Rising condo fees cool market for brokers

Rising condo fees cool market for brokers

While tougher mortgage rules have rekindled interest in condos, rising fees coupled with first-time buyer fears have limited the ability of brokers to capitalize on it.

“Condo fees are escalating, and with the government’s new amortization limits  and concerns about interest rates increasing, first time buyers are encountering greater hurdles to condo ownership,” said Michael Pezzack, a broker with Buyingblock.com, a web-based real estate and mortgage hub for Toronto first-time homebuyers. “That means less business for us.”

Condo sales were down 21.3 per cent year-over-year last month in the unsinkable Vancouver market, even as the number of detached houses purchased climbed 2.3 per cent. Another key market condo market, Toronto, saw new condo sales slip just under 5 per cent in the first quarter of 2011 compared to the first three months of 2010, according to the latest data. The number of pre-existing units changing hands dropped nearly 10 per cent over the same period.

The slippage runs counter to what many industry players had predicted following the government’s move on March 18 to tighten mortgage rules in order to discourage Canadians from taking on more debt. Then, many brokers suggested the decision to drop the maximum amortization to 30 years would increase the number of homebuyers turning to the condo market, unable to qualify for pricier single-family houses.

While lowering that ceiling has fueled interest in the condo market, a 4-to-5-per cent rise in condo fees over the last two years coupled with fears about a pending interest rate hike have kept many potential buyers from making a commitment, Pezzack told MortgageBrokerNews.ca. Here, again, it may be a question of affordability, with lenders using 50 percent of the condo fee when calculating debt-service ratios. Even a modest rise can block urban buyers from gaining a foothold in more desirable neighborhoods.

The result is some first-time buyers are simply deciding to wait it out, rather than further scale back their expectation, said Ranjit Dhillon, principal broker at Centum Mortgage Smart Inc., in Etobicoke.

“When the banks stopped giving 35 mortgages that was the time when people started calling the brokers,” he told MortgageBrokerNews.ca. “But that doesn’t mean that they are buying the condos now.

Dhillon and others point to buyer concerns that there may now be an oversupply of units in key urban centres – with the inevitable price adjustment soon to follow. “Many prefer to wait and see,” he said.

His analysis comes on the heels of a new poll suggesting two-thirds of young urban Canadians who recently bought or intend to buy a condo would prefer a house.  The 2011 TD Canada Trust Condo Poll also backs up Pezzack’s suspicions about condo fees.

About 95 per cent of respondents list those fees, which cover amenities and building maintenance, as the most important feature to look for in a condo. Four-in-five also said they’d be unwilling to pay more than $400 a month.

 

1 Comments
  • Julia Krause 2011-05-12 4:02:23 AM
    "Four-in-five also said they’d be unwilling to pay more than $400 a month." As a long-time mortgage broker and a long-time member of my strata council ('condo board') I just want to say that it's important for clients to really understand why condo fees are the amount they are, and what that money is paying for. It's challenging to keep condo fees low (or even stable) when service providers constantly raise prices, and insurance costs are high, just to name 2 things... and there are SO many other things to factor in. Also, the more amenities a building or development has, the higher the condo fees will be. You get what you pay for. Living in a condo/townhouse isn't for everyone, but for some people, it can be the ideal thing.
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