Many New Toronto Condo Investors Losing Money As Rents Drop: Report
June 1, 2020
While new home sales in Toronto took a tumble last month, recently finished investor-owned condos in the city’s rental market have also been seeing negative numbers as a result of COVID-19.
New data released in TorontoRentals.com’s May Rent Report shows that recently completed condos across the Greater Toronto Area have been impacted by rent price drops caused by the pandemic.
Authored by TorontoRentals.com and Bullpen Research & Consulting, the report explained that units in several freshly finished condo buildings have seen between $200 to $600 in monthly negative cash flow, based on local listing data from the rental website and new condo pricing collected from BuzzBuzzHome.
Watch: Real estate experts Greg Pasalis and Steve Saretsky on real estate in the COVID-19 pandemic. Story continues below.
For instance, a 632-square-foot unit in Kingly Condos experienced negative monthly cash flow of $618, based on a total monthly carrying cost of $3,270. In 2019, the average rent of a unit this size fetched $2,867 per month, before dropping to $2,650 in 2020. These figures are based on the report’s GTA condo rental activity analysis, which examines the average rental rate in 2019 and 2020 for 30 listings in over 24 buildings from TorontoRentals.com.
“This pandemic could have a real impact on the supply of new housing in the GTA in the long term, as missed payments by tenants and lower rents could have many investors rethinking future pre-construction condo purchases,” explained Ben Myers, president of Bullpen Research & Consulting, in the press release.
“These buyers help developers reach pre-construction sales targets, and a decline in investors will result in significantly less new housing supply in four to five years if these purchasers change their condo-buying habits,” he said.
However, condo units purchased up to decade ago did not see similar results compared to their newer counterparts. Instead, long-term investors have been seeing positive returns, with units bought seven to ten years ago producing $400 to $600 in positive cash flow over the same period, according to the report.
For example, Edge 2 at Triangle Park, which launched sales in 2010 and finished construction in 2014, showed positive cash flow of $565 per month. This is based on listing data from three units on TorontoRentals.com with average rents of approximately $2,450 and monthly carrying costs of $1,885.
“Developments completed after November 2018 are not subject to rent control in Ontario, and investors in those buildings are more likely to decrease their asking rents short-term, knowing they can raise them to the market rate when the economy and real estate recovers,” said Matt Danison, CEO of TorontoRentals.com, in the rental report press release.
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“So this factor, plus the incentives offered shows the market may be softer than our data shows,” Danison continued.
The report also highlights changes within the general rental market. Across the GTA, average rental rates for all property types dropped by 2.7 percent down to $2,180 per month. Based on a smaller sample size of properties, rent per-square-foot was also down 1.2 percent monthly in April, but was trending up 5.0 percent annually.
Richmond Hill listings posted the highest rent amounts last month, asking $2,387 per month, followed by the City of Toronto at $2,362 and the former City of Etobicoke at $2,337 monthly.