Portion of condo apartments in rental market on the rise across ...

Condominiums continue to have a major impact on the apartment market across the country as more and more people buy them as investments and rent them out, says a new report.

Canada Mortgage and Housing Corp. released data Thursday for October 2012 which shows that in 10 of the 11 markets surveyed, the percentage of condos being rented out continued to rise, with as much of 30.4% of the stock in Calgary?s market now being used as rental apartments.

In Toronto, easily the largest condo market in the country, 22.6% of that housing is now rental apartments.

It is the secondary market that is providing and has provided most of the new rental supply for the last 30 years

That massive build-out of condominium towers has all but saved the apartment sector from a vacancy problem as landlords have cut back on so-called purpose-built apartments constructed exclusively for rental, said the head of a major industry group.

?We would be in deep trouble,? says John Dickie, president of the Canadian Federation of Apartment Associations, about where the market would be without the condo sector. ?It is the secondary market that is providing and has provided most of the new rental supply for the last 30 years.?

The CFAA says the percentage of new housing made up of traditional apartment buildings was as high as 30% in the 1960s but has shrunk to below 10% recently. Renewed demand for income-oriented property from the real estate investment trust sector has helped fuel some construction, said Mr. Dickie.

?There is more than before because of the demand for rental properties by REITs,? he said. Canadian investors looking for consistent yield have turned to publicly traded REITS which are up about 75% over the last three years in terms of total return and currently yield about 5%.

?The REITs have been buying out the apartment stock and are hungry to buy more. As the REITs are buying up the apartment stock, it becomes potentially more attractive to build them,? Mr. Dickie said.

Not attractive enough to outpace condos and his group is calling for tax deferral for apartment building owners on any capital gains if they sell a building and buy another one.

While critics decry overbuilding in the condo sector, CMHC data shows a relatively tight vacancy rate. The vacancy rate in the Toronto condo market was 1.2% in October 2012, up from 1.1% a year earlier. For traditional apartments that vacancy rate was 1.7% in October 2012 up from 1.4% a year earlier.

Condo apartments are being scooped up in most of the 11 major markets surveyed with Ottawa having the highest vacancy rate at 3.2% in October 2012 up from 1.4% a year earlier. Calgary had the sharpest drop as the vacancy rate for condo apartments hit 2.1% in October 2012, down from 5.7% a year earlier.

CMHC won?t comment on the impact the condo market might be having on traditional apartments but the vacancy rate in that sector jumped to 2.6% from 2.2% during the period studied for the 35 major centres studied. During the same period rents jumped 2.2% for a two-bedroom unit in a traditional building.

The Crown Corp. did say people over the age of 25 likely helped boost the condo market which is described as ?typically a high end substitute? for traditional apartments. Full-time employment for those older than 25 jumped 2.2% during the period helping to boost condo demand.

?Older households are generally more affluent than younger adult households,? CMHC noted in its report.

Meanwhile that 25 and under group, the ones more likely to be in cheaper existing apartment stock, saw their employment numbers go down over the last year.

?Students and young workers typically rent first and then go to home ownership. When you have lower employment, it impacts household formation,? says Mathieu Laberge, deputy chief economist with CMHC.

Source: http://www.davidsells.ca/portion-of-condo-apartments-in-rental-market-on-the-rise-across-canada/

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