Photo: James Bombales
Investors make up nearly half of GTA new construction condo sales. But what would it mean for the housing market if they couldn’t charge enough rent to cover their expenses?
That’s increasingly the case for many investors in the GTA, according to a new joint report from CIBC and Urbanation. A 44 per cent of investors surveyed reported being in a negative cash flow position, while 34.5 per cent of that number reported a shortfall of more than $1,000 each month.
“The question is, given these numbers, whether or not they’ll start selling,” CIBC senior economist Benjamin Tal tells BuzzBuzzNews. “With some of them, if the shortfall becomes greater than $1,000, they almost certainly will.”
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But, Tal says, many investors are bullish about their properties, and are very willing to absorb the cost in the short term.
“Most of them take a very long view of the issue,” he says. “They think real estate is a good investment — they see it as an asset for their kids, and they believe that in 10 years from now it will be a good asset to have.”
Investors who took possession of a new build condo in 2017 have already earned high returns between the price they paid to sign the deal and the cost of the unit now. The average price of a new GTA condo jumped a whopping 39.5 per cent year-over-year to $729,735 in March, with experts predicting high demand and tight supply will continue to push prices higher in the coming months.
Tal says the second question posed by these numbers is whether investors will continue to invest in the market in the future, as prices continue to rise. According to the report, investors who bought a new construction condo in 2017 with a scheduled completion date of 2021 would need the average rent to rise by 17 per cent in the next four years to cover their costs.
“I have little doubt that [the condo] market will probably slow down,” he says. “As investors face increasing prices, they will likely be less inclined to buy, and the market will soften.”
But, no matter what happens, he doesn’t think the impact on the greater GTA housing market will be too dramatic.
“I think the vast majority of people will acknowledge the challenges that come with pricing and say that they’re fine with that,” Tal says.