Toronto is making global headlines this week after receiving the not-so-coveted number two spot of the world’s worst real estate bubbles. Another major Canadian city, Vancouver, is among the top ten. This news comes among calls from many other sources that the real estate market may be on course for a correction in the near future.
The UBS Global Real Estate Bubble Index is a yearly report that analyses residential property prices in 25 major cities around the world. The report acknowledges that a bubble can only be proved to exist after it has popped, and that they can not claim any knowledge of when such a correction could come. Rather it tracks the factors that most indicate a possible bubble and the factors that put a city most at risk.
This year’s report cites already poor affordability worsened by the pandemic and rapid growth in housing prices as major factors in the high scores of cities around the world.
Toronto’s high placing this year is not unprecedented. Last year Toronto placed third, the year before that the city was second once again. In 2017, Toronto topped the list with Vancouver at number four. In previous years, Vancouver has hovered in the top ten, reaching as high as fourth place. Other major Canadian cities have not appeared on the list.
As of yet, no bubble has popped despite our city’s strong showing.
That doesn’t mean we should disregard the warning signs, however, as many institutions are now raising concern at current market conditions. The International Money Fund also reported this week on the high possibility of a major price correction. The US Federal Reserve revealed that Canada’s home prices are rising faster than any other G7 country. Even the Canadian Mortgage and Housing Corporation lists most major cities including Toronto, Vancouver, and Ottawa as at risk for major market vulnerability.
With so many signs pointing downwards, many are on edge waiting for some kind of apocalyptic event. This feeling may be just slightly unfounded. While a correction seems imminent now, the scale and pace of such a correction is hard to predict. With many now raising the alarms, and governments continuing to take measures against catastrophe, the future may not be as gloomy as it seems.
During the earliest days of the COVID-19 pandemic, the federal and provincial governments laid out legislation for a temporary ban on the eviction of commercial tenants. With new bills coming and going, and rules for landlords and tenants seemingly in flux all the time, many people are confused about the current status of commercial tenant evictions in Ontario.
This article is for both commercial tenants and commercial landlords. This article does not constitute legal advice, so be sure to contact a lawyer for legal advice before taking any legal action. That being said, we will do our best to explain the laws and rules as they stand now and the rights of both the commercial tenant and commercial landlord.
What laws apply?
Commercial Tenancies Act
The primary legislation governing commercial tenants and commercial landlords in Ontario is called the Commercial Tenancies Act. In the Commercial Tenancies Act, the various rights and responsibilities for the commercial landlord and the commercial tenant are laid out by the Ontario government. Recent amendments to the act, most recently in bill 229, add additional protection for a tenant and additional restrictions on the landlord during the pandemic. We will cover these changes in more detail later on.
The act also outlines the grounds for tenant eviction or termination and the process a landlord must follow in conducting an eviction or seizure of property. Until the beginning of the COVID-19 pandemic, the commercial tenancies act was the only relevant legislation governing commercial leases in Ontario.
The full Commercial Tenancies Act is available to read online. Because legal language is highly specific, most summaries will simplify to some extent. For any serious concerns in a commercial lease, it is best to consult the text of the act itself.
Changes in response to the COVID-19 pandemic
During lockdowns in 2020 and 2021, many commercial tenants were unable to operate and suffered losses. This resulted in many being unable to pay rent, with unpaid rent putting the landlord in a similarly tight spot. To protect small businesses across the country from failing, the federal government introduced successive bills for the purpose of lightening the load on struggling businesses and helping tenants survive lockdowns.
The first of such programs was known as the Canada Emergency Commercial Rent Assistance (CECRA) program. This allowed commercial landlords to receive assistance, intended to subsidize a rent reduction for the commercial tenant. A rent reduction agreement with the landlord allowed the tenant to pay only 25% of their usual rate. While receiving assistance under CECRA, the tenant was protected by a moratorium on evictions. Though landlords and tenants both benefited from the program, it was up to the landlord to apply for the program. Loans and the temporary ban on evictions under the CECRA program ended on January 31, 2021.
