Tight condo market may be easing
Sales up 9 per cent, rents down in first three months of 2014
It could be the year of shrinking condo rents but surging condo “for sale” listings if the first quarter of 2014 is any indication.
Condo sales were up 9 per cent in the first three months of this year over last, with 70 per cent of the 4,454 transactions taking place in the City of Toronto, according to figures released by the Toronto Real Estate Board Tuesday.
Prices in the first quarter were up 5.6 per cent, year over year, to an average of $351,213 across the GTA and $376,226 in the City of Toronto.
As more investor-owned condos came to completion in the first quarter of 2014, rent for a one-bedroom unit in the GTA declined by 1.6 per cent
Realtors say that’s largely because condos have become the only affordable option for first-time buyers in the past year as the supply of lowrise houses close to the downtown and transit lines has fallen so far below demand, bidding wars are driving prices for houses out of reach of many buyers.
Fearful that prices continue to climb while they sit on the sidelines, buyers also seem to be looking at condos simply as a way to get a toehold in the market until they can build enough equity to trade up to a house.
Condo rental listings appear to be on their way up and given that as many as 20,000 new condo units are expected to reach completion this year, even more units are likely to hit the market over the coming months, potentially driving down rents and even prices as owners look to sell or lease out their suites into an oversupplied market.
“We could see stronger growth in listings in the second half of 2014 as some investors choose to list their units for sale. If this occurs, buyers would benefit from more choice in the marketplace and thus could have more negotiating power with regard to price,” said Jason Mercer, TREB’s senior manager of market analysis.
Already there are some signs that rents may be softening for investors choosing to offer up their units to the growing number of young people, and downsizing baby boomers, looking to live and work in the downtown core.
Condo rental transactions were up 17.8 per cent in the first quarter of 2014, year over year. But the total number of listings surged by 27.7 per cent as more investorowned condos came to completion.
As a result, the rent for a one-bedroom unit in the GTA declined by1.6 per cent to $1,573 per month in the first quarter. Rents are running closer to $1,800 in the downtown core where, just over a year ago, it wasn’t uncommon to see bidding wars for new rental condos.
Any easing of rents, and surge in rental competition, could have significant impact on the overall condo market going forward.
The condo boom has been largely driven by investors who have seen a chance to make money not only on hefty rents, but long-term capital appreciation.
But if carrying costs start outstripping lease rates, there are fears investors will start looking elsewhere to make money. That will make it tougher for developers to quickly sell the 70 per cent of units generally needed before banks will finance new condo projects.
One-bedroom units accounted for 60 per cent of all condo rentals across the GTA in the first three months of 2014, according to TREB. Two bedrooms accounted for 36 per cent of all condo rental transactions.
Two-bedroom units, which are seeing increasing demand from young people looking to share the hefty rents, saw rents increase just 1.9 per cent in the quarter to an average of $2,155 across the GTA.
Two bedrooms in the downtown core are averaging closer to $2,588 per month, although that’s expected to drop as more competition comes on stream from new buildings set to open over the next year or two.