Now that the stakes are higher, is it still wise to invest in 2019? Here, Toronto realtors Ralph Fox from Fox Marin Associates<\/a> and Jamie Sarner<\/a>\u00a0break down what you need to know before taking the plunge.<\/p>\n Photo: James Bombales<\/em><\/p>\n Because of the affordability crunch, the condo segment of the Toronto housing market has continuously outperformed the low-rise segment. According to TREB\u2019s Market Watch from July 2019, the average price of a detached home in Toronto tumbled 9.1 percent compared to this time last year. Condos, on the other hand, have risen 7.7 percent in just one year.<\/p>\n This has been the trend ever since the mortgage stress test was introduced in January 2018 to ensure homebuyers could keep up with their mortgage payments if interest rates were to rise. Under the tougher lending rules, homebuyers putting down more than 20 percent are required to qualify for their mortgage at either the Bank of Canada\u2019s benchmark rate (5.19 percent, at the time of writing) or two percentage points higher than their contract rate \u2014 whichever is greater. If you\u2019re putting down less than 20 percent, you still have to qualify at the Bank of Canada\u2019s benchmark rate or the rate offered by your lender (without adding the extra two percent) \u2014 again, whichever is higher.<\/p>\n How did this impact the condo segment? Many buyers that could have qualified for a single-family home prior to the stress test were forced to set their sights on the more affordable option. \u201cThe last round [of stress tests] reduced affordability by 18 percent,\u201d says Fox.<\/p>\n \u201cPretty soon it’ll be very difficult for the average person to even be able to afford to buy a condo,\u201d says Fox. \u201cThey’ll become renters, like in most major cities around the world where 80 percent rent and 20 percent own.\u201d<\/p>\n Photo: James Bombales<\/em><\/p>\n There is speculation that Toronto condo prices might hit a ceiling soon.<\/a><\/p>\n Despite this, you can\u2019t ignore the basic principles of supply and demand. \u201cWe have a very limited amount of buildable land and what\u2019s left is very expensive.\u201d says Fox. \u201cThe cost of land is only going up, the cost to build is going up, and demand is continuing to rise just based on immigration.\u201d Toronto’s population is projected to rise from 2.93 million in 2017 to 3.91 million in 2041, at an increase of 33.5 per cent. \u201cI think the only mistake you can make is selling Toronto real estate. Because in five to 10 years it will invariably be more expensive,\u201d says Fox.<\/p>\n \u201cThere are people out there that think the market is going to turn and they don\u2019t want to regret making a purchase that they think they can get cheaper later on,\u201d says Sarner. \u201cBut you have a lot of people who have the other regret \u2014 they wish they didn\u2019t think that way and bought five years ago.\u201d Ultimately, your budget is the true decider. \u201cIt comes with being responsible. If you find something you like, you can purchase it at a price that makes sense for you, then that is the time to transact, in my opinion.\u201d<\/p>\n There is no one-size-fits-all investment that will provide the same ROI to everyone. \u201cYou should always be thinking about the same thing \u2014 it depends,\u201d says Sarner. \u201cAs an investor, you can be an end user or someone who’s going to rent it out. Sometimes the return can be on quality of life and enjoyment of the unit. It doesn’t all have to be financial.\u201d Sure, buying a condo in an up-and-coming GTA suburb may offer a better financial investment, but if you\u2019d be miserable living outside of the city core, it may not be worth it.<\/p>\n \u201cFor any buyer, they always have to weigh the pros and cons of an investment versus lifestyle,\u201d echoes Fox. \u201cAnd sometimes one will take precedence over the other, but they definitely coincide when you\u2019re making that decision.\u201d<\/p>\n Photo: James Bombales<\/em><\/p>\n When it comes to getting the best bang for your buck, should you invest in a neighbourhood that\u2019s already booming or look for a unit in a gentrifying neighbourhood? \u201cIt depends on your life circumstances, your age, your demographic, where you work,\u201d says Fox. \u201cIf you’re young, especially with pre-construction, it makes sense to buy in a gentrifying neighborhood because you’re buying something that won\u2019t be built for three or four years. You might not be living in your most ideal circumstances, but you know that over time, the area is going to improve and you can stand to really benefit.\u201d<\/p>\n Whether you\u2019re renting the unit or living in it, access to transit should be top of mind. \u201cBeing near transit will become more and more important as you invest in condominiums because of the traffic, the cost of parking, the cost of the gas, the cost of cars,\u201d says Sarner.<\/p>\n Photo: James Bombales<\/em><\/p>\n Nothing will make your investment go south faster than a development with a bad reputation.<\/p>\n According to condo analytics firm Urbanation, 4,202 units were cancelled in 2018 (or 12 buildings across nine developments). This set a staggering new record, considering that in 2017, the height was 1,678 units cancelled. \u201cWith all the cancellations in the news about pre-construction projects, you really want to make sure that if you’re putting your money down and investing in a project, it\u2019s with one of the best developments in the city,\u201d says Fox.<\/p>\n On top of that, you want to have confidence that the developer is going to deliver on what they promise. \u201cThe challenge is that you’re buying something that hasn\u2019t been built, so you don’t always get what you think you’re getting,\u201d says Fox. \u201cThat’s why it’s very important to be diligent in researching the developer and their past track record.\u201d<\/p>\n One of the major advantages to buying pre-construction is that you don’t have to have to give the full downpayment at the time of purchase. Often, the payments are spread out in five percent increments, sometimes up to two-and-a-half years, while the project is being built. \u201cIt gives people the ability to save, leverage lines of credit to make payments, or if you have to, make short-term loans,\u201d says Fox. \u201cWhen that 20 percent is spread out in increments, it becomes more attainable.\u201d<\/p>\n If you\u2019re buying a resale condo, Fox recommends doing your due diligence by getting a status certificate. \u201cWhen you buy a condo, you’re buying a piece of property, as much as you’re buying into the assets and liabilities of a corporation,\u201d says Fox. The status certificate will include information on whether the previous owner was up to date on paying their condo fees (you could be held responsible for their outstanding debts), or if the condo corporation is contemplating major repairs or is experiencing financial issues that could lead to condominium fee increases or a special assessment. It\u2019s good for 30 days and could be the best money you\u2019ll ever spend.<\/p>\n![\"\"](\"https:\/\/www.livabl.com\/articles\/wp-content\/uploads\/2019\/08\/avoid-getting-burned-into-the-Toronto-condo-market-3.jpg\")
<\/a><\/p>\nCondos are still the last affordable option<\/h2>\n
![\"\"](\"https:\/\/www.livabl.com\/articles\/wp-content\/uploads\/2019\/08\/How-to-avoid-getting-burned-into-the-Toronto-condo-market.jpg\")
<\/a><\/p>\nWill prices continue to soar?<\/h2>\n
Consider your lifestyle<\/h2>\n
![\"\"](\"https:\/\/www.livabl.com\/articles\/wp-content\/uploads\/2019\/08\/avoid-getting-burned-into-the-Toronto-condo-market.jpg\")
<\/a><\/p>\nThink location, location, location<\/h2>\n
![\"\"](\"https:\/\/www.livabl.com\/articles\/wp-content\/uploads\/2019\/08\/avoid-getting-burned-into-the-Toronto-condo-market-4.jpg\")
<\/a><\/p>\nResearch the developer<\/h2>\n
![\"\"](\"https:\/\/www.livabl.com\/articles\/wp-content\/uploads\/2019\/08\/Liz-Bertorelli-condo-living-room.jpg\")
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