Following CECRA, the federal government implemented the Canada Emergency Rent Subsidy program. This subsidy is available to eligible landlords and tenants who have experienced losses due to shutdowns and pandemic restrictions. The CERS is applied during a number of qualifying periods, each being about one month long. One important change is that the CERS is available to the tenant whether or not the landlord applies for the program.
To be eligible for the CERS program, a tenant or landlord must:
Have or apply for a CRA business number.
Be one of a list of eligible businesses, charities, or non-profit. This includes most businesses but excludes groups such as public institutions and corporations exempt from income tax.
Have experienced a drop in revenue during the period of application. The specific drop in revenue required to apply is based on which period you are applying. Eligible revenue includes revenue generated in Canada by selling goods, rendering services, or other uses of a business’s resources.
Have eligible expenses on an eligible property. Claimants can receive up to $75,000 per property up to a maximum of $300,000 to pay down these expenses.
The CERS program provides a maximum of 65% subsidy to businesses, with an additional 25% for businesses forced to close due to mandatory public health orders. CERS loans can be put towards expenses such as outstanding rent, property tax, utilities and more.
More specific info on eligibility and terms is available online from the Government of Canada.
Similar to CECRA, CERS also provides a new moratorium on commercial tenancy evictions and suspends the right of re-entry for eligible commercial tenancies who have provided proof of participation in CERS. The temporary ban on evictions for CERS approved businesses is still ongoing.
Amendments to the CTA
Ontario’s Bill 229, passed in December 2020, integrated the temporary ban on evictions and other changes due to CERS into the CTA.
New temporary rules in Bill 229
The rules for the non-enforcement period for evictions are as follows:
Judges may not order a writ of possession for arrears of rent before or during the non-enforcement period.
Prohibits landlords from exercising the right of re-entry during the non-enforcement period.
Prohibits landlords from seizing unsold goods or property as distress from rent arrears during the non-enforcement period.
Requires any landlord who had exercised the right of re-entry between October 31, 2020, and the start of the non-enforcement period to return access to the tenant or pay damages.
What commercial tenants need to know
Commercial tenants are only protected by the eviction moratorium as long as they are approved for CERS assistance or have been within the last 12 weeks. If you believe you have been wrongfully evicted by your landlord, you have the legal right to take action against your landlord, either through reinstatement of your property access or payment of damages.
For wrongful evictions outside of the protections under CERS, recourse will depend on your particular scenario. For example, if you are evicted for failure to pay rent but had a previous agreement for rent abatement, this is different than an outright and willful refusal to pay and may help you in fighting the eviction.
What commercial landlords need to know
Any landlord with tenants who are receiving CERS assistance may not re-enter the property or seize a tenant’s goods. Any order of eviction is not enforceable until after the end of the non-enforcement period. Should you decide to act on an eviction, you will be required to reverse your decision or pay damages to the aggrieved tenant. Consider looking into the ways that CERS can benefit landlords if you haven’t already.
It is also worth noting that eviction moratoriums do not apply to landlords looking to sell their properties during the pandemic, though there are still some considerations if you go this route.
Assuming your tenant is not participating in any government programs, or the enforcement periods have ended, the following rules apply for commercial evictions, as described by the Commercial Tenancies Act.
Standard rules under the CTA
Though things right now are complicated to some extent, the rules of the CTA will likely revert some time next year to remove special considerations added due to the pandemic. What follows is more general procedures for evictions in Ontario.
Eviction of commercial tenants
In most commercial leases, the landlord and new tenant agree on terms that are ground for terminating the lease. The most common and obvious clause in a lease is the payment of the agreed amount of rent, on the agreed dates. If the tenant fails to pay rent, they are subject to recourse. Tenants are also subject to further obligations comprising the material conditions of the lease. Such obligations include things like building maintenance and or insurance rules. In nearly every commercial lease, a landlord is entitled to evict a tenant for not paying rent or a material breach of the lease conditions, but terms of each specific lease will vary. Often the tenant is given a period of time in which to address and cure the offending breach, so eviction is not necessarily a surprise.
