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Micro units, small but mighty investments for some, though the jury is out for some lenders
Nov 21, 2014
A recent article in the Toronto Star talks about the benefits of small condo spaces, but some lenders still have some concerns.
Micro condos are 500 square feet or less and by the end of 2015 are expected to represent 11% of new condos in the City of Toronto. Many more are planned.
These condos attract investors for renting out and for end-users planning to live there.
Brokers are watching closely to see if any changes are made as presently some of the Big Five banks and other lenders still have rules that restrict mortgages on units less that 500 square feet.
Broker Jason Friesen thinks the micro condos are the new trend,so a lot of banks haven’t updated their policies. The area and marketability is the most important part of the approval equation.
Senior Vice-President of Urbanation, Shaun Hildebrand agrees that there is some nervousness largely because the value has yet to be established on the resale market and also they are associated with investors so there are fears they may be more prone to a sell-off (that would devalue their worth) if market conditions turn.
TD does have a minimum square footage requirement but do review mortgage applications on a case by case basis.
Scotiabank has a restriction of not financing below 600 square feet.
Realtor Andrew La Fleur sells and buys small condos which he refers to as studios and so far they have been financed by Royal Bank. He believes they are the safest investment out there – cheapest to buy, easiest to rent and the best cash flow of any units.
No. 6 National Bank and secondary lenders don’t tend to have the same restrictions.
Tony Hirsch is one of the developers for Smart House a 256 unit condo tower on Queen St. W near University where a third of the efficiently designed units will be under 500 square feet. More than 80 per cent have sold. Hirsch hasn’t heard of any buyers, about one-third he estimates will be end-users who had a problem getting a pre-approved mortgage so he thinks the banks will reconsider their policies as more and more of these units are built.
Courtesy Toronto Star: