Analysis, Distinction and Definition: Calgary's
Condo Market
A client and good friend recently wrote to me
with his thoughts on the condo market, particularly supply and price:
“You are talking about the Calgary RE market like it is one big market that is recovering nicely etc etc. I think to cover your butt you may want to mention the condo situation, which is that there is a glut of new condos coming onto the market this year, and condo prices will likely not recover until that glut works its way through the pipeline. I’ll bet (I don’t know) one reason for the huge drop in inventory absorption rate is that a lot of the new condos have been dumped into the rental market since the [new building] owners have given up trying to sell them when prices are down and falling. The analysis I have seen (La Sing Louie,
RBC, TD) indicates this will take at least 2 years to resolve itself.”
- A. Mc.
There are
two separate condo markets in Calgary: Buyers who wish to live in the condo as their home and Buyers who are purchasing
for investment only. The investor-grade properties will look cheap and attract those who are risk takers and possibly people who naively think they are getting a good deal on a home. The naïve home-seeker will be sorry.
I warn all my clients about the risks of un-established condominium
complexes. It can take time for a condominium corporation/community to get established. There is greater possibility of problems before the condo is established with owners representing the condominium corporation. Secondly, one of the greatest
distinctions of quality of an established condo complex is a high percentage of
owner-occupants.
This distinction of the two condo markets needs to be made to buyers, who see all kinds of prices and whose analysis finds newer, or non-established condos cheaper and then believe that’s where the market should be for all condos. However, this is
comparing apples and oranges.
Un-established condominium complexes in the current market are a concern to those who seek a home. Until a complex is established, it can fall prey to loss of interest from owners who may have plans to rent if they can’t sell or produce a profit from sale, owners abandoning their ownership as a result of foreclosure, or even the original developer, who may be over-extended and can’t find financing to complete. Those who naively buy into this situation might find they are the only ones paying condo fees to run the building, that they have neighbours who are renting and don’t care about the building or the community. Finally, the naïve owner will find that they have no way out, because there is a glut of units for sale, competing for few buyers, who by the way are investors, and therefore only interested in paying rock bottom price.
On the other hand, if one is an investor with only the intention of renting, and are not concerned about a few setbacks, these buildings and units can represent a good opportunity for a long term gain as they provide rental income. As the time passes they can grow owner residents and a community, are likely to eventually recover and produce capital gain. While I’m happy to sell investors
Un-established Condos, for most of my clients it would be like sentencing them to hell.
This distinction is important because Investors talk about a declining condo market, but theirs is the risky
un-established condominium, and they are not interested in “established” condos because they are too expensive.
The fact is that there is no glut in established condominium communities. People looking in this market will find that they currently have a good but limited choice of properties available, and if they attempt to buy at the price of
un-established condos, they are frustrated.
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After speaking to the distinction between established condominiums for the homebuyer and the much more risky
un-established condominium complex for investors, I can now speak to your question about describing the market in my statistics and
analysis:
Most property in Calgary is listed through MLS on the Calgary Real estate board. As such, MLS statistics are far and away the best sampling possible for representing the residential real estate market of Calgary.
Newer un-established condos are seldom listed on MLS. Even if an
un-established complex is listed, it is rare that more than one or two representative “show suites” would show up on MLS. While the population of
Un-established is under-represented in the board statistics, those that are owner occupied or in buildings already established are very well represented, as most are sold on MLS.
The statistics I use are from MLS and for the most part do not include new complexes that in the current market are at risk. While you have a point that this may be a large segment of unestablished condominiums, and the prices of these can be quite competitive compared to those established condos, they are only of interest to those homebuyers who are naïve, or investors who will rent the units.
Because my newsletter speaks more to the homeowner (resident) rather than landlord (investor) the board statistics are an excellent sample representation of Calgary’s residential
market. For investors, a separate sampling would be appropriate, but this is the work for others.
Since this is the statistic I draw from in my analysis , it makes sense to keep it simple as one overall market, and for the reason mentioned above, that there is only so much room in the newsletter to meet its purpose..
Further analysis is available to each of my clients at a much more important and specific level, and that is valuation on their potential purchase or listing. Not every agent is prepared to do this.
The supply of condo property that is available to live in is currently declining and if it’s going to be replaced by the new condos then they will have to be considered successful before they are accepted as more valuable, as a place to live and be secure. This can take some time once a property is established as a rental haven. This is a continuing problem for supply of established communities because it will in fact take longer for the new buildings now to become established, thereby shutting off the supply until this happens. The demand for established condos can be seen to be strong and growing stronger. Supply of new is being cut back.
Looks like there’s a strong case for increasing prices in established condominiums.
As always, I welcome your feedback and questions.
- Frank
07-07-09
END
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Condo Buying Guide
Single Family Home vs. Condo –
What's Right for You? Download
the CMHC Condo Buyer Guide
Whatever your reasons for considering a condo, it's important you start out by knowing what you're buying into. Some people don't have a clear understanding of what a condominium really is. They use the term “condo” as synonymous with “apartment”. In actuality, “condo” refers to the form of ownership and has nothing to do with the physical characteristics of the unit. In fact, a condo doesn't have to be an apartment at all. A condo can also be a flat, a townhouse, a linked home, or any type of multi-unit residential dwelling or even a commercial property. What defines it as a condo is the form of ownership under which the unit is held.
Condominium refers to the ownership of a specified space or unit in a multiple unit dwelling, plus shared ownership of areas used jointly with other owners. These areas, or common elements, can take the form of a swimming pool, elevators, laundry
room etc. The cost of operating and maintaining these common areas is shared jointly by the individual unit owners in the form of regular maintenance payments, usually paid monthly. The cost is determined by the condominium corporation, a governing body made up of individual unit owners. Since this is a self-governing process, there is a certain degree of control that maintenance costs are affordable.
Condominium ownership offers many of the advantages of ownership, such as title, privacy within your individual unit and the potential to build equity. It also eliminates many disadvantages of home ownership, such as snow removal, lawn care and the unwanted financial burden of single-handedly dealing with major repairs for such roof or furnace replacement. With a condo, you have the peace of mind that your property is being well maintained, with no hassle or surprises.