However, businesses eligible for CERS who have received approval are still protected as long as the eviction moratorium is in place. Currently, the ban on evictions applies until April 30, 2022 at the latest. No landlord may exercise an eviction order to any tenant approved to receive CERS. Tenants who produce proof of CERS approval are protected for up to 12 weeks following approval. If the tenant reapplies before the 12 week period is up, their protection continues for an additional 12 weeks.
Furthermore, it is not always clear when a commercial tenant has committed a breach of the lease. Like any legal document, a lease is subject to interpretation. The lease dispute may be required to be brought before a court for determination, in which case both parties should consult legal advice.
It’s important to note that CERS protection applies only to rent arrears and not other commercial lease violations such as issues relating to building repairs or insurance. In these cases, the applicable process and remedies apply as normal.
Eviction for non-payment of rent
In the case of non payment of rent the landlord has two courses of action. Firstly, the landlord has the right to re-enter the premises. Usually this includes changing the locks and preventing the tenants use of the property, and is effectively an eviction and termination of the lease.
Another option available to landlords is possession of tenant’s property and goods, as a distress for rent arrears. These goods may be sold off to cover losses incurred from unpaid rent. In both cases the landlord is required to provide advanced notice to the tenant – sixteen days notice for re-entry and five days notice for possession of the tenant’s assets.
Eviction for a material breach of the lease
A commercial lease may include other obligations for the tenant. These obligations may include provisions concerning insurance requirements, repair and maintenance obligations, and safety and building regulations. While a landlord may end the lease due to such a breach, they are not able to possess unsold goods and property.
Legal matters become very complicated very fast. If you need help, we recommend consulting official government sources, or getting in touch with a real estate lawyer.
An increase in time spent at home in the last year may be to blame for many Canadians reexamining the decisions on where they want to live. Domestically, rising housing costs in major cities are causing many to look elsewhere, with Atlantic Canada seeing the biggest gains. Despite travel complications, many are still looking south of the border for their ideal home.
Ontarians, Albertan’s and more moving to Atlantic Canada in record numbers
While the larger and more populous provinces such as Ontario, Quebec, Alberta and BC remain the most common choices for migrating citizens, Atlantic Canada has seen notable gains in the last year. Major sources of migration were Alberta and Ontario, which reported the largest number of departing citizens in the country last year.
According to stats Canada, Nova Scotia saw about five to six thousand migrants from Ontario every year pre-pandemic. In 2020 – 2021, that number rose to almost 10,000. New Brunswick and Prince Edward Island have seen similar gains in population.
Alberta saw a decrease in people moving to places like Quebec and Ontario than in previous years, and an increase or steady demand for the Atlantic provinces.
Why the big shifts?
There are a few major reasons for this shift we are currently witnessing. One major issue is the increase in home prices seen in the metropolitan areas of the larger provinces. House prices are up nearly everywhere, but relative to their starting point. A home in Ontario costs more to begin with, only now the difference is much more noticeable and it is growing ever more appealing for an Ontarian to seek more affordable lodging elsewhere. The average price of a home in Toronto, according to the Toronto Regional Real Estate Board, was over $1.1m. In Halifax, the average is approximately just over $470,000.
Another factor is the way our work habits have changed. One major impact of the pandemic was the move to work from home accommodations. With many people not planning to return to the office, the decision to move across the country no longer necessitates a job change as well.
Furthermore, for those concerned with COVID-19 safety, the Atlantic provinces have seen much lower case numbers than the larger cities to the west. This is due in part to lower population, population density, and popularity for travel.
Besides the financial, work, and safety benefits, the move provides city dwellers with a change of scenery after a year stuck in one place. The east coast provides an attractive alternative to older homeowners looking to cash out their homes in the city and retire away from the hustle and bustle.
Beyond the borders
A report from Point2 indicates that, despite global conditions making it harder for travellers, many Canadians are still looking to live and invest abroad. The yearly report uses internet search data to indicate the American countries of most interest to Canadians looking to buy a home.
