Are Condos a Good Investment?

Many hopeful homebuyers are still resting on the sidelines of the Canadian real estate market, whether because of high mortgage rates or rising home prices. Despite the excess of barriers to entry, first-timers and families continue to understand the importance of home ownership and how it remains one of the best investments your household can make. This begs the question: are condos a good investment?

Economic and housing market conditions can change. The change in the Bank of Canada’s (BoC) policy rate can be the next catalyst in the real estate sector that prospective homebuyers might need to pay attention to in the coming months. Federal government policies unveiled in the recent budget may be another trend that buyers and sellers should also consider this year.

That said, in many housing markets across the country, single-family homes may be out of reach on the affordability scale. However, condominiums continue to be one of the best ways to achieve the dream of home ownership. So, let’s explore whether condos are a good investment in the current market.

While vulnerabilities in the condo market exist, a studio or one-bedroom suite, even in a major urban centre, can be an exceptional way to launch your home-buying journey. And for the opportunist looking to buy, there is always an upside to a down market for someone willing to take on some calculated risk – and a downside to an up market.

Below, we look into current Canadian condo market trends to help hopeful investors make an informed decision:

A Look at Canada’s Condo Market

So, how has the Canadian condo market performed in the first half of 2024? The numbers have been mixed, from the Toronto real estate market to the Edmonton housing sector. Here is a breakdown of some of the most notable housing markets in Canada.

GTA: Condo Sales Up, Prices Down

According to the Toronto Regional Real Estate Board (TRREB), condominium apartment sales in the Greater Toronto Area (GTA) surged 5.3 per cent year-over-year in the first quarter of 2024. The average condo selling price in the GTA tumbled by one per cent compared to the same period a year ago, totalling $693,754.

Condo sales are expected to generate momentum as interest rates begin to trend lower. At the same time, prices could also tick higher on tighter market conditions.

“As first-time buying activity increases with lower borrowing costs later this year and into 2025, inventory will be absorbed, and market conditions will tighten,” said Jason Mercer, the TRREB chief market analyst. “Increased competition between condo buyers will result in upward pressure on selling prices.”

Vancouver: The Condo Market is Flatlining

The Vancouver real estate market is one of the hottest markets in the country. But local real estate association leaders notice one part of the city’s housing industry that is not booming like single-family homes: condos.

According to new data from the Real Estate Board of Greater Vancouver (REBGV), condo sales edged up 0.2 per cent year-over-year in April, totalling 1,416 units. They also slipped 0.1 per cent from March. In addition, condominium prices totalled $776,500 in April, up 3.2 per cent year-over-year and just 0.1 per cent month-over-month.

“The one segment that didn’t see an uptick in prices in April were apartments, which saw a 0.1 per cent decline month-over-month,” observed Andrew Lis, REBGV director of economics and data analytics. “This moderation is likely due to a confluence of factors impacting this more affordability-sensitive segment of the market, particularly the impact of higher mortgage rates and the recent boost to inventory levels, tempering competition somewhat.”

Calgary: Condo Sales Up, Prices Up

Calgary, which is in the middle of a population boom, has enjoyed an active real estate market. On the condo front, sales rocketed at an annualized pace of 24 per cent in April, totalling 822 units, according to the Calgary Real Estate Board (CREB). More than 1,000 new residential listings fueled the impressive sales activity, though inventories are close to 35 per cent below long-term trends.

As for the selling price, the benchmark price for a condo in Calgary climbed 18 per cent compared to the same time a year ago, reaching $346,200. At the same time, price growth was primarily concentrated in the city’s northeast and east districts, with prices soaring more than 30 per cent. By comparison, price growth was 13 per cent in the heart of Calgary.

Edmonton: Affordable Housing Galore

In the Edmonton real estate market, condo sales soared 72.5 per cent from April 2023 and more than 33 per cent month-over-month. On the pricing front, the average selling price for an Edmonton condo jumped 3.5 per cent from March to April, exceeding $200,000.

“Sales continue to outpace last year’s numbers with generous margins,” said REALTORS® Association of Edmonton 2024 Board Chair Melanie Boles in a report. “Sellers are doing their best to hold up their end, adding 8.7% more new listings to the market last month, and hopefully, we’ll see even more homes up for sale now that prices are steadily rising.”

Condo and Rental Building Construction Hit Record Levels’ in 2023

Canada Mortgage and Housing Corporation (CMHC) released the Spring 2024 Housing Supply Report that found the construction of condominiums and purpose-built rentals reached “record levels” in 2023.

According to the CMHC, purpose-built rental and condo construction starts in six major housing markets combined to reach all-time highs last year in Toronto, Vancouver, Calgary, Edmonton, Ottawa, and Montreal. Condo construction starts climbed to a record high of 57,121 units.

Edmonton led the country, with starts soaring 80 per cent.

“In recent years, purpose-built rentals have constituted a larger share of apartments breaking ground, averaging 42 per cent in 2023,” the report stated, adding that this was fuelled by developers selling pre-construction condos in 2021 and 2022.

“During that period, pre-construction investors were particularly encouraged by rapidly increasing rents, price appreciation and the record-low interest rates on the market.”

This was the good news from the CMHC. However, the bad news is that experts anticipate a slowdown in starts this year and heading into 2025 amid a reduction in pre-build sales and ballooning borrowing costs.

The current government says “densification” is the chief objective of resolving the nation’s housing affordability crisis. This past fall, Ottawa announced the elimination of GST on purpose-built rentals.

Additionally, Prime Minister Justin Trudeau announced in April 2024 a $15 billion program dedicated to apartment construction loans “to turbo-charge affordable apartment construction in partnership with provinces and territories.

“It will provide low-cost loans, help speed up development and build projects of the scale necessary to meet the urgent needs of Canadians,” the prime minister told reporters. “We’re going to make the entire pot of funding available for matching partnerships and territories that come to the table with ambitious and fair housing plans.”

Why Condos Are Still a Good Investment Today

Whether you reside in Toronto or live in Atlantic Canada, condos continue to be a terrific investment. They offer various benefits for first-time homebuyers, middle-class families, and retirees. While they do appreciate in value at a slower pace than detached or semi-attached homes, condo prices generally grow over time.

Of course, the primary selling point is that units cost a lot less than a single-family property. In April, the average selling price of a condo in Canada is approximately $536,000. By comparison, the average selling price of a detached house is around $812,000.

It is also important to weigh the pros and cons of condo ownership: amenities, lack of external maintenance and repairs, monthly fees, special assessments, and possible rental restrictions.

Ultimately, condos can be the best way to get your foot in the door of home ownership.

Looking more information about condos in your area, or are you ready to buy or sell? Contact a RE/MAX agent today.