Butler said there’s been “severe overbuilding” in the Toronto condo market for a number of years, specifically when it comes to smaller units.
“The tiniest of tiny condos,” Butler said. “It’s weird that in a country like Canada where there’s been a consistent housing crisis for the last 10 years that if you build a very bad product, people won’t take it, it’s as simple as that.”
Butler said many of the unsold condos on the market today are ones designed for investors or real estate speculators and are not practical for most families.
“They are roughly the size of large hotel room, only meant to be rented out, and there’s been simply a massive overbuilding of non-family units,” he said, noting that many of the condos for sale in Toronto currently are 500-square-feet or less.
These are ‘starter homes’ only in theory. Really, they are investment properties for rental purposes. One would be foolish to put any more than 10% down on them, you could get a better return by investing the money elsewhere and using rental income to pay the mortgage. No intelligent person in today’s market would actually purchase one of these dormitories for their own residence. Even less would one pay out the entire price or even a large fraction of it to buy one for rental income, the return on investment would be far too low. You would get a higher return from GIC’s.
That’s why so many are just walking away from their pre-payments. They can not justify getting a mortgage for the remainder, and they probably can not get one anyway, given that there is no equity in the property. The mortgage would have to be greater than the unit is worth.