The biggest winners
Of the most popular spots in this year’s ranking, some are familiar, while others are new to the pack. The most popular location for Canadian home buyers was by far Mexico, a position it has held since 2015 when the report first began. Also a popular vacation spot, the country is appealing for its climate, home prices, and development opportunities. The country garnered almost twice the search volume of the second on the list: the United States.
The U.S. is appealing to Canadians for it’s familiar culture and language, as well as proximity for those looking to move and still be able to visit family back home.
Other areas of interest
Third on the list was Costa Rica, a tropical Spanish speaking country in Central America. Other’s on the list include Barbados, the U.S. Virgin Islands, and Panama. Though the methodology relies on online search data, the report clearly indicates that Canadians are serious about investment in the Americas.
Between this report and domestic migration data, it’s clear that Canadians are looking forward to new horizons in the near future – if not already making plans.
If you’ve been paying attention for the last year, you have likely heard stories of properties selling for hundreds of thousands over the asking price, spurred on by massive competition between buyers shooting in the dark the price that will land them a home. But if it works, and they have the money, can you blame them? Critics of the practice known as “blind bidding” are now calling for alternatives to be put in place, claiming it drives up prices artificially and makes homes more unaffordable.
Blind bidding is a process of property bidding in which no prospective buyer may know the offer of any other buyer. Buyers are shooting in the dark and hoping to land on the highest number, and many are getting desperate. Often, the highest bid is far above the second-highest, even when both are far above asking.
But, people need homes, and they will get them where they can. For sellers and agents, massively inflated sale prices make for a bigger payout. You can’t blame them for accepting.
Ultimately, the loser is the prospective buyer who doesn’t have $100,000 dollars to add to their offer. In a recent poll conducted by the CBC, 52% of respondents agreed blind bidding should be eliminated.
Before you blame agents, consider that provincial regulations such as the Real Estate Brokers Act in Ontario prohibit the disclosure of competing bids. If a seller wants to avoid blind bids, they will need to broker the sale themselves or sell through a rare few auction houses.
Critics say that blind bidding must be done away with for the sake of reigning in out-of-control housing prices, and the Liberals even made abolishing blind bidding a major campaign promise.
However, some agents are arguing the grass may not be so green on the other side. One counterexample is that of Australia, where property auctions are common and still housing prices have risen by 20% or more in many places in the past year. With similar increases seen in Canada, it seems to be a “damned if you do, damned if you don’t” scenario. Others argue that sellers should have the right to decide how they sell their property, with the banning of blind bidding representing a narrowing of options for the seller.
Whether for or against blind bidding, it’s clear that it’s only one issue of many in a troubled real estate system. Change in only one place is not going to address the concerns of many Canadians. The federal and provincial governments, as well as industry, all need to do their part to address what is a much wider issue.
After months of uncertainty (and not only in the housing market) many in Canada are hoping for a return to normal.
One major concern for Canadians has been the topic of affordability, as evidenced by the topic’s prevalence in campaign platforms of every major party in this past federal election. Statistics for 2021 so far indicate that while 2020 was an anomaly of sorts, the market and the economy are on it’s way back on track.
While trends indicate economic growth, for many Canadians the future feels far from certain. In the city of Ottawa, one of Canada’s largest real estate markets, many are hoping for a more favourable housing market while others are fearing a housing crash.
Average sale price on the rise
The average sale price for homes and condo properties in Ottawa has been exploding over the last two years, driven by high demand and limited inventory. According to reports from the Ottawa Real Estate Board (OREB), the average home price in Ottawa in September 2019 was around $486,828. Two years later average prices for property have ballooned to $702,155 – a 44% increase.
In the last year alone, home prices in Ottawa have seen a 26% increase. Based on the current average income in Ottawa, over half of its residents cannot afford the average home without outside help. The story is much the same in cities across Canada such as Toronto that have experienced nearly the same increase. If this trend in housing prices continues, everyone but the highest earners in the country is going to be out of luck.
The past year has been highly interesting for analysts as they adjusted to a new paradigm of real estate sales ebb and flow. The traditional seasonal real estate cycle season was interrupted in 2020, though a return to form seems in the cards.
