want to show you something cute little condo in Toronto’s Harbor front neighborhood bustling part of the city it goes on the market in the summer of 2022 the sellers put it up for $480,000 it didn’t sell early 2023 it’s back on the market for 460k no luck later that year posted again at 450k still nothing and a few months ago the sellers tried again at $430,000 no takers this condo was sitting on the market for more than 400 days without a sale right now in Canada’s biggest cities there’s a ton of condos like this struggling to sell condo sales in Toronto for example haven’t been this low since the financial crisis in 2009 condo flippers are getting absolutely slaughtered right now in majority of these towers they are half empty nobody wants these condos folks and here we are in the middle of a housing crisis it’s never been harder to get into the market and so many of these condos spend so much time sitting empty why that studio we just showed you we’re pretty sure an investor bought it because just a month after it did finally sell for 80k under its original asking price it was listed for rent I think the number one problem is that most of the condos that are listed on the market are investors units investors have really thrown the market out a whack and when I say investor I don’t want you to think of some you know faceless Corporation or ultra wealthy Real Estate Mogul according to stats Canada the typical condo landlord here is actually a quote middle-aged middleclass couple and for these people the intention is usually to cover their monthly mortgage payments by renting it out for decades this was considered a pretty smart move were cheap relative to every other kind of property but their value was rising and the average rent that landlords could charge tenants was Rising steadily too but now it’s changed quite drastically I mean anecdotally with my own investors um I shy away from New condos uh just because of the the numbers just don’t really make any sense yes the numbers don’t make sense which has led to an insane number of condos being put up for sale flooding the market in a way we haven’t really seen before I’ll show you what I mean let’s compare what a condo investment in Toronto looked like in 2016 to today so according to the Toronto real estate board the average price of a one-bedroom condo back then in 2016 was about $300,000 and with 2016 interest rates about 2.7% that worked out to a mortgage payment of about $1,100 a month rent for the average one-bedroom apartment at that time was about $1,660 not bad from an investor point of view even with you know maintenance fees uh property taxes that condo is essentially paying for itself while you build equity now what if you were to buy a one-bedroom condo today in Toronto that could cost you about 550 Grand so prices have very clearly gone up but so have interest rates the carrying cost on a property are far higher than they ever used to be well not ever but in recent memory at current rates 6.8% maybe now you’re paying more than $3,000 a month for your mortgage payment alone then you’ve got you know property taxes uh maintenance fees and the average rent for unit like that about $2400 a month you’re now paying out of pocket the average investor is going to be short about around a th000 bucks a month now right um and that’s a tough pill to swallow so jack up the rent right well it’s not that easy paying more than $33,000 a month for a one-bedroom just isn’t possible for most people the market can only bear so much no one will pay the rent that would allow you not to go broke owning that property an analyst we spoke to say they’re seeing more and more people leaving the rental market in Toronto because things are already too expensive so they move back in with family or they couch surf now historically the average investor might try to stick this kind of thing out because the Assumption has always been even if you’re losing money in the short term in the long run you’ll still come out on top a lot of investors would have had no problem being short a th bucks a month if their units going up by 10 grand a month you know what I mean or seven Grand a month in terms of appreciation um but that’s not happening over the past couple of years condo prices in many big cities have more or less stalled and in some cases depending on when these people bought their Investments might already have lost value condo prices in Toronto for example skyrocketed between 2017 and 2022 this was great for investors but many wondered if they were actually becoming overvalued if there were to too many of these condos being built to sustain these prices at the end of 2022 those prices started to drop which is especially bad news for investors who’ve bought since then now the renewal has come in and you’re losing a lot of money but you’ve actually come to realize in the last 12 months the price of that condo has probably dropped about $440,000 so you’re starting to enter into a state of actual fear so no wonder you have so many mom and popop landlords now saying saying enough is enough I’m going to try to sell before I lose any more money but there’s also another group of investors the preconstruction buyers and for a lot of them things are even more dire there’s some buildings where up to as many as 12 or 15% of the buyers are saying no I’m not going to close okay I’m I’m walking away from my