A higher amount of small condo units under 600 square feet are being used as investment properties in Toronto and Vancouver. A new report from Statistics Canada looked at investment behaviour across five provinces in 2022 and found 800-square-foot-plus family-friendly units were less desired.
In Toronto, nearly two-thirds of the 600-square-foot units constructed after 2016 were investment properties compared to larger units. These smaller condo apartments in new builds have been increasing, from 7.7 per cent built in the 1990s to 38.4 per cent of those built after 2016.
Smaller units are also a favourite among investors in Vancouver, but to a lesser degree. An estimated 58.4 per cent of new condo apartments under 600 square were investment properties in 2022, compared with 38.9 per cent of those that are 800 square feet and over.
These investor preferences may be influencing the type of condos that get built, as developers use pre-construction sales to secure financing for their projects. Investors look to buy pre-construction units to either rent out or sell at a higher price once the building is complete.
The perception that investors prefer shrinking units due to the higher rent per square foot of living area might be causing a ripple effect. In Toronto, the average living area of condo apartments built in the 1990s was 947 square feet, compared with 640 square feet for those built after 2016. In Vancouver, size also declined over the same period, from 912 square feet to 790.
There is a higher share of tenant-occupied condos. In Ontario, a few cities are well above the provincial average of 43.5 per cent. This is particularly the case in London, where 85.5 per cent of condo buildings are operating like rental properties, followed by Windsor and Kitchener-Cambridge-Waterloo.
One motivating factor is that some large condo buildings are owned by a single business entity with the purpose of renting. “This phenomenon emerged in part because of tax incentives that used to prevail in some Ontario cities, whereby buildings split into distinct condominium apartments could face lower municipal tax rates than rental buildings,” the report states. “As a result, developers of large apartment buildings would sometimes classify them differently for tax purposes, rather than treat them as a single rental property.”
Yet when excluding buildings owned by a single investor the share of condos used as investment properties would drop to a level closer to the provincial average in most cities in Ontario. This isn’t the case in Toronto where investment properties in condos (about 4 in 10) remained stable.