Month-to-month increases in average price have slowed since a year earlier indicating a move away from the rapid growth seen last year. It is hoped this significant price will level off, or even decrease. However, a levelling off from a year ago still represents an increase over pre-pandemic years.
Supply just can’t keep up
At the same time, issues of availability are complicating the ability of the market to balance itself. Recent interruptions to the supply chain are one current issue. Builders are struggling to source building supplies for reasonable prices if they can even find them at all. That means the price of a new home, where they actually exist, is higher than ever.
Ottawa Real Estate Board cites supply as a major concern
“Price escalations that we saw in the first quarter of 2021 and now recurring in September are inevitable given the supply challenges we have been experiencing for several years now combined with the unrelenting high demand,” says Ottawa Real Estate Board President Debra Wright. “While inventory has improved slightly from the pre-pandemic years (2017-2019), it is still the principal cause for concern…”
In Ottawa, there is currently about one month’s worth of housing stock. There were around 1607 homes and condominiums sold in Ottawa in September, below the five-year average for sales in that month, and far below September of last year.
Seller’s market complicates things for buyers
The imbalance between available homes and interested buyers has led to a seller’s market with competitive bidding wars, causing many properties to sell above asking. For those actually able to find available properties, steep competition and blind bidding mean either ponying up big bucks or missing out.
However, OREB indicates trends levelling out in the coming months means this may not be the case moving forward.
“Properties are not moving as quickly as they were. Inventory has picked up; there is less scarcity and more choices – consequently, less upward pressure on prices. Additionally, we are noticing fewer of the multiple offer frenzy situations.” said Wright.
Should we be worried?
Many are worried that the increase in price for residential property seems too high to be sustainable. The thinking is that with growth in prices exceeding what most can afford, there is a risk of a market crash.
This could be particularly painful for those getting in now while prices are high, who could risk losing much of their value soon after buying. Even though prices are high now, it is more a product of low inventory and competition among buyers than it is unfounded speculation. Real estate historically is able to hold value well, considering it is a physical asset.
CMHC warns of housing market vulnerability
The Canada Mortgage and Housing Corporation monthly housing market assessment ranks the health of national real estate markets on various criteria. In the September 2021 report, the CMHC ranks Ottawa with a moderate degree of imbalance in all four categories: overheating, price acceleration, overvaluation, and excess inventories.
Overall, the CMHC has ranked the Ottawa market as being highly vulnerable for a downturn, an increase from a moderate ranking a year ago.
What remains to be seen if a downturn does arrive, is just how bad it could be for the market.
Causes for uncertainty
There is one major cause for the uncertainty that should be no surprise by now and that is the COVID-19 pandemic.
Moving on from the pandemic won’t mean that all-out real estate problems will be solved, however. Things were still hard pre-pandemic, but getting beyond that major source of uncertainty will certainly be a help.
Smaller uncertainties remain linked to the larger issue of the pandemic. One such question is the return to workplaces and educational facilities. This could shift some demand back towards the rental or condo markets. There is also the question of interest rates, which are low now but likely to rise soon.
Another uncertainty is a government action, which is usually directed at cooling down the market.
How will the government address the issue?
Affordable housing was a major platform issue in the most recent federal election, and many across the country are looking to the government of Canada to help solve the problems of housing. Most recently, the mortgage stress test was made more stringent, with hopes to stabilize the market from major shocks, as well as to cool off some of the demand pushing prices up.
The Liberal federal government has proposed a new housing plan seeking to address current issues. They propose multiple solutions including making homeownership easier for first-time homebuyers, speeding up home development, ending blind bidding, and cracking down on speculation.
As with any political promises, the actual effectiveness of these policies remains in question.
Prices should continue to rise, at least gradually for the coming months. Beyond that, there is some uncertainty in how the housing market will behave next year. If you do choose to buy now, you will at least benefit from low mortgage rates. Do your best to pay as close to the market price as possible.
For those looking to sell, the temporary pressure caused by the pandemic may present a better opportunity now than when things cool off in the coming years. That being said, if you’re looking to sell your home and settle elsewhere, you will be facing the same competitive market as anyone else.
