Phenomenon of condo rentals under scrutiny at a time when fears of overbuilding cloud the housing markets in large cities
MONTREAL — Investors could be playing a far larger role in the Greater Montreal condo market than previously expected, new Statistics Canada data published Wednesday suggest.
Nearly 29 per cent of Greater Montreal condos are occupied by tenants, a higher rate than in Canada’s two hottest real estate markets, Vancouver and Toronto, according to the 2011 National Household Survey.
This new data contradict the results of an annual Canada Mortgage and Housing Corp. survey, which says only about 11 per cent of Greater Montreal condos are being rented out to tenants — compared to double that proportion in Toronto.
The phenomenon of condo rentals has come under scrutiny for its association with real estate investors at a time when fears of overbuilding have clouded the housing markets in large cities like Toronto and Montreal.
“(With investors), you do get a more volatile market driven by expectations and interest rates, rather than by fundamentals like having a place to live,” said Robert Kavcic, senior economist at BMO Capital Markets. “But I don’t think there’s a big bubble in the market based on this.”
With 27 per cent of condos in Canada’s major cities now renter-occupied, the survey suggests condos are indeed replacing “purpose-built apartments in the rental market,” Kavcic noted.
Economists generally agree that condo markets in the country’s large metropolitan areas are headed for a “soft landing” this year, with minimal price appreciation, but also little risk of a crash.
Still, Quebec developers regularly argue that the Montreal real estate market is somehow safer than Toronto’s because there are fewer investors, and a higher proportion of condos are being purchased by owners who actually intend to live in their units.
According to the survey, a higher proportion of Montreal condos are being rented out than in Greater Toronto, where just under 23 per cent are occupied by tenants — a result that baffles economists.
David L’Heureux, the CMHC’s senior market analyst for Montreal couldn’t explain the vast difference in the results: “This is something we will delve deeper into.”
Statistics Canada senior analyst Jerry Situ said the survey results didn’t show whether the condo units were actually owned and being rented out by real estate investors or developers.
“It surveys the household,” he said. “We don’t know any characteristics of the people who own the dwellings, if it’s a renter-occupied dwelling.”
Situ pointed out that the rate of homeownership in Quebec is 61.2 per cent, which is the lowest in the country, despite rising from 60.1 per cent in 2006. The rate of homeownership in Montreal was 55 per cent in 2011.
“One thing to keep in mind is that in Quebec, renting is more prevalent than in other provinces,” Situ said.
Montreal real estate brokers and developers agreed that condo rentals are becoming increasingly popular as investments, especially given the limited construction of traditional rental buildings.
“On the ground, we’re seeing a lot of (condos being used as) rentals,” said broker Raymond Singh, who’s sold multiple units in the towers surrounding the Bell Centre, which have largely attracted investors. “Just look at all the students in downtown Montreal; many of them want a nice place to live.”
Bindu Patel, president of the Montreal real estate agency Groupe Agents Élite, said about 60 per cent of her customers are investors who are looking to buy and rent properties.
“There are foreigners and even a lot of locals are now buying condos to rent out,” she said.
She’s heard frequent cases of duplexes once used as rentals in popular markets like Outremont and the Plateau being converted to condos and then rented out again to tenants.
These condo duplexes, for example, wouldn’t be included in the CMHC rental survey, which is based on interviews with condo syndicates, in buildings with three or more units.
Michael Broccolini, developer of the new Montreal condo tower L’Avenue and the sold-out Park Towns project in Toronto, said investors play an integral role in large condo projects in both cities. And with a rental vacancy rate of around three per cent in Montreal, the market will continue to attract them.
“As long as your vacancy rate is nice and low, I don’t see that as a risk,” Broccolini said. “The bulk of (investors) want to hold on to their units.”
More than half of Canadian households living in condominiums reside in the country’s three largest cities: Toronto, Montreal and Vancouver.