Condo investors in Vancouver and Toronto are in a bind. Despite the financial burden and the potential for decreasing property values, they’re not rushing to sell. The reason? There’s a lack of buyers, as real estate agents in both cities have observed.
In Vancouver, there’s been a rise in condo listings but a drop in sales, leaving investors wondering whether to let go of their properties. High carrying costs and the prospect of increasing interest rates are prompting some to want to sell, even at a loss. Yet, they find a market flooded with similar properties, forcing many to hold on, sometimes with financial help from relatives.
One obstacle for condo sales in Canada is the government’s mortgage stress test, which requires borrowers to qualify at a rate significantly higher than what they might actually pay. Tim Syrianos of Re/Max Ultimate in Toronto notes that this test is a hurdle not just for investors but also for first-time buyers, suggesting a reduction in the stress test threshold could help move unsold condos.
Investment condos make up a significant portion of the market in British Columbia and Ontario. Some investors in Vancouver are managing to sustain their properties despite negative cash flow, but the threat of higher interest rates could change this.
Realtor Jesse Kleine points out that while there’s no rush to sell yet, many are holding out with the hope that the market will rebound. Yet, the glut of standard, older condos in downtown Vancouver, which haven’t seen much interest even after price drops, casts doubt on whether there are enough buyers despite lower prices. Those who bought years ago might still see profits, but the current market is challenging.
The Real Estate Board of Greater Vancouver highlights a dilemma for condo investors: their rental income often doesn’t cover their expenses, and potential buyers are scarce, as only those who plan to live in the units can easily get rid of tenants.
Condo sales have slowed down in both Vancouver and Toronto, with a 17.1 percent decrease in the Greater Vancouver Area and a 10.8 percent decrease in the Greater Toronto Area from January to August. Shaun Cathcart from the Canadian Real Estate Association attributes this slowdown to rising interest rates. Vancouver stands out with lower inventories and less price reduction than Toronto, where new supply is hitting record highs.
Mortgage arrears are still low, indicating little distress in the market. Investors are passing on the increased costs to renters, resulting in higher rents, but it hasn’t led to a surge of condos for sale.
In these uncertain times, condo investors in Vancouver and Toronto face the tough choice of holding onto their properties with high carrying costs or trying to sell in a challenging market.
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