August - The Condo Edition

The past week I looked through the vast inventory of condos for sale on MLS. I choose almost 50 one and two bedroom units to go see up close and personal. The properties visited are listed at the end of the newsletter. My wife and adult son came along to give their perspectives. Both are future potential buyers so this was not a theoretical exercise.

The condos spanned downtown lakefront to Sheppard Ave, and north to Highway 7 in Markham. Prices of the one bedrooms range from $235,000–$399,999, and the two bedrooms from $319,000–$575,000. The Toronto properties were all within a 5-15 min walk to the subway.

I choose buildings that had several units for sale and several for lease. Generally, I chose those units for sale that appeared to be the best buys among similar units in the same building. At the end of 3-day tour, the consensus ratings based on location, design, finishing, and internal/external amenities were 5 A’s, 20 B’s, and the rest C’s and lower.


  • Some units appear to be way overpriced relative to similar units in the same building. I expect they will eventually sell for a lot less. Descriptions are not necessarily accurate, but if agents are all giving it their best shot, it just doesn’t seem plausible that a similar unit on a similar floor in the same building is going to sell for $50,000 more than its peers.
  • Some units will never be bought as a home. When a regular double bed (not a queen) will fill the one bedroom wall to wall, you know it was built for investors to rent out. At current prices these units (and most condos) are cashflow negative (ownership costs exceed rental income). When the investor wants to sell, who is going to buy and for how much?
  • A higher-priced unit does not mean a higher rent. There are attractive developments with lower priced units renting for more than higher-priced units in other attractive developments. I refer to this rent-to-price ratio as economic value. Even if you are going to live there yourself for the foreseeable future, economic value will come into play should the unforeseen occur and you want to rent out your condo.
  • A 2-tier market will be become more prominent as the years go by. Tier 1 will be well-designed units in well-located well-maintained developments. Tier 2 will be developments that don’t compare well. Right now I would put the ratio at 8:2. Most developments are relatively shiny and new and there are enough buyers and renters that 8 of 10 units can claim to be tier 1. In a few years, should the overbuilding scenario play out, buyers can be choosy. I would expect the ratio to fall to 5:5, meaning an increasing number of developments, even well-located, but with relatively poor unit designs and/or maintenance (especially if heavily tenanted), will become the poor cousins. With low demand their values will fall behind tier 1 properties.
  • The premium for proximity to public transit and to highways will continue to increase. It’s there now, and will be there in spades in future years. Improving transit is a multi-billion dollar proposition with tax consequences. Expect lengthy delays and slow progress. Locations already out of reach of transit improvements will see slower growth in value.
  • Walkability of a neighbourhood will attract a rising premium. At both ends – young families and retirees – the lifestyle value of a walkable neighbourhood is rising in their consciousness. Our car culture will remain strong, but increasing numbers will become enlightened (you might say, more European).
  • Maintenance fees vary a lot, and you don’t necessarily get what you pay for. Or, you don’t necessarily want what you’re paying for. Some older developments (back when marketing wasn’t so slick and glamorous) don’t have a pool. Don’t need a pool? Save up to $100/month on maintenance. Some buildings are high-maintenance by design. They need more reserve money accumulated faster to fund planned structural maintenance. If high-maintenance features are unimportant, choose another building. Keep in mind you might want the high-end features and are willing to pay, like owning an Audi which you know will have higher upkeep costs.
  • A handful of the condos visited appeared to be very good deals. I think these owners are seeing the rise in listings (800+ for sale in the downtown core alone) and the 25,000 new units being completed this year as signs that market values will be under pressure. Keep in mind that the reported average price of condos sold can rise while market values fall. The sale of more higher-value condos in a period, even at reduced prices, can inflate the average sale price.

Investment examples

There were four buildings with comparable 1-bedroom units for sale and for rent, and four buildings with comparable 2-bedroom units. In each case I chose a median-value unit for these two examples.

Assumptions: Unit is bought for list price with 20% downpayment and a conventional mortgage (no mortgage insurance premium) at 4% on 5 year term with 25 year amortization. Over the 5 years the unit is vacant for only 2 of the 60 months and two MLS commissions of 1 month are paid. Over the course of 5 years monthly rent, property taxes, and maintenance are up 7.5%. Total repair and replacement cost is estimated at 2 months rent. These are modest assumptions.

Example: 1 bedroom

List price $362,999. Monthly rental $1,600. Maintenance $336. Property tax $2,060

Closing costs (land tax, legal, title insurance, etc.) for not-first-time homeowner $8,775

Cashflow for the 5 year period

Invested cash: $81,375

Total rent collected: $96,280

Total operating costs: $129,977

Net operating income (loss): ($33,697)

Net gain in equity due to principal repayment: $37,595

Example: 2 bedroom

List price $554,900. Monthly rental $2,550. Maintenance $503. Property tax $2,761

Closing costs (land tax, legal, title insurance, etc.) for not-first-time homeowner $15,896

Cashflow for the 5 year period

Invested cash: $126,876

Total rent collected: $153,446

Total operating costs: $196,323

Net operating income (loss): ($42,877)

Net gain in equity due to principal repayment: $57,470

In summary, the investments are cashflow negative but losses are made up by the increase in equity. The investor expects, or hopes, that market values will continue to rise. In contrast, Don Campbell, Canadian real estate educator, investor, and author advises that investments should always be cashflow positive

Maintenance fees – good deal or bad deal?

