Condo rush spurs rents to new high
Demand continues to exceed rising supply of GTA apartments
Rental demand remains unrelenting across the GTA, and especially in the downtown core, with a record 5,315 condo apartments listed for rent via the MLS system in the second quarter of this year, up 20 per cent from the same time last year, according to research firm Urbanation.
Even that surge of listings couldn’t keep up with demand — much of it from young professionals — and rents climbed 4.1 per cent during the same period to a record $2.35 per square foot.
The fact that condo rentals continue to outstrip actual resale transactions of condo units — just 4,689 condo apartments were sold via MLS in the second quarter — is a sign that “demand for condominiums in Toronto remains very stable,” said Shaun Hildebrand, vice-president of the condo market research firm.
“There’s this notion that investors could be bad for the condo market, but what we’ve seen so far is they’ve been providing an essential service — much-needed rental supply to a market that continues to see increasing demand for rental.”
Many condo watchers believe the number of condos coming on the rental market is a strong indicator that investors intend to hold, rather than flip, their units and look to make gains over the longer term.
And the upward pressure on rents is expected to ease over the next two years when more than 49,000 new condo units are slated to be built across the GTA. In reality, that number is expected to come in closer to 30,000 given construction bottlenecks.
“There’s this notion that investors could be bad for the condo market, but what we’ve seen so far is they’ve been providing an essential service.” SHAUN HILDEBRAND VICE-PRESIDENT OF CONDO RESEARCH FIRM URBANATION
But at least some of the current surge in rental condos on the market may reflect a more pressing concern: that if they try to sell their units too quickly, any gains investors have made could be taxed away as part of a Canada Revenue Agency crackdown aimed mainly at those making a quick — and quiet — profit through flipping units.
For months now, agency officials have been targeting condo buyers they suspect of flipping units in the country’s two hottest condo markets, Toronto and Vancouver, warning that they owe capital gains tax and, in some cases, income tax on the gains.
The prime targets are those who bought condos at a discount years ago, before construction even started, and then sold them as so-called “assignments” (units that are flipped to a new buyers before the first buyer actually takes possession).
The crackdown has placed a black cloud over what had been a burgeoning assignment market, with some realtors advising their investor clients to abandon plans to list their units, hang onto them for at least a year and rent them out in the meantime. “It’s huge. Part of what we’re waiting for is a resolution from Canada Revenue on how they handle (taxing) assignments,” said one downtown realtor. “We’re telling our investors — close on your unit and rent it out for a year. Investors who are non-residents — they pay all cash and don’t care (because it’s harder for the Canadian government to retrieve outstanding taxes.) They’ll leave it empty or rent it out.” CRA spokesperson Sam Papadopoulos was unable to say how many letters have been sent so far to those who have bought and sold condos. He stressed that the agency has clear policies, even around the relatively new practise of selling assignment units, and is simply trying to “ensure compliance with existing legislation.” Each situation is being reviewed on a case-by-case basis through reviews of land registry and other records, he said. “Through the normal process of auditing we have been sending letters to folks who have bought units to ensure that they have declared capital gains or reported it as income in the nature of business,” said Papadopoulos.