A new student condominium project in Kelowna, B.C. is being marketed as "this year's hot investment" and "a perfect storm" for property investors.
"While most Canadians traditionally invest their funds in GICs, bonds or stocks, your Retirement Savings Plan could include an investment property giving you a far greater return on your investment than a GIC with an offering of less than two per cent," says Randy Shier, president of Mission Group Homes, in a news release.
His firm is offering student condos in a project called U-One, next to the UBC Okanagan campus, with a starting price of $199,000.
The company says that Kelowna's vacancy rate is the lowest in Canada at one per cent. Demand for student housing "translates to healthy demand for U-One owners. With rents estimated at $2,200 for three-bedroom condos, rental income can more than cover monthly mortgage payments and fees, leaving a monthly cash surplus for the investor. Starting at $309,900, a three-bedroom home will need a down payment of under $64,000 but with current rents, owners could pocket over $400 each month," says the news release.
Student housing is just one of many ways Canadians are getting into income property investments. A recent study by Altus Group says that one in 20 Canadian households owns income property of some kind. Among households earning more than $100,000, the rental property ownership rate is about 10 per cent.
Many homeowners are using secondary suites in their homes, such as basement apartments, to help pay off their mortgages. Census numbers show that there were 390,000 such units in 2011, up from 370,000 in 2006. There are still a few communities where secondary suites are not legal but they have been embraced in most municipalities. Intergenerational homes may also be an emerging trend.
With Canada well into the second decade of a housing boom, there has been much attention focused on who is buying the thousands of condominium units that continue to be constructed downtown in the country's major cities. Some people have suggested that the number of investors buying these units far outweighs the percentage of end-users. There's also been talk about massive foreign investment in the condos, driving up prices but possibly pointing to a future housing bubble if demand for the condos collapses.
Canada Mortgage and Housing Corp. (CMHC) released a report in August 2014 that surveyed condo owners in Toronto and Vancouver, the country's biggest condo hotspots. The survey did not include foreign investors or people who owned the condos but lived outside of the city, nor did it include corporations.
It found that 82.9 per cent of the condo owners own and live in their condo, and that 17.1 per cent live in a primary residence and own at least one secondary condo unit. Of that group, about half of them rent the condo out, about a third have family living in the unit and the other condos are either vacant, in the pre-construction phase or under construction.
The survey says 53.2 per cent of the investors bought the unit for rental income, while 11.9 per cent bought it with the intention to resell it for a profit within a year. Almost half -- 47.9 per cent -- said they thought the value of their condo would increase over the next year, while 42.2 per cent thought the value would remain stable and 5.4 per cent expected it to depreciate.
More than 58 per cent of the investors planned to keep their unit for more than five years, with 17.9 per cent expecting to hold it for two to five years and 7.6 per cent planning to sell it in less than two years.
In October 2014, CMHC released its first report about foreign investors in the Canadian condo market. The results showed less foreign investment than many people expected.
The largest concentrations of foreign ownership are in Canada's largest rental areas in Montreal, Vancouver and Toronto, says the report. In downtown Montreal and Nun's Island, the foreign ownership rate is 6.9 per cent, compared to 1.5 per cent for the Montreal area as a whole.
The Burrard Peninsula in Vancouver has a foreign investor rate of 5.8 per cent, with the rest of the area recording a 2.3 per cent rate. In Toronto, the downtown core has 4.3 per cent foreign ownership, compared to 2.4 per cent for the entire area.
The foreign investor rate is 1.1 per cent in Victoria and less than one per cent in other major cities.
Back in Kelowna, Randy Shier says that the U-One project has seen "a lot of inquiries from parents of students attending the UBC Okanagan campus, but now that the word is out, we're seeing growing interest from those looking to own a second property that offers a steady rental income."