Maintenance fees are set by the condo Board of Directors. This board comprises owners elected by a quorum of owners at the annual general meeting. No owner wants to pay higher fees.

So why aren’t fees lower? Why are fees higher than maintaining my own home?

Here’s why.

  1. You’re paying others to do things you did or would have done yourself – like clear snow, mow lawn, clean windows …
  2. You’re paying for services you never had, like security personnel, a swimming pool, the fitness gym, the guest suites (for your visitors) ….
  3. You’re making regular payments on future repairs. If renewing the building driveway will cost $240,000 in five years time and there are 100 owners, each owner must contribute $2,400 over the five years, or $100 per month. In a house, you pay nothing until you need to do the work. Since there are many owners, it’s safer to collect some money every month and hold it in a reserve fund. Repeat for the roof, windows, heating and cooling system, gym equipment ….

Condos are not-for-profit corporations – money in, money out. If an owner thinks the Board can do things more economically, then he can consider standing for election, or at least make the case at the AGM. Overall, I would say maintenance fees are well-accounted for and reasonably spent or held in reserve. There are regulatory safeguards that protect owners from out-of-control boards. If you want to lower fees, select among condos that have lower fees due to lower cost amenities and structures.

What about brand new developments?

There are two types of brand new – ones already built that I walk around in, and ones I must imagine with a brochure and a presentation model. You can be sure that that condo with the Gardiner Expressway off-ramp outside the window was bought off plans. Likewise the unit with the closet-less bedrooms and a design that guarantees an argument on furniture placement between the most loving partners. Also the unit where you discover there isn’t enough room for your flat screen TV and favourite sofa. Then there’s the condo with the bathroom next to the kitchen … hmmm.

Of course, the nicest condos around were also sold off plans, so there’s nothing wrong with buying early. You just need to be more thoughtful and thorough. Right now, while most developers are talking a good game, some offering huge savings and incentives. How about $55,000 cash back, 5% downpayment, and $0 closing costs? That building not for you? How about $35,000 towards a new BMW?

You don’t need to wait and see to get a really good deal. To top it off, where developers are offering outsized commissions to agents, I’ll give you an outsized rebate. There are 30 developments right now where my rebate to you at closing would be around $10,000! See an enticing ad? Take me with you to check it out, ask the serious questions, and lock in your rebate. Spread the word.

Charles Young
Real Estate Sales Representative

call or text: 416 436-5851

NOTE: Future editions of this blog will be posted around mid-month instead of the first week. This will enable the Teranet-National Bank Housing Index chart to be fully current with the reading for the previous month. In this issue for example, the chart goes to June only, as the July reading has not yet been released.

Ongoing research and commentary

In each newsletter I show the rolling 13-month median selling prices for defined categories of condos and houses in 6 areas. These charts provide a local view that the industry’s broad all-in averages don’t.

I also show the Teranet-National Bank House Price Index for Toronto (GTA). This index is the equivalent of the highly respected and much quoted Case-Shiller Index in the US. It helps to filter out the considerable noise in the Canadian real estate market. The Teranet-National Bank Index encompasses all housing forms (condos, townhouses, semis, detached).


 The Index authors say “… the composite index was up only 1.8% from a year earlier, the smallest 12-month gain since November 2009.” Still, an impressive rebound that defies that defies economics. See Recent News below. The contrarian view is that the market is making a Wile E. Coyote move: running off a cliff but not falling – until he looks down! Contrarians and international think-tanks have been saying this for a while. It’s anybody’s guess whether their view will come to pass.


Condo prices are bouncing around flat lines. This suggests to me that the reported rise in the average sold price is due to the mix of condos sold (more higher-value units among the sales for the month) than to rising unit prices.


This chart reflects the under-building of detached homes in recent years and buyers bidding up the limited supply.

You’ll see any change in trend in my charts before it shows up in industry press releases. It’s easy to find a favourable statistic for months even in a declining market.

Condo properties visited

(generally south to north)

109 Front St E

25 The Esplanade

33 University Ave

55 Bremner Blvd

65 Bremner Blvd

30 Grand Trunk Cres

208 Queens Quay W.

65 Harbour Sq

33 Bay St

12 Yonge St

16 Yonge St

85 Bloor St E

300 Bloor St E.

942 Yonge St

8 Scollard St

8 Park Rd

28 Ted Rogers Way

110 Charles St E.

11 St Joseph St

44 St Joseph St

1001 Bay St

60 St Clair Ave W

1430 Yonge St

5 Rosehill Ave

97 Lawton Blvd

212 Eglinton Ave E

88 Broadway Ave

39 Roehampton Ave

2181 Yonge St

2191 Yonge St

18 Spring Garden Ave

35 Bales Ave

30 Harrison Garden Blvd

5 Everson Dr

75 York Mills Rd

10 Old York Mills Rd

11 William Carson Cres

51 Times Ave

130 Pond Dr

48 Suncrest Blvd

62 Suncrest Blvd

51 Saddlecreek Dr

39 Galleria Pkwy



Recent news

Mortgage rate hikes slow housing on both sides of the border G&M Aug 7
Overheated housing market will hold Canada back - Canadian Press CBC July 31
Toronto condo sales suffer 46-per-cent drop in June G&M July 18
These are the housing choices we wish we'd made G&M July 15
Prognosis grim for Toronto condo investors G&M July 2
The-Canadian Housing Market, Canso Investment Counsel, July 2013


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Charles Young

Charles Young

Sales Representative
CENTURY 21 Innovative Realty Inc., Brokerage*
Contact Me