Small landlords face big competition

Canadian Real Estate Wealth

Jennifer Paterson 26 May 2015

As Canada’s biggest cities grow saturated with condo and apartment buildings, developers are leading a rental revival by selling entire buildings to one investor rather than individual buyers – but what will be the impact on the market?

“It’s going to strengthen the resale rental market, so built-for-purpose rentals will be stronger in the long run, but in the short term all the older buildings are going to take a hit,” said Lena Guirguis, a real estate entrepreneur based in Ottawa.

According to recent research published by commercial real estate brokerage CBRE Group, there were nearly 24,000 rental units under construction across Canada in the second half of 2014, an increase of 52 per cent from a year earlier.

More and more developers jumping on the bandwagon, including Urbancorp in Toronto, which cancelled one of its condo projects in Liberty Village, advising 200 would-be condo owners that their units would be turned into rentals.

“Essentially, we are starting to see certain condo developments not selling as fast and the developers are opting to convert into rentals,” explained David Nugent, CIO and COO of WealthSimple.

Another example is in Ottawa, where Brigil Construction is planning to market its new 140-unit project on St. Laurent Boulevard solely to renters, and is considering a mix of condos and apartments at other proposed sites, such as Parkdale in Ottawa’s west end.

Also, since purpose-built condos and apartments that were built after November 1991 are not rent controlled, older buildings in these cities will struggle. “This will kill the resale market in the long term,” said Guirguis.

“They won’t be able to afford to go in and spend chunks of money to stay competitive, because they can’t recover it.”

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