, higher taxes and the proverbial knife in the back of developers by all levels of politicians (should we be surprised). Condominium development starting springing up in the 1980’s and over the last 6 or 7 years has become an attractive alternative for those looking to rent in trendy locations along with better features (ensuite laundry, underground parking, storage space) and building amenities. With these condos came “new” rental stock that raised the price of rent over traditional 30 year old apartment buildings. Now the spread between old and new was anywhere from $100/month more to several hundreds more and the reasons for were obvious. Now back to the article I was reading. What was being discussed is that with the present high cost of condo units being purchased today by investors (quoted as somewhere around 50% of all sales) would come market rents in the $2,000 per month range for a 1 bedroom condo (which currently can be had for between $1300-$1600 per month without parking) in three years time when these units are built. Alarm bells were going off in my head on many levels in trying to see the logic with this theory. As someone who personally owns rental properties and some of which are condos, I can tell you this is very wishful thinking. Many people have jumped in to the real estate investing market (and many on a whim after watching an infomercial or attending a weekend workshop) with grand illusions of making easy money. After all it must be a good investment if the nice sales person in the builders model suite says it is. Now I’m not blaming builders entirely but lets face it, they are the reason the Fed’s had to step in and change the mortgage rules to help cool the heated housing market (which it has succeeded in doing so). Greed is the real blame here and a more probable scenario will be in three years time there will be a glut of condos flooding the market from misinformed and maybe misguided investors that will stunt price growth and possibly even lower it! Actually something very similar is happening right now albeit probably not as bad due to the lower number of investor units currently for sale across the GTA. I hope I’m wrong because if not we may see rents and values decrease in price which is not good for condo owners and investors alike.

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