Multiple unit investors are juicing the condo market

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Marketer Jacky Chan says the 60-storey luxury condo Curv tower – which begins construction in 2024 in downtown Vancouver – has been a magnet for Canada’s small but powerful contingent of multiple-unit buyers.

One buyer paid a record $4,400 per square foot for one of the top-floor units, which, Mr. Chan says, is the sort of price that could revitalize the city’s downtown luxury market overall. These aren’t just any investors, he adds, but people who acquire multiple properties as part of their growing portfolios.

Curv’s starting 500-square-foot unit is priced at $1-million. Its 7,500-sq.-ft. penthouse is a whopping $60-million. The penthouse works out to $8,000 per square foot.

Mr. Chan was speaking on the phone from Markham, Ont. where Curv’s developer, Brivia Group, is also building that city’s tallest tower.

Mr. Chan, who is the chief executive officer of BakerWest Real Estate, declined to say how many of the 358 units he had sold, but he did say the number is in the triple-digits.

To put the $4,400 per square foot in perspective, within the last 12 months, new downtown condos priced more than $5-million averaged $2,390 per square foot.

Curv is being built to the energy-efficient Passive House construction standard, which is more costly that standard construction techniques. Curv’s marketers claim it will be the world’s tallest Passive House structure.

The site has undergone a series of flips, driving up the land value. Under new zoning for substantial new density, the existing two old apartment blocks were purchased by Wall Financial Corp. in 2013 for a reported $16.8-million, with a plan to develop a tower. They then sold the site in January, 2016 for $60-million, a share sale to a consortium of wealthy Chinese immigrant buyers, as reported by the South China Morning Post at the time. One month after buying it, the consortium then flipped it for $68-million. In 2021, Montreal’s Brivia Group purchased the site for an undisclosed amount.

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Many of the current unit buyers are diehard investors, not just owners of a couple of properties, but seasoned investors and holders of large portfolios of properties, Mr. Chan says.

He says the federal ban on foreign buying hasn’t been the deterrent once expected. Many of Curv’s buyers hold Canadian passports.

“We have a lot of international interest and a lot of international registrations. But we thought the foreign buyer ban would be somewhat of a detriment to us. … However, it hasn’t had much of a negative effect. We wish it wasn’t there, but then it hasn’t affected us because the local adoption has been phenomenal.”

The first round of buyers a few months ago were “friends and family,” or VIPs. In its first month on the market sales have been in the “hundreds of millions” of dollars.

Mr. Chan said a lot of other developers and those in the real estate industry have purchased in the building, as well as those in the tech industry.

“All these buyers that we are attracting are people that have extensive experience of owning and buying real estate … and they have maybe 10, 20, 30 or 200 properties in their portfolio,” he says.

“These are super-informed billionaires, multi-hundred millionaires, people that have 30 years of experience of buying and selling real estate, and not just in Canada, but globally.

“We have numerous buyers at Curv right now who have bought multiple units, so one for themselves, and another for the kids and grandkids, to buy as a family collection.”

In line with city policy, the tower includes 49 rental units and 102 below-market units. The tower will replace two older three-storey walk-up apartment buildings on Nelson Street near Thurlow Street, which are mostly vacant. The remaining tenants will be treated “very well,” Mr. Chan says. The city’s tenant relocation and protection policy means they can move into one of the new rental units that will be built, or they could take monetary compensation.

In Metro Vancouver, 15.5 per cent, or 42,155 units, out of all condos are held by portfolio investors who hold at least three properties. Of all investment condos in the region, 45.5 per cent were owned by this sort of investor, according to Statistics Canada data released last week. Surprisingly, those high-volume condo investors are quite active in Abbotsford, B.C., a one-hour drive east from Vancouver, where 24.1 per cent, or 10,140, of all condos, are owned by portfolio investors. Out of all the investment condos in that city, 69.9 per cent are part of a portfolio that has three or more investment properties.

“While some Canadians are struggling with a housing famine, others are feasting.,” says Andy Yan, director of Simon Fraser University’s City Program.

Regulators, however, are getting uneasy with the financing behind these personal portfolio properties. Long-time mortgage broker Ron Butler, based in Toronto, says the party will be ending for those old-fashioned investors who followed the long-time BRRRR practice of buy-renovate-rent-refinance-repeat. Unless they have cash to keep buying, the federal regulator has been shifting away from allowing someone to own multiple mortgaged investment properties.

“It’s something that’s been going on for the better part of a year, this narrowing down of how many rental properties that anyone can own,” he says. “The issue now is, what is the maximum? And today the philosophy from the regulator is: you can own your own home, a vacation property and five rentals through federally regulated institutions, and then that’s it. You can’t own any more,” Mr. Butler says.

“There was a policy by which you could have, theoretically, as many rentals and mortgages as your income and capacity could handle. Then the regulator said, ‘we don’t want to do this anymore,’” Mr. Butler says. “‘We don’t want a couple or one person or a family owning 25 rental properties. We aren’t comfortable with it,’ and for obvious reasons.”

Of course, an investor can still go to a private lender for financing, or get commercial financing, or they can pay with cash, he adds. Cash is still king.

“But BRRRR is going to die,” says Mr. Butler. “In Canada, it’s just going to become unmanageable because you’re not going to be able to get bank mortgages for any more than a smaller number,” he says.

BRRRR, he adds, had already been on life support due to higher interest rate, so the new policy isn’t solely to blame.

There is more to come, he says. Regulators are now having discussions with banks about tightening mortgage rules around total lending versus income.

“That would infiltrate these rental scenarios,” he says.

John Pasalis, president of Realosophy Realty brokerage in Toronto says he is in favour of a policy that caps the number of mortgaged residential investment properties. Mr. Pasalis is a real estate analyst who’s also a frequent media commentator.

“If you want to accumulate a portfolio of houses, I mean I don’t know why you should be getting residential financing,” he says. “It is a business. I guess they are probably setting up mini REITs [Real Estate Investment Trusts] basically, right. Most people who have 20 properties are probably not doing it in their personal names.”

Fuelling demand is the fact that prices have gone up 10 to 15 per cent since the start of the year. A lot of Ontario homeowners don’t sell their homes when they move. They simply rent them out, he says.

“Everyone sees what’s going on and how much money people are making,” he says of lucrative real estate investments. “That’s basically what is driving a lot of desire to hold real estate.

“When we think about, why aren’t there many homes for sale, well part of it is because people just don’t want to sell them. Why would you, when you’re making such a good return?”

But investors are skewing the market, he says. They put pressure on prices, they impact the size of units that get built, and they also affect renters. And while some argue investors provide secondary rental, Mr. Pasalis points out that if there were more affordable homes to purchase, fewer people would need to rent. But investors drive up prices and make housing less accessible to first-time buyers.

“When you have investors competing with first-time buyers who walk in with a couple of [baby] strollers, typically the investor is going to win,” Mr. Pasalis says. “They are well capitalized. They can pay a higher price. And this is why our home ownership rate is declining, because more and more homes are actually going into the hands of investors who rent them out, and amplifying home and amplifying condo prices. We are seeing that.”