The Condo Game Explained – Toronto’s Dirty Little Secret


What a convoluted game “Condo Land“, as Toronto is known these days, has become!

When I say “game“, you may want to take note, especially if you are, like me a condo investor.

In Condo Land, everyone makes money.  Well, almost everyone.

The consumer is left with the element of “risk” while the Municipal Government, “City of Toronto” receives somewhere in the $8 – $10 Million range is Permit Fees alone, per tower!

And then there’s all those “hidden fees” that the City grabs in Levies, hook-up charges, etc.

And all of this is a drop in the bucket compared to the annual Property Tax income that the city enjoys once the building is completed.

The Provincial Government wins big time from Employment.  The construction industry constitutes half of the positive figures in Ontario’s employment picture with Public Servants basically representing the other half!

So, without our bloated government getting more bloated and our condo market getting more bloated, our economy actually baselined a few years ago!

Why isn’t the Press talking about all of this?

The Federal Government enjoys it’s income in the form of taxes on all those jobs plus all those related services and industries impacted by the condo industry.

Man that a huge cash-flow!

And where does all that money come from?

You got it, little guy consumers.

And even it you are not an active participant in this game, as long a you are a taxpayer, you are a participant, if not player in the game.

With our Federal Government “paying down mortgage rates” to keep this game going, something I see as a “false economy” similar to that in America, and developers gouging in their pricing as a result, the probability of a market melt down, to me is more probable than not.

Deutsche Bank’s Chief Economist “Torsten Slok”, this year went on the record analyzing the global housing market, reported that “Canada stands out as having quite a few problems“.

His report warns that “homes in Canada are 63% overvalued“!

Are you catching why I’ve been warning of a sever melt down in the Toronto condo industry for the past four or five years?

My concern rests with the “Debt to Income Ratio” across Canada brought on by our Government buying down mortgage rates!  To me, this is ludicrous and can lead to only one place . . . . “Foreclosures“!

American households have been delivering in 2008 when their markets corrected while in Canada our national debt to income ratio has doubled to 150%!

I written a number of blogs lately about my concerns with debt in general and the apparent global fixation on accumulating as much of it as possible at absolutely every level of government and right down to the family!

So, in Condo Land, we are buying a product at artificially escalated prices (upwards of 40%) while our real estate is seriously (63%) overvalued according to a highly respected international institution, with money that we don’t have, and somehow someone is telling us that this is the norm?!?

I’m sorry but I just don’t get it!

Yet, we are all told that we have protection under the Condo Act (which is absolutely untrue), that we have the Tarion Warranty to protect us (absolutely untrue), that we have a “Building Code” to protect us (has not been upgraded in half a century while materials have changed decidedly resulting in sub-standard sound attenuation), City “Inspectors” who admit that they do not actually inspect, property managers getting a quarter million dollars a year for a $50,000 job, condo boards without oversight, need I say more!?!

Talk about a rigged game!

I have personally owned nine condos in Toronto and I have to confess to being satisfied with only one of them, a small income unit that I bought at Hudson.

The experience with absolutely every other condo that I bought, which ranged in price from about $265,000 through $1.5 Million was consistently offensive and the product that I received was consistently substandard.

From hearing my upstairs neighbour go to the bathroom every morning at five a.m. in my $1.7 Million Dollar Forest Hill condo, to having a developer pawn off a sub-sized parking space to me while he kept 22 spaces for his “fleet of cars” and refuse to discuss exchanging one, to another developer having the outside elevator crash through the front of my million dollar unit and then not fix it allowing me to move into a highly dangerous residence, the experience has been unique, to say the least.

I feel badly for people who legitimately want to own their own home in Toronto because the product itself (unless you’ve got millions you’re buying a condo in Toronto) is simply substandard while being over-priced!

And this does not even touch on the fact that the market is so over-built that it is literally about to pop!

It would have long ago if our Government did not commit to propping it up by using our tax payer dollars to buy down mortgage rates.

And who pays for all of this?  You got it!  The consumer buying the product!

Middle market condos are running around $800 per square foot these days!

Assuming you buy today and the market doesn’t implode like I say it’s about to, to make any money you are going to have to sell that unit for at least $850 – $875 per square foot.

Let’s look at 700 square feet, one plus den at $800/sq.ft. so you are spending $560,000.  If you are not occupying the unit and renting it out, you forfeit the HST Rebate thus you will owe another approximately $10,000 taking your unit to $575,000.

You’ve then got Land Transfer Tax at Registration and in Toronto that’s times two as the City imposes it’s own Land Transfer Tax.  That adds an additional $12,000 roughly.

With adjustments at closing, legal cost and miscellaneous fees and costs (including reimbursing the developer for his Tarion Registration) you are paying $600,000 for that 700 square foot one plus den condo unit.

Now if you need or prefer to continue to own your car, you can add on another $60,000 or so, providing the developer all allowing small unit buyers to buy a spot and a locker to store you stuff in will run you around $10,000.

You new investment unit in Toronto has just added up to $670,000 for a one bedroom plus den!

Realizing that Toronto presently has more condo units under construction than any other North American city, how much do you think a one plus den 700 square foot condo will sell for when you take possession.

I know, most speculators intend to “flip” their unit thanks to those perks offered to them when buying that allow them to resell their units or “Assign it” to be correct, before Registration.

Few investors realize that they are not allowed to “advertise” the unit for sale which materially affects their ability to sell their units as Assignments.

Let’s assume that the Gods are favourable and you get $900 per square foot (highly doubtful) so you sell it for $630,000.   Well done I would say!

Oh yes!  You’ve got Realtor commissions of 5% to pay so deduct $65,000 and you just lost money  ($630,000 – $65,000 = $565,000)!

That’s a $35,000 LOSS based on you being able to sell at more than I would suggest is achievable!

And even if you make a small profit, you still have to face income tax on your profits of roughly 43% as this type of investment is classified as “Business Income” and not “Capital Gains“.

If you know the right buildings, some older condos in Toronto still hold the potential to give you a quality residence, but you’ve really got to know the market!

If you are thinking of buying a condo in Toronto, either as your home or as an investment, you can materially level the playing field by contacting me first!

Investing is all about “returns” and when returns simply are not there, neither should you be.

I’m Charles




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