One must observe downtown Montreal to understand that the condo market is in transformation. As the resale prices of units stagnates, the number of available units increases even more. In the Ville-Marie borough of Montreal for example, on René-Lévesque Boulevard, between Saint-Marc and Stanley streets, more than 5,000 units were built recently or are in the process. Towers are erected quickly, some higher than others; the twin towers of Tour du Canadien (1,034 units), the Yul (900 units), the Roccabella (596 units), the Icone (360 units), the Drummond (325 units), the Babylone (331 units), L’avenue (325 units) and many others, all within a radius of less than one kilometer. Such a situation occurs in Griffintown and in other parts of the city. It is clear that the high level of unit supply of the last years did not slow down despite a mitigated local market.
An artificial growth in full creation mode
The drop in local demand is compensated by the many sales of units to foreign investors. Developers go as far as hiring the services of Chinese-Canadian notaries in order to facilitate transactions. The Middle East and China are presently fertile grounds of buyers. This transfer of demand, from local to global allows for acceptable levels of sales for recently built units. This encourages developers to keep on building. The condo market supply and demand relation is mutating. This situation complicates matters for a resale, in particular for co-owners still predominantly local. The playground is becoming complex, it is increasingly difficult to find one’s benefit.
More than 50% of condo units sold at a loss
According to a recent study by JLR, based on information compiled from transactions registered at the registre foncier du Québec between 2012 and 2015, half of condos sold generated profits of less than 3.9% for their owners. After the costs linked to the real estate broker and the notary have been allocated, and taking into consideration the inflation rate, this median profit is more than often transformed into a loss. This does not include the possibility of unforeseen additional common charges which have to be paid during the period of ownership. The bell rang to announce the end of recess, the eldorado of the condo is over. The rate of return becomes a challenge. The local supply exceeding the local demand and the interesting rates of return fewer, the buyer is inevitably in a position of strength.
A lifetime investment
Despite being advantaged compared to the seller, the buyer is just as vulnerable. In the past, one could purchase a condo at lower prices than the annual revenue of one’s household, that’s a thing of the past. Today, 4 to 8 times the annual revenue of the household is needed to buy a condo. The purchase of a condo unit is a decision, even more important, which compels the buyer to take a multitude of factors into account. The information being more readily accessible, purchasers are more discerning and attentive therefore more selective. Once the choice is made and the condo unit recently acquired, the new co-owner then has the daunting task of making his investment grow. In such a context, the first reaction should be to better protect his asset by managing it more tightly, better synchronised.
Better management of the preservation of the building for its protection
Strategic management of the preservation of the building is a key element to help the co-owner protect his investment and therefore, help to generate a yield superior to the market’s. It is widely known that most of the condominium buildings in the province of Québec suffer from a chronic maintenance deficit. This widespread lack of interest in the conservation of buildings is a real opportunity for co-owners wishing to set themselves apart and in doing so making their investment grow. A shining building will draw the attention of buyers. A well-kept building represents a lesser financial risk therefore a more secure and sustainable investment. This has a direct impact on the resale value.
The importance of common areas
In a co-ownership, common areas are a value-creating engine. Putting emphasis on the management of the conservation of the building allows for maintaining the value even to increasing it. Make no mistake about it, the yield in co-ownership lies first and foremost by the conservation of common areas, followed by private condo units. A well kept unit in a building in a state of disrepair is not interesting. Wise buyers first evaluate common areas (the lobby, available services, the terrace, the pool, etc.), and then the condo unit. Simply said, the condo unit can always be renovated at the new buyer’s taste, not the common areas. It is impossible for a new buyer to renovate the lobby of the building or to restore the rooftop pool. To ensure that your real estate asset appreciates, you must optimise the management of the maintenance of the common areas of your building in co-ownership.
The help of professionals is needed to generate value
The responsibility for properly maintaining the common areas in order to preserve the building belongs to the co-owners/directors of the co-ownership’s syndicate (the Board of Directors). The syndicates of co-ownership who will keep a grip on the management of the maintenance of the building will differentiate themselves from the market and will be rewarded in terms of value and return at the resale of the condo units. A certified administrator (ADM.A) specialized in co-ownership management can advise you or manage your co-ownership syndicate in an efficient and effective manner in order to create a maximum value.
By Jean-F. Lavigne Adm.A. Published on June 28, 2016 – Ordre des administrateurs agrées du Québec.