WHY ARE WE STILL BUILDING SMALLER CONDOS IN THE PRE-CONSTRUCTION CONDO MARKET?

December 3, 2012

The Media and Governments all want pre-construction or new condos geared to End Users. For some reason, Investors are blamed for all the perceived shortcomings of today`s market place. Investors buy condos for rental income and capital appreciation. So here are the facts: 

1) New condo sales are dominated – how about 100% – by Investors. That’s because Banks insist on 70+% pre sales, before construction. That means someone who buys today will have to wait five years for their unit to be registered. Do you know anyone who knows their living needs five years from now? No. But Investors never intend to live in the unit, and hence it does not matter to them. End Users, on the other hand, will only buy 12-18 months ahead of when they want to move. Don’t like it? Blame the Banks. 

2) New condo units are small and getting smaller. When you combine the Ontario and Toronto Land Transfer Taxes, a unit purchased for $300,000 has ONE THIRD the taxes of one purchased for $600,000! That is an extra cost the Investor must pay. Don’t like small units? Blame your Governments. 

3) The HST and HST Rebates (given when an Investor rents their unit for a minimum of one year) encourage Investors to buy cheaper and hence smaller units again. The maximum rebate from the Federal Government is reached at $350,000. These rebates are then clawed back to zero at $450,000. For Ontario, the rebates, at 75% of the Provincial portion of the HST are capped at $24,000. At $400,000, an Investor would receive the maximum benefit. As an Investor, would you buy a unit at $300,000 or $600,000? Don’t like it? Again blame your Governments for impacting the market place.

While it is easy to blame Investors for the shortcomings in the new or pre-construction condo market in Toronto, Investors are only reacting to the rules put in place by others. So practice the Canadian way: learn to live with it!

Written by: Jamie Johnston - Broker, Remax Condos Plus

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