Overall, though a cooling off and possible price adjustment may be on the horizon, you can sleep at night without fear of a major housing collapse.
Global bond yield rates are up this month, and Canada is not missing out on the action.
The Government of Canada’s (GOC) five-year bond yield increased again this week, surging to 1.24% from the 0.85% of late September. This development adds to an already strong growth of over 75 basis points (bps) from the beginning of the year. The increase was expected to push banks into raising their fixed term mortgage rates in response – a surprise after mortgage rates were previously lowered just weeks ago – and now two major banks have made the first moves.
TD bank was the first of the major banks to hike it’s fixed term mortgage rates by 30bps last week, after having only lowered them two weeks prior. CIBC also took action shortly after TD, hiking its own rates 20bps to reflect the growing yields. All the other major banks, as well as smaller lenders, are predicted to follow suit in the coming days if they haven’t already as they pass increased lending costs on to consumers. As yields continue to rise, mortgage rates will follow.
Though seemingly a small percentage, this increase in rates could cost a consumer over $10,000 over the course of a five-year term. That figure may only grow should yields continue their upward trend. And while $10,000 may be small in comparison to the total cost of a property, it could be enough to cause buyers to rethink their decisions on what they can afford.
It was only mid-September when the major banks began cutting their mortgage rates suspecting a continuing low yield on government bonds. Now, as the price of funding debt is rising, they are seeking to raise the rates once again. Luckily, it’s predicted that mortgage rates will nonetheless remain relatively low for the coming months and into next year. Though if the past month is anything to go by, you can never really tell with today’s market.
While most other GOC bond yields are on the rise, the five-year GOC bond yield is of particular interest as an indicator for changes in mortgage rates. However, the rate most directly impacts fixed rate five-year mortgages. A rise in this particular yield may push more consumers away from such mortgages and towards cheaper variable-rate mortgages that move based on the overnight rate, a figure set to remain steady until mid next year.
CONNECT Asset Management works with clients to secure high yield investments in the pre-construction condominium market. We work with you to establish a real estate portfolio that will work for you leading up to and during your retirement.
How does it work? We negotiate with the industry’s leading developers to secure deep discounts reserved exclusively for our clients. By promising a high volume of sales in a short period of time, developers extend exclusive incentive packages to us that we can then pass on to our subscribers.
We are committed to getting you the best units at the best prices at the best projects. In an attempt to bring transparency to an otherwise muddled industry, we take a data-centric approach to providing you with actionable insight into the world of condominium investing.
Sometimes, a story will appear in the news: “Condo buyers caught off guard by high closing costs.” Someone purchases a condo or other property without doing their homework. As the sale goes through, they’re surprised to find that closing costs are higher than expected due to fees that they didn’t budget for, especially in Toronto.
It’s unfortunate that high closing costs come as a surprise to some people. But the truth is, there are no costs you can’t account for beforehand. You must always consider how additional fees can raise your closing costs when budgeting for your purchase. Buying real estate can be a challenging process, and it’s one of the most expensive purchases a person will ever make. If you are spending so much money on a property investment, you should be doing your research!
But we understand your struggle. The many different closing costs can be mystifying at times. That’s why in today’s article, we’ll help clear up the confusion around closing costs. Here are some of the most expensive condo closing costs that investors should factor into their accounting.
What are closing costs: deposit
The deposit should come as no surprise. You’ll need to pay a certain percentage of the price of the condo on signing, and throughout the building process, just like you would need to make a down payment on a house. Make sure you know what the payment structure is, and ask for this in writing. One advantage to pre-construction builds is that builders break up the deposit structure into smaller amounts. That way, you don’t have to pay the deposit all at once. You can space out three or four smaller installments that you pay for over a few months to a few years. A 20% down payment can be intimidating, but many pre-construction developers accept four 5% payments over the course of the building process which is much more manageable. Deposits and down payments make up most of the fees, but other little things can add up!