deposit in the past in a city like Toronto you could pretty reliably put money down on a pre-construction condo wait two to 5 years to was built and then sell that unit before anyone ever moved in in most cases the value of that investment would go up 20 30 even 40% without you having to do much at all from the year 2000 through to you know right about to 2020 that was true but now it’s not true that’s absolutely not true so these units are completing and they’re not worth what the investors paid for them right so they paid 1,500 bucks a square foot but they’re only worth 13 00 bucks a square foot so some investors are trying to bail on a bad investment some can’t afford the carrying costs and lots of them are all in this situation at the same time so you end up with a flood of condos on the market but isn’t that the very definition of a buyer market like isn’t this great news for people who want to jump in well it would be if these condos had actually been built for the people looking to buy according to Stats can the average size of a new condo in Toronto has shrunk significantly over time from 1981 to 1990 New condos were on average about 1,000 square ft from 2016 to 2020 they were around 650 Square ft or about 40% smaller and if you ask anyone who lives in the downtown core right now 650 ft actually feels pretty big this is what a 275 ft condominium looks like in downtown Toronto look how small this bedroom is in this Toronto condo for sale that I was showing this is the den this little cutout in the wall is the den okay doesn’t even fit an entire table and yes Toronto is definitely an extreme example here but the analysts we spoke to say these tiny units have become more and more common since the early 2000s right across the country and developing these smaller condos targeted specifically at investors who then turned them around for rent that was a real business opportunity we needed rental housing so basically what happened is like that was filled by Mom and Pop investors buying Condominiums and converting them to rentals they only had one single thing in mind that they would be purchased by people who would be landlord investors want small units uh the yield is better the price is lower it’s easier to qualify according to Realtors it’s these teeny tiny investment condos that are currently flooding the market in places like the greater Toronto area broadly in the GTA we’re looking over 13,000 majority of these Suites are investor units that are are listed for sale and if you think about it if those condos were built for investors just renting them out or or flipping them the focus probably wasn’t on quality or functionality or families some of these places don’t even have closets according to the Realtors we spoke to investors aren’t generally very choosy about whether the floor plan works whether the finishes are First Rate or what the view looks like because they have no intention of moving in they just want the best value for their money but if someone’s taking their entire life savings and putting it into a home that they plan to live in for years that’s a pretty different story there was absolutely no thought given to the idea that anyone would buy that place that sub 500 foot condo as a place to permanently live right now for example in Toronto and Vancouver three quarters of larger condos the ones you know maybe more suitable for a family built decades ago those are being lived in by the people who own them but for those much smaller condos built after 2016 with investors in mind only about half are being lived in by owners remember that cute little Studio that we showed you at the start that took 400 some days to sell it was 330 ft here’s a two-bedroom 700t unit in that same building it sold earlier this month on the first try in just 13 days if we look at the large cohort of buyers right now they’re predominantly Millennials that are looking to enter the market if you’re looking to start a family it’s really tough to start a family in a one vom condo or even if you don’t have a family if you are a millennial and you’re a couple let’s say you have a dog or if you work from home you need that additional space to be able to either work or raise a family or even just have a guest bedroom um so when we look at the amount of inventory that’s available there’s just really nothing there there aren’t a lot of options out there what ended up happening is we only Built one kind of product for the last 5 years and it’s possible when you only build one product that it can become mispriced and that’s what we’re faced with right now this one’s asking price is $420,000 for that price would you live in this bunk bed the analysts we spoke to all said they do expect the price of these smaller units to come down over the next six months or so that doesn’t make them any more ideal a place to start a family but if the price made more sense that takes some of the sting off right either way seems both sides of the housing equation are stuck sellers driven to sell can’t and buyers don’t like their options
In the midst of a housing supply crisis, thousands of condos in Canada’s largest cities are sitting empty. Most, experts say, are less than 500 square feet. Andrew Chang explains why there’s been an explosion of these so-called ‘shoebox’ condos, and why they’re suddenly struggling to sell.
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