Pre-Construction Condo Cancellations In Canada exposes Condo Demand Myth, How CMHC is destroying the Economy – May 17, 2019,
There’s a myth being propagated that there’s a demand for Condominiums in Canadian major cities. This is 100% false, in fact, most people settle for Condos, and what’s worse is that Canada’s condo boom revolves around speculative purchases, that for the most part revolve around purchasing a condo unit to flip it for a profit.
People forget even with CMHC helping people who’d otherwise not qualify for a mortgage to qualify for a mortgage that there are still condo developments that never come into fruition, these condo developments in many instances are close to adequate public transportation, so why then aren’t middle-class people scooping up these condos? The answer, most condos being built aren’t being built based on residential consumer demand. Most of the condos being built all across Canada are small and would be horrible investments if you wanted to raise a family in them.
Furthermore, let’s be honest, Condos are for old retired people and young rich young people who are still into the party life. Nobody wants to pay a mortgage, maintenance, and property price tag to live in an apartment and if they do, it’s because the apartment or Condo at the very least feels like they’re living in a house. As an example in New York, a lot of the condos cater to the uber rich and those condos have huge units and features that are based on the demand of the very demanding condo investors. In Toronto, shoebox condos are the term often used to describe them, the condos in Toronto even if they look nice on the outside are often poorly built on the inside.
Furthermore, if you purchase a condo in Toronto, expect that there will renters, living in your building, don’t expect to have soundproof walls, don’t expect that your unit will have 3 or 4 bedrooms and don’t expect your maintenance bill to go down EVER. Condos have MONTHLY maintenance fees, maintenance fees in Condos don’t deflate, they inflate and inflating condo fees, makes a condo even harder to sell. Maintainance fees plus a mortgage, plus property taxes, plus parking, plus the possibility that your condo might be far from any major highway or far from any shopping mall often means that a newly built condo might have a hard time being sold. Furthermore, demographics play a huge role in all of this.
What disaster did CMHC cause? Condos have now been built where rental housing would have been better served, you can’t speculate rental housing, money laundering is a lot harder in rental housing units, people can’t use their family members to be first time home buyers in a rental housing unit, you can’t artificially raise rental and mortgage prices if people have to abide by the down payment rules of the banks lending the money.
Condos are typically built based on residential demand when individuals have to put 20% down on a mortgage. Interest rates in Canada are near zero, the truth is CMHC doesn’t need to exist right now and the reality is there would be less money laundering if prices for property weren’t artificially inflated because CMHC created a financial atmosphere which allows a larger pool of buyers to get into mortgage debt which also fuels higher rent and lease prices.
There really isn’t any residential demand for Condos, because if there were, people all over Canada would choose to purchase a condo over renting. People can’t afford condos you say? Well if a condo is having preconstruction condo cancellations anywhere isn’ that a sign that maybe some of these condos are overvalued? or Maybe they’re unaffordable for the demographics of the area where they want to build on? If this is the case why is CMHC sticking its government nose into the housing market? Because the truth is if these preconstruction condo cancellations adhered to the market, they’d price their projects accordingly. If something isn’t selling typically it’s an indication that the price is more than the market is willing to pay for it.
In this market of low-interest rates, if the market is telling you that a condo is over-priced, chances are you should lower your price and if you can’t lower your price, why it that affordable rental housing isn’t something these developers are even considering? Developers aren’t considering rental housing because there are more incentives to build condos than there to build rental housing and all of this occurred when CMHC decided to be insurance for mortgages. Rent prices even with the influx of refugees in the 1990s were relatively flat, the problem back then was people with bad credit or people who didn’t want to pay their rent on time. You see when people go to the government to solve a problem, often times the people crying foul can pay the rental prices, it’s just they’d rather not and if a politician will wave a magic wand and tell people that they the super cool politician will lower their rent bill or make it easier for them to buy a house, of course, the stupid voters will vote for the lying politician. The market solved housing problems a long time ago, however, the government stepped in and said we can make this better and stupid Canadians believed them.
The market solved that problem because of a lot of people who couldn’t afford Toronto back then simply relocated. Consumers used to get a lot of rent deals back then if they had decent credit. 2 months free rent, 1-month free rent, if you had good credit or good history paying your rent, you could negotiate for lower rent prices. There’s still an abundance of empty rental space now in Toronto, but you see rental housing has now been replaced with condo rentals, which are based on mortgage prices, which owners of condos are trying to pass onto renters, which also makes rental apartment prices less competitive, because there’s less being built now.
CMHC similar to all government interventions in time tends to favor the rich and corrupt. Being that the pool of buyers has no ballooned because of CMHC allowing lower percentage down payments as well as mortgage insurance, prices are allowed to balloon for properties that aren’t in demand which of course is why Pre-Construction Condo Cancellations are happening so often now.
Most developers are having a hard time understanding the Canadian market because when you look at the numbers, in Canada, sometimes even the demographic numbers don’t make any sense in certain areas, because speculative investment, as well as money laundering, is so widespread throughout the Canadian real estate market, that people forget that in some instances, entire condo buildings might be 80% occupied by speculators, foreign investors, and money launderers, who may all be linked to the same source.
I try to write this information to wake people up, but I don’t think people truly understand how this works. The housing market scam revolves around washing money clean and avoiding not only taxation but also tyrannical governments. There are a lot of speculators in the Canadian market that doesn’t even care if they lose money on their investment, because losing money in Canada would still be better than having their money confiscated in their countries of origin.
This, however, shouldn’t be confused with Pre-Construction Condos who aren’t in on these schemes. Not every condo development understands what’s fueling these money laundering schemes, some developments are oblivious to what’s happening so they might put a condo in an area which on paper based on their research seems ideal, only to find out that there’s no real consumer demand for that area, furthermore, because those developers might have the wrong management, money launderers, foreign speculators will avoid that condo like the plague.
There’s no real demand for Condos, especially small bachelor, 1 and 2 bedroom condos, people settle for condos, old people like condos, the upper middle class and rich like condos, but average Canadians don’t want Condos, I know Canadians who would rather drive 2 hours to work rather than live in a tiny little condo. The condo boom is fueled by CMHC, I think subconsciously everyone in Canada knows this, but you see, CMHC does provide some people hope for purchasing a property at an inflated price.
The problem is that those inflated down payments are getting higher and higher every year, so high now that CMHC is now offering loans for a downpayment, which should be a sign to dissolve the CMHC, but hey, all I can do is give a warning, if this what Canadians want, I guess this is how things will be.
Interesting times ahead.