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the next move

The studio apartment in the King Edward Private Residences at 22 Leader Lane.Harvey Kalles Real Estate Ltd.

After months of languishing during the coronavirus pandemic, tiny condo units in downtown Toronto are beginning to sell – sometimes sight unseen – as investors bet on units with discounted prices.

“As soon as there was talk of a vaccine, there was interest,” says Andre Kutyan, a real estate agent with Harvey Kalles Real Estate Ltd. “The investor buyers all of a sudden have woken up.”

Condo sales in the Greater Toronto Area climbed 75 per cent in December compared with the same month last year, according to the Toronto Regional Real Estate Board.

Robert Hogue, senior economist at Royal Bank of Canada, says the surge suggests that buyers were out in full force in December, looking for bargains.

The economist estimates that active listings in the GTA condo market soared 159 per cent in December from December, 2019. In the central 416 area code, that figure is closer to 172 per cent, he says.

Mr. Hogue points out that the downturn in the rental market has prompted many condo investors to sell. The swollen inventory gives buyers more bargaining power.

155 Yorkville, unit 3112, in the former Four Seasons hotel. Listed for $550,000 in April, it was relisted for $485,000 in late October.Harvey Kalles Real Estate Ltd.

This year, Mr. Hogue predicts that the growing affordability advantage of condos over single-family dwellings will boost demand for condo apartments.

Mr. Kutyan recently sold one micro unit in Yorkville and another near King Street East. In both cases, the buyer submitted a conditional offer before viewing the unit.

“They want to see if they can get a ‘deal’ before even coming to look at it,” Mr. Kutyan says.

If the seller accepts the offer, the buyer then visits the unit to make sure that everything matches up to the photos and description, he says. The buyer then waives the condition to firm up the agreement.

Some buyers are making offers conditional on financing even when they have a pre-approved mortgage, Mr. Kutyan says, because they don’t want to run into any snags.

The 370 sq. ft unit at 155 Yorkville sold sight unseen after 42 days for $475,000.Harvey Kalles Real Estate Ltd.

Many buyers eschewed small units in high-rises when the COVID-19 pandemic became a health emergency in Canadian cities in March, 2020. The short-term rental market, which was already hindered by new regulations, collapsed.

Many longer-term renters and owners fled the core because of financial hardship or because they were seeking more space. For the most part, the smaller the unit, the less appealing it became to buyers over the course of 2020.

Mr. Kutyan believes that demand for downtown condos will rebound once people feel safe again. Investors appear to be trying to enter the market before any future upswing – if they can buy at a discount.

Mr. Kutyan sold one unit at Yorkville Plaza after the owner started out with a different agent and an asking price of $550,000 in April.

Agents tried different prices and strategies for unit 3112, which is a “pied-à-terre” fashioned from a hotel room in the former Four Seasons at 155 Yorkville Ave.

A series of price cuts and strategies followed before Mr. Kutyan set an asking price of $485,000 in late October. After 42 days, the unit found a buyer.

“We sold for $475,000, sight unseen,” Mr. Kutyan says. “It was 370 square feet.”

The building in upscale Yorkville allowed short-term rentals, which were popular with out-of-town visitors. But owners face intense competition now: currently, there are 55 units listed for lease in the building and 24 for sale.

Only nine sales have taken place in the high-rise since July, Mr. Kutyan says.

“There is 16 months of inventory in that building”, at the recent pace of sales, he says.

A studio apartment in the King Edward Private Residences at 22 Leader Lane.Harvey Kalles Real Estate Ltd.

Mr. Kutyan points to another studio apartment in the King Edward Private Residences at 22 Leader Lane, which he took on after it was listed with an asking price of $579,000 by another agent in August.

While unit 447 had luxurious finishes, buyers weren’t in the market for an apartment with 465 square feet of living space, no balcony and no view.

After a couple of price reductions failed to find a buyer, the seller brought in Mr. Kutyan, who suggested an asking price below $400,000. The owner resisted, so Mr. Kutyan set an asking price of $429,000.

After about one month, the owner agreed to cut the price to $399,000.

Activity was quiet, but around the time encouraging news on vaccines emerged in December, eight potential buyers booked showings.

“All of a sudden, we got a ton of interest,” he says. They were all investors. They think that we’ve hit the bottom already.”

After 36 days at that price, the buyer struck a deal for $395,000 just before Christmas. The deal firmed up on New Year’s Eve after the buyer saw the unit and waived all of the conditions.

The price of $850-per-square-foot is approximately 32-per-cent below the amounts above $1,200 per-square-foot that the same units were fetching in the first quarter of 2020, he says.

The studio apartment in the King Edward Private Residences sold for $395,000 just before Christmas.Harvey Kalles Real Estate Ltd.

Mr. Kutyan points out that interest rates are low and prices have come down, but investors who plan to rent out a unit still face a tough slog.

Inventory is high for rental units and prices have dropped dramatically.

“Investors have to have a really long runway to see light at the end of the tunnel.”

He currently has a unit for lease in a luxury building in Yorkville.

“I get more inquiries about the two parking spaces that belong to the unit than the unit itself.”

And while some investors are calling a bottom in the condo segment, Mr. Kutyan says demand has not yet bounced back among the people looking to downsize from large homes.

“I think the empty nesters or boomers are staying in their houses longer,” he says, adding that they either want to hold onto their backyards or they need the space for the adult children who have moved back in.

Meanwhile, the market for freehold houses remains strong, he adds. People in the law, accounting and other highly paid businesses have not looked to scale back, in his experience.

“People have done the opposite – they’ve looked at improving their homes,” he says.

Listings are scarce in that segment but he expects the spring market to kick off earlier this year because so few people are travelling and many snowbirds are staying in town.

TRREB president Lisa Patel says a strong rebound in many sectors of the economy, ultra-low borrowing costs and enhanced use of technology for virtual open houses and showings fueled and sustained the housing market recovery.

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