More than half of GTA condo investors losing money on properties, says new report

Last year marked the first time that more than half of investors in newly-completed Greater Toronto Area condos were losing money on their rental properties and authors of the report that reached that conclusion expect the trend to persist.

Last year marked the first time that more than half of investors in newly-completed Greater Toronto Area condos were losing money on their rental properties and authors of the report that reached that conclusion expect the trend to persist.

The research from the Canadian Imperial Bank of Commerce and real estate research firm Urbanation found 48 per cent of leveraged condo investors who bought pre-construction units to rent out were cash flow positive in 2022. For the majority of investors, rent generated by newly-completed units was lower than mortgage costs, condo fees and property taxes.

"This marks a meaningful shift that may potentially signal that a change in investor behaviour is on the horizon," CIBC's Benjamin Tal and Urbanation's Shaun Hildebrand said in their report released Monday.

They say they expect the shift toward negative cash flow to worsen in the years ahead as increasingly expensive new condos pre-sold to investors in the past few years reach completion. They add a reduction in interest rates and further growth in rents will lighten the impact on investors in the years ahead, but won't be enough to stop their financial situations from getting worse.

However, they said, "a lot depends on the outlook for prices and the credit environment. They feel investors have held off selling because housing supply is constrained and not poised to improve by much.

They found developers have the capacity to deliver no more than roughly 20,000 units per year, which represents marginal growth for a condo stock in the GTA that is approaching a half million units.