Montreal might have one of Canada’s hottest real estate markets,
but that doesn’t mean its high-rise condo investors are reaping the
benefits.
According to a Canada Mortgage and Housing Corporation report,
upwards of 75% of investors in the new high-rises that have
recently sprouted around downtown Montreal are in the red—the
reasons being their mortgage payments, condo fees and annual
taxes.
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“We had a sample of 375 condo units being rented out of the new
high-rises in Montreal, and we see cash flow is mostly negative in
those condos,” Francis Cortellino, a CMHC economist, told CREW.
The number could be lower, though.Cortellino advises that the
study presumed those buyers only put 20% down to purchase their
units, but the reality is a number either put more money down or
even purchased in cash.
The report brings to mind a joint report from CIBC and
Urbanation earlier this year that revealed 44% of Toronto’s condo
investors were in negative cash flow—of which 45% were short by
less than $500, and 20% between $500 and $1,000.In that case,
investors were very likely banking on
Montreal might have one of Canada’s hottest real estate markets,
but that doesn’t mean its high-rise condo investors are reaping the
benefits.
According to a Canada Mortgage and Housing Corporation report,
upwards of 75% of investors in the new high-rises that have
recently sprouted around downtown Montreal are in the red—the
reasons being their mortgage payments, condo fees and annual
taxes.
Subscribe to CREW for the best in real estate
news and insight – whatever the season.
Use code HOLIDAYS2018 to claim your free festive gift.
“We had a sample of 375 condo units being rented out of the new
high-rises in Montreal, and we see cash flow is mostly negative in
those condos,” Francis Cortellino, a CMHC economist, told CREW.
The number could be lower, though.Cortellino advises that the
study presumed those buyers only put 20% down to purchase their
units, but the reality is a number either put more money down or
even purchased in cash.
The report brings to mind a joint report from CIBC and
Urbanation earlier this year that revealed 44% of Toronto’s condo
investors were in negative cash flow—of which 45% were short by
less than $500, and 20% between $500 and $1,000.In that case,
investors were very likely banking on long-term asset appreciation,
and may have even been using their losses to offset taxes.
“This report is more of an open question about Montreal.We’d
have to dig deeper,” said Cortellino.“Investors in Montreal may be
hoping for the same result that cash flow may be negative in the
short-term, but when they sell their units, value would increase a
lot.This report is the first step to seeing what’s going on in
those new very large high-rises in Montreal.”
The CMHC report showed that operating expenses exceeded rents by
an average of $385 a month.
Brad Henderson, president and CEO of Sotheby’s International,
says there could be other factors at play.If Toronto is any
indication, the most likely reason is that investors are hedging on
expected appreciation.
“If it’s a fully financed condo, it’s as true in Montreal as it
is in Toronto,” he said.“Most people are banking on appreciation of
the underlying asset, in this case a condo, being part of their
overall return.They’re expecting appreciation will be more than
enough to compensate them for their negative cash flow, and only
time will tell if that’s what will happen.In Toronto, people have
been rewarded for new construction condos, where they’ve had to
fund them for the first couple of years before selling them either
to another investor or to an end-user.”
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