Buyers with long-term rate holds on pre-build condos are increasingly scrambling at closing to re-qualify, due to tighter lending rules.
“What happens is closing costs can be higher on pre-builds; (buyers) may have put a deposit down in 2009 and they’re hit with $20,000 closing costs,” Drew Donaldson of Safebridge Financial told MortgageBrokerNews.ca. “It’s not really a rate issue because rates have actually dropped… the guidelines have really tightened up, especially for self-employed clients.”
And while some pundits are pointing to these troubles as the first sign of a housing catastrophe, Donaldson is quick to quell the doom and gloom. Still, he does admit that a condominium may not be the best choice for an investment property.
“That’s more fear mongering,” he said. “If a client asked me: ‘What would be my best investment?’ I always say your best bet is a piece of land.”
That isn’t to say condos are no longer a worthwhile investment; it’s just that the way an owner cashes in on a condo may be changing.
“Condos will slow down (but that) doesn’t mean it’s a bad investment,” Donaldson said. “These new things like AirBnB allow you rent your condo by the night. It’s not a bad investment from an income investment, but as far as appreciation it won’t keep up with freehold homes.”
The key for buyers, who are set on purchasing condos, is seeking the advice of a broker early on in the planning stages to ensure they are aware of the ever-changing lending landscape.
“There is no question that there is a need for warning clients,” Chris Karram of Safebriedge Financial said. “Previous to the last year or two it hasn’t been much of an issue, but people buying new condos need to be aware of the changes.”