For Toronto condo investors the market has experienced significant challenges in recent times, with declining prices and many landlords facing losses on their rental properties. As an investor, it’s crucial to re-evaluate your strategies to weather these fluctuations and position yourself for long-term success. In this blog, I’ll explore the reasons behind the dropping condo prices, the difficulties landlords are encountering, and potential solutions to navigate this complex market.

Why Are Condo Prices Dropping in Toronto?

Several factors have contributed to the decline in Toronto condo prices placing a strain on Toronto condo investors:

1. Rising Interest Rates: The Bank of Canada has raised interest rates to combat inflation, making mortgages more expensive and decreasing demand for condos. According to the Toronto Regional Real Estate Board, the average selling price for a condo in the Greater Toronto Area was $702,142 in Q4 2023, down 1.1% compared to Q4 2022.
2. Inflation and Economic Uncertainty: High inflation rates and economic worries have caused potential buyers to postpone purchasing decisions. Urbanation reported that new condo sales in the GTA dropped by 47% year-to-date in 2023 to a 10-year low.
3. Increased Supply: There has been a significant increase in condo listings, creating greater competition for buyers. Toronto Regional Real Estate Board data shows new condo listings were up by more than 29% in Q4 2023 compared to the same period in 2022.

Toronto Condo Investors: Challenges Landlords Are Facing

Landlords who own condos as rental properties are facing several challenges:

1. Rent Control Regulations: Rent control limits the potential to increase rental income, making it difficult for landlords to keep up with rising costs. In Ontario, rent increases are capped at 2.5% for 2023.
2. Higher Mortgage Payments: Rising interest rates have increased mortgage costs, affecting profitability for landlords. A report from CIBC and Urbanation found that in 2020, condo investors were making on average $63 a month. By 2022, they were losing $223 a month and in 2023 year the loss increased to $400 a month. About 11 per cent of this group were losing $1,000 a month or more, the report said.
3. Increased Vacancy Rates: An oversupply of rental properties can lead to higher vacancies. In Q4 2023, condo rents in Toronto fell 5.7%, the fastest drop since Urbanation began recording rental data in 2010.
4. Maintenance and Repair Costs: The cost of property maintenance can eat into rental income. As buildings age, these costs are likely to increase.

Solutions for Toronto Condo Investors and Landlords

Despite the challenges, there are strategies Toronto condo investors and landlords can employ to navigate the current market:

1. Long-Term Mindset: It’s essential to think of condos as long-term investments rather than short-term profit sources. Historically, Toronto condos have gained an average of 6% in equity per year.
2. Attracting High-Quality Tenants: Finding reliable tenants can minimize vacancies and property damage. Thorough screening and offering incentives can help attract quality renters.
3. Creative Income Strategies for Toronto condo investors:
   • Short-term rentals: Platforms like Airbnb can provide additional income, where allowed.
   • Furnished Rentals: Offering furnished rentals can attract a specific market and potentially allow for charging a premium.
   • Parking and Storage Rentals: Renting out parking spots or storage spaces separately can generate extra income.
4. Reducing Expenses:
   • Negotiate Mortgage Rates: Seeking the best possible mortgage rates, potentially by refinancing, can help reduce costs.
   • Energy Efficiency: Implementing energy-saving measures can lower utility bills.
   • DIY Repairs: Performing some basic repairs and maintenance yourself, when possible, can cut costs.

Should You Consider Selling Your Toronto Condo?

The decision to sell your condo depends on your personal financial situation and long-term goals. Analyze your circumstances and consult with a real estate agent and financial advisor to determine the best course of action. They can provide guidance on market trends and optimal timing for a potential sale.

Conclusion

Toronto condo investors are facing significant challenges, with falling prices and many landlords experiencing losses. However, by adopting a long-term perspective and implementing proactive strategies, investors and landlords can weather these fluctuations. Attracting quality tenants, exploring creative income sources, and reducing expenses are key to navigate the market. Remember, the current difficulties are likely temporary, and with careful planning and professional advice, you can position yourself for success in the Toronto condo market.