What are closing costs: Land Transfer Tax
Land transfer taxes can add a surprising amount above your purchase price. This is especially true for real estate in the city of Toronto where you will not only have to pay the Ontario Land Transfer Tax but also the Toronto Land Transfer Tax. When you buy a property, tax is paid by the buyer on the total value of the property being exchanged.
Here’s what you’ll pay under the Ontario Land Transfer Tax:
0.5% on the first $55,000
1.0% on the amount between $55,000 and $250,000
1.5% – on anything between $250,000 and $400,000
2.0% – on anything over $400,000
There is some relief for first-time buyers, as they may qualify and receive a credit worth up to $2000.
The Toronto Land Transfer Tax has a similar structure to the provincial transfer tax:
0.5% – on the first $55,000
1.0% – on the amount between $55,000 – $400,000
2.0% – on anything over $400,000. Once again, first-time buyers in the city have a bit of relief. They’re exempt from paying on the first $400,000.
If you were going by the benchmark purchase price of a condo in Toronto ($352,000), you’d pay $3,755 for the Ontario Land Transfer Tax and $3,245 for the Toronto Land Transfer Tax. That means you’ll pay $7,000 total, or almost 2% of the purchase price, in Land Transfer Taxes alone. If you are lucky enough to be an eligible first-time buyer, you could save the entire amount of the Toronto tax in this scenario, but only if you remember to apply for it.
This example is for real estate in Ontario, but in other provinces, you will have to pay for land transfer as well.
What are closing costs: Tarion Warranty Fee
Tarion, while a valuable layer of protection for your condo, doesn’t come for free. On new-build condos, there is an enrollment fee. The fee depends on how much the purchase price of your condo is. The Tarion enrollment fee is $802.30 for a condo that costs between $300,000 and $350,000, or $881.40 for a condo that costs between $350,000.01 and $400,000.00.
While the fee may seem like a pain – it’s worth it. If any problems arise resulting from shoddy workmanship, they can cost a lot more than $800 for the home buyer. It is possible that the builder has already factored the Tarion fee into the purchase price of your property, so you are covered.
What are closing costs: CMHC Insurance Premium
If you plan on putting less than 20% down on your condo, then insurance premiums on your mortgage are another fee you need to account for. The Canadian Mortgage and Housing Corporation (CMHC) usually requires the lender to pay insurance on any mortgage with less than 20% down, and these premiums are passed on to the property buyer. This is done to protect the lender from default on these comparatively riskier mortgage loans, while also allowing buyers access to more options in their property choice.
The rate varies from province to province but your mortgage insurance will typically be between 0.5% and 2.5% of the principal of the mortgage. Often, this fee can be factored into your mortgage so you won’t pay it immediately. Most real estate investments require a minimum of 20%, so you likely won’t need to consider the CMHC fee.
What are closing costs: legal fees
Legal fees are another standard closing cost to consider when buying a condo. Unless you are a lawyer or do all the legal legwork on your own (something we would not recommend) you will likely be paying a lawyer for their services. Depending on the lawyer you work with, you’ll pay between $1,000 and $2,500 in legal fees.
It’s important to choose a competent lawyer. Don’t think you can save on subpar legal help – this can cost you much more in the end if something goes wrong. Condos are a big purchase, and a lawyer is the best person to protect you from major issues.
What are closing costs: other fees the builder may pass to the buyer
A savvy investor knows how to ask the right questions when buying a property. There are some important questions you too should be asking.
Other fees you need to consider when buying property, but may not be necessary depending on your situation are:
HST, where applicable
?Title insurance, and Utility service deposits
Builder and Educational levies
Generally speaking, closing costs usually add up to 1-4% of the purchase price. Although a 1% difference in closing cost may seem small, it could end up being thousands of dollars. The more homework you do, the better prepared you’ll be. And the less likely fees will surprise you. Hopefully, you now have a better understanding of fees on your condo purchase, and will have no surprises about your closing costs when you see them!
Looking to purchase a condo in the Greater Toronto Area?
CONNECT Asset Management is always here to help you break down your condo purchase. Connect with us and we can save you some time, and money!