Could Rent Controls De-Couple the G.T.A Condo Market ? #RentControl #GTA #TREB

Posted on Posted in Liberty Village, Market Commentary
The new 2018 rent control guidelines (https://www.ontario.ca/page/rent-increase-guideline) which now includes all private market housing units within the province. This new legislation will effect > 30,000 newbie landlords.  Most will be apartments in the sky.
Please note that vacancy rates in the G.T.A are < .085%. This categorical evidence demonstrates that this is a vibrant city where nearly everyone wants to live.  However, the backside of this equation is that a diminutive <700 sq. ft.  condo apartment now rent for >$2,000 per month.
However the real question remains does this seemingly exorbitant rent cover the monthly expenses of the average investor with a 20% down-payment ? The real answer is probably not !
Normally Taxes average $300 per month plus maintenance fees of approx.$500.   Then we have mortgage payments in a rising interest rate environment.
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Presumably the average investor has astutely purchased their high rise rental  between $400 & $700 per square foot. Doing quick median math;   The average purchase price is $385,000 less 20% & closing costs. So approx. > $300,000 multiplied by 5.28 $. which represents per $1,000 at 4% over 25 years, equals $1,584. per month. Thus Total monthly costs are approx. > $2384.
Subsequently, the landlord has a small but significant negative cash flow of nearly $400 per month.
This monthly loss will be exasperated by the final purchase of a condo unit.  Which as most people recognise has been rapidly escalating with near irrational exuberance thru 2016, 2017 & the early part of 2018.
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Combine the former with the new posted bank rates.   Which now hover around 5.5%.for a 5 year term.  Add the new mortgage stress tests and yes Houston we have a problem ! Not surprisingly many new would be Donald Trumps may have to scale back on their # of units as to better provide additional liquidity.
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Please keep in mind that fewer than 20% of G.T.A condos were purchased with an all cash position. This transference of financial responsibility could help explain the exponential rise in 3rd party lending. Private lending is now > 6% of volume & 12% of borrowers.
If this landlord owns more than one rental unit, his annual loss of $4800 is multiplied across the # of units.   So why would anyone continue to hold on to a loosing investment?  Evidently the perception of much higher future returns holds an ultra strong allure.. However unquestionably these beckoning returns will undoubtedly be mitigated by these new designated rent controls.
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Commonly investors require a competitive rate of return.  Logically continually rising condo prices,(now edging in on $1,000 per sq.ft.)combined with curbed rental aspirations will undoubtedly plague Toronto`s sooner rather than later.
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Please do not hesitate to contact any of our 4 offices, if you have any questions about the G.T.A housing market.  WWW.reappraisals.ca or  www.heritagecaledon.ca
NEXT WEEK WE TAKE ON THE THE DISMANTLING OF THE OMB….stay tuned…..
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CHECK OUT THIS VIDEO—> http://toronto.citynews.ca/video/2018/04/04/gta-home-sales-drop-39-5-year-over-year-in-march/

CHECK OUT THE LATEST GLOBE AND MAIL ARTICLE —>https://beta.theglobeandmail.com/business/article-investors-in-new-toronto-condos-face-growing-risk-that-rent-wont/ 

 

https://www.theglobeandmail.com/real-estate/toronto/article-closing-defaults-hit-toronto-sellers-hard-in-housing-plunge-report/

https://www.huffingtonpost.ca/2018/04/07/toronto-real-estate-new-reality_a_23405449/;

 

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