The challenge of tiny condos

A recent item caught my attention this week and raised some questions for me about a future challenge in the Toronto condo market.

There was a report that the levels of condo assignment sales had reached what was likely an all time low.?For those of you are not familiar with assignment sales, this is where a buyer has bought a property pre-construction and wants to sell it before the project is ready for occupancy.?There are a number of reasons for this including profiting from the rise in prices (speculation), change of life situation and fear of not being able to qualify for the eventual mortgage.

I don’t feel sorry for the speculators, but I do have some sympathy for those impacted by the rise in interest rates.

This got me thinking about affordability and entry level buyers, those who might be looking at smaller units or Co-ops.?I’ve written about the unique challenges of Co-op financing before, so I had a look at the policies of mortgage lenders to see how they felt about smaller condos, “micro condos” and studio/bachelor units.

It turned out that many, possibly the majority, of mortgage company rules would not allow financing of bachelor or “micro condos”, units less than 500 sq.ft, and many more would only look at it on an “exception” basis.

This raises two questions for me…why has the mortgage industry not caught up with the trend for smaller and smaller condo units.?Virtually every bachelor/studio condo for sale in Toronto is in the 350 to 450 sq.ft. range, also a significant number of 1 bedroom units.

The second question is possibly more worrisome for the future…what is going to happen to those pre-construction units under 500 sq.ft. when the building is complete??I’m sure many of those buyers have not pre-qualified as it is years down the road.?They are likely assuming they can get mortgages.

Maybe I’m overthinking this, but anyone looking at smaller units should be very proactive in looking at their financing options.?Be sure you inform your Mortgage Agent that you might be considering one of these smaller units to avoid the frustration of having a pre-approval canceled because the unit you are looking at is too small.

If you want to learn more about this I’m glad to have a conversation.

I’m Steve Willson, a licensed Mortgage Agent in Ontario.?Contact me through my website: stevewillson.ca