While investors eschew the condo segment altogether and downsizers tread cautiously, an emerging cohort of buyers has entered the arena: well-established homeowners who are eyeing the current weakness as an opportunity to purchase units for their adult children.Frank Gunn/The Canadian Press
In a Toronto condo market awash in inventory, it can be difficult to stand out, says broker Davelle Morrison of Bosley Real Estate. So she recently decided to hold an open house for a corner suite with a view.
A resident of the mid-rise building near Bayview Avenue and Eglinton Avenue East casually dropped by to see the two-bedroom unit listed with an asking price of $875,000.
A few days later, the woman’s husband called to say the couple was interested in purchasing the unit.
“The father flat out said, ‘we’re buying this for our daughter,’” says Ms. Morrison.
While investors eschew the condo segment altogether and downsizers tread cautiously, an emerging cohort of buyers has entered the arena: well-established homeowners who are eyeing the current weakness as an opportunity to purchase units for their adult children.
Alexandra Ducharme, economist with the National Bank of Canada, estimates sales of condos in the Greater Toronto Area edged up 0.6 per cent in September from August on a seasonally adjusted basis following a 10 per cent drop the previous month.
New listings of condo apartments in the GTA rose 9.9 per cent in September from August.
As a result, conditions in the condo segment are tilted considerably in favour of buyers compared with the historical average.
Ms. Morrison says parents are going beyond topping up a down payment. Recently several of her sales have involved wrangling with parents who not only provide the funds but also hold a lot of sway over the purchase.
The sellers, meanwhile, are often investors who have decided to exit the market because a tenant has recently moved out.
That was the case for the unit at Bayview and Eglinton.
The couple buying for their daughter submitted an offer of $810,000, but walked away when the seller signed back a counter-offer.
Ms. Morrison says the buyers returned three times but walked away from each counter-offer with the explanation that they had lots to choose from. She figured the unit at that particular address offered something competing properties did not: “They obviously want their grandchild and daughter to live in the building,” she says.
The seller held on at $850,000, and eventually the buyers agreed.
In the Grange Park neighbourhood near OCAD University, Ms. Morrison listed a ground-floor unit with an asking price of $536,000. She placed a “for sale” sign with a QR code out front.
A young passer-by booked an appointment to view the one-bedroom loft with exposed duct work, distressed hardwood floors and a small patio.
“Then her mother got involved and brought her own agent,” says Ms. Morrison.
The buyers made clear that their offer of $500,000 was their “best and final” offer, and the seller accepted.
“The parents are all involved,” Ms. Morrison says. “It’s the only way young people can afford to buy.”
Her listing for a studio apartment at 121 McMahon Dr. near Sheppard Avenue East and Leslie Street in North York also drew enquiries from parents.
Buyers can find units there of less than 500 square feet, she points out.
Ms. Morrison is working with another client looking to buy one condo unit for each of his kids. He plans to find tenants for the units until the kids are finished university and ready to move into them.
In some cases, buyers are testing the sellers with offers far below the asking price.
At 300 Balliol St., Ms. Morrison has listed a two-bedroom, two-bathroom corner suite with an asking price of $898,000. Twice buyers have submitted bids but the two sides are so far apart that negotiating has been fruitless.
“The offers were so low we really couldn’t make it work,” she says.
Plenty of new condo supply continues to stream onto the market from investors, owners moving up to a house, and newly completed projects.
In the affluent Beaches neighbourhood in Toronto’s east end, broker Rochelle DeClute of Union Realty says the prices of condos have been dropping as sellers are forced to compete with the glut of other listings.
“We’re definitely reducing on condos,” she says.
Those deals have caught the eye of some of the area’s homeowners with deep pockets. They are content to hold the units with a long-term view, she says.
“People are picking them up for their kids.”
Christopher Bibby, broker with Re/Max Hallmark Bibby Group Realty, says he heard more often from parents who wanted to buy for their kids in years past when real estate was on a high-octane run and the kids were in pre-school.
Those parents were buying into preconstruction projects with a long-term view.
Currently he continues to see plenty of money flowing from the “bank of mom and dad.”
In some cases parents help young families trade up to a larger home with the aid of an early inheritance. Or they may provide bridge financing if a family buys a new home before an existing one has sold.
“If there’s a home to sell, there’s a lot of parental help,” he says.
Mr. Bibby has not been keen on buying condo units in the preconstruction phase for many years, since the price-per-square foot began to surpass the price of a unit in the resale market.
But many people were bullish on real estate and they were counting on capital appreciation.
“Younger parents were buying in pre-construction,” Mr. Bibby says. “They thought, ‘we’ll just hold it for their future.’”
These days preconstruction sales have taken a deep dive.
“The model makes no sense,” he says of the current math. “It only makes sense for the developers.”
Mr. Bibby points out that young parents who buy now with the thought of holding a unit until their kids can move in need to think about paying maintenance fees and other expenses, and possibly finding tenants.
“What kind of shape is the condo going to be in? It had better be well-managed and well-built.”
He adds that the city still has a lot of condo inventory to work through.
“From an investment standpoint, I think this is not the time. I don’t think anyone thinks this is the bottom.”