A safe investment?
“Say hello to the new face of wealth
inequality in Toronto, where owning a back yard is a pass to riches,
and owning a balcony is a pass to condo fees.”
They can be, especially in the newer buildings that were well built and
are in good locations.
However, this is not always so, especially in the long run. Buying a
condo is like buying a stock in a company. There are the right times to
buy and the right times to sell; just ask anyone who owned stock in
Nortel or RIM.
With some condos, there never was a good time to buy.
Having a majority of owners who resist fee increases can be a
serious issue. Retirees on a fixed income who underestimated the cost
of condo living could become hard pressed when faced with rising condo
fees and special assessments. Young couples can run into trouble if one
of them loses their job.
Investors seldom want any fee increases as most have no long-term
interest in the building. They are there to make a buck and strive to
maintain a positive cash-flow.
Pick the wrong building, or buy at the wrong time, and instead of
earning equity on your condo, you could find that your unit is
decreasing in value. In a worse-case situation, the city inspectors
issue expensive work orders, CMHC or the two private mortgage insurers
will not insure mortgages, the common
elements require millions of dollars in repairs—of which you are
responsible to pay your portion—and that there is a risk of you being
driven into bankruptcy.
In a neighbourhood of freehold houses, if a few homeowners run into
financial trouble, their individual difficulties does little harm to
the value of their neighbours' homes.
However condos are different. Condominiums are the most volatile of
real-estate products due to its co-operative structure and its
dependence on the financial stability of all of its owners.
The ongoing value of every unit in a condo corporation is directly tied
to the value of all the other units. Everything depends on the owners
electing competent directors to govern their condo corporation and on
all of the owners paying their mortgages, monthly maintenance expenses
and special assessments when they become due.
Not cheap housing
Condos are marketed as an affordable alternatives to traditional
housing. This is not so. It is a mistake to think of condos as cheap
Financially weak unit
owners are hammered when a recession hits. When
they fail to pay their monthly fees and/or mortgages, the banks or the
condo corporation will put a lien on their units and they will be sold
by power of sale.
In the worse-cases, condos have become financial nightmares, especially
for low-income buyers who bought with low down payments. Thousands of
condo owners had their savings wiped out by special assessments,
ever-rising condo fees and the corporation taking out large loans. They
have seen their property values cut in half or more. Hundreds of others
have lost their homes and went into personal bankruptcy.