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Metro Vancouver renters could take the hit as condo investments become less viable

According to data from the Canadian Mortgage and Housing Corporation, condos owned and rented out by private investors make up about 40 per cent of all market-rate apartments in Metro Vancouver.

Analysts say high interest rates and increasing costs make condo investments less desirable

A "sold" sign along a street of townhouses.

As Metro Vancouver rents continue to skyrocket, some housing analysts say factors affecting a key component of the rental market are likely to make matters worse.

Data from the Canadian Mortgage and Housing Corporation shows condos owned and rented out by private investors make up about 40 per cent of all market-rate apartment rentals in Metro Vancouver.

But the combination of increased interest rates, real estate prices and maintenance costs is making condos a less appealing prospect for people looking for a good return on investment, according to some experts.

"For sure, people are less interested in buying condos to rent out than they would have been had interest rates stayed lower," said Tom Davidoff, an associate professor at UBC's Sauder School of Business.

"Those capital gains and growth and rents are still there, but the high-interest rates are a big burden in terms of being able to make payments."

Crunching the numbers

In the Greater Toronto Area, a recent report found that last year marked the first time that more than half of investors in newly-completed condos were losing money on their rental properties.

Even ever-increasing rental charges aren't enough to cover mortgages now that interest rates have risen, Davidoff says — and condo owners are bound by what the market will bear.

According to the B.C. Real Estate Association, the average cost of a condo in Metro Vancouver is now $830,000.

Even with a 20 per cent down payment of $166,000 paid out over 25 years, a 4.99 per cent interest rate would result in monthly payments of $3,858.

No business case

David Hutniak, CEO of Landlord B.C., says that payment doesn't include skyrocketing strata fees and other increasing maintenance costs.

"Real estate investors who provide rental housing, whether in the primary or secondary market, are having to take a very hard look at the financial viability of their current investments, and an even harder look at new acquisitions/development," Hutniak said in an email.

"I suspect more and more of them are saying there's no business case to do it. The risks are too high, and the returns are simply not there."

Hutniak says legislation that limits rent increases in the province means a lot of current owners who bought a condo on a variable rate mortgage are struggling to keep up.

Less supply, increasing pressure

Both Davidoff and Hutniak warn that a housing market with fewer investors, combined with higher interest rates, means a lot of new condo and rental apartment building projects are being put on pause until conditions are more favourable.

They say the decrease in supply will likely put even more pressure on the region's tight rental market over the next few years and raise rents even higher.

Eric Bond, a senior specialist in market analysis with CMHC in Vancouver, says the condo rental market, sometimes called the secondary rental market, plays an important role in Vancouver.

In the past few years, Bond says, the number of new condos for rent has doubled compared to the number of purpose-built rentals added to the rental market.

"It's growing importance in terms of providing new rental supply to the region," Bond said.

The secondary rental market now accounts for 30.5 per cent of all apartments in Metro Vancouver, according to CMHC.

And that doesn't include secondary suites like laneway homes and basement suites. Bond says that data is more difficult to capture, but estimates show they rival the number of condos for rent.

CMHC's data shows that people are increasingly investing in condos for rent. But Bond admits that data only goes to 2022 when the resale market was weaker, and investors may have chosen to hold on to their properties instead of selling them.

Condos still a good investment: BCREA

Brendon Ogmundson, chief economist for the B.C. Real Estate Association, says condos continue to be a good investment and show no sign of abating.

Pre-sales for buildings under construction have gone soft, Ogmundson says, but overall sales for condos continue to grow — although the association's numbers don't break down whether those sales are intended for owner-occupiers or investors.

"I would guess we're not going to see much of a decline in investor activity," Ogmundson said.

Ogmundson says the high price appreciation for condos in major markets like Metro Vancouver, combined with increasing rent, means a lot of investors are willing to take a loss until they cash in on their properties.

ABOUT THE AUTHOR

Maryse Zeidler

@MaryseZeidler

Maryse Zeidler is a reporter for CBC News in Vancouver, covering news from across British Columbia. You can reach her at maryse.zeidler@cbc.ca.

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