Photo: James Bombales
Based on numbers alone, the story of Montreal’s condo market seems like a runaway success. Sales were up 22 percent in October, while prices jumped 4 percent as buyers rushed into the red hot market.
But according to a new report from Canada Mortgage and Housing Corporation (CMHC), investing in the city’s condos might be a big mistake.
A new report from the federal housing agency has found that the majority of landlord investors who own a downtown Montreal condo are unable to make up their operating expenses through rental fees.
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Of the 375 rented condos that the report examined, up to 75 percent of owners experienced negative cash flow, with operating expenses that exceeded rent by an average of $385 a month.
Of course, many investors may decide to purchase a condo despite an initial negative cash flow, with the hopes of securing a future payout.
“For some investors, a condominium may be considered as a financial asset, the value of which they hope will increase over time and which could provide, despite any possible cash flow losses in the short or medium term, a positive return on investment at the time of resale,” writes Francis Cortellino, an economist with the CMHC and the report’s author.
It’s a trend that can be seen in other hot housing markets across the country. According to data from real estate data firm Urbanation, up to 44 percent of GTA condo investors had a negative cash flow when they took possession of their units in 2017, but still saw a positive return on their investment as their property values continued to grow over time.
“It would be interesting to eventually check the extent to which these last results also apply to other investors in the Montréal metropolitan area, particularly in these times when there are more and more large condominium projects,” writes Cortellino.
He’s also quick to note that the report represents an initial analysis of the Montreal condo market, and that further research might produce different conclusions.
“Further analysis and studies will be needed to better understand the motivations of investors, especially if they are bound to become more prominent over the coming years,” he writes.