Rising Interest Rates Could Cost Condominium Tenants Dearly
According to recent data from the Canada Mortgage and Housing Corporation, almost 40% of the apartments available on the rental market in the Vancouver area are condominiums. However, with the increase in the cost of properties and interest rates, condominiums are becoming a less attractive investment, which could have an impact on the rental market.
Professor Tom Davidoff of the Sauder School of Business at the University of British Columbia (UBC) states, “It is certain that people have less interest in buying a condo to rent it than when interest rates were lower.” He adds that while capital gains and rents are still present, the burden of interest payments is significant.
Rent increases are not enough to offset the cost of buying a condominium and the increased interest on the mortgage, notes Tom Davidoff. The average cost of a condominium in Greater Vancouver is $830,000, according to the province’s real estate association. With a down payment of around 20%, a 25-year mortgage can currently equate to a payment of close to $4,000 per month. Additionally, the costs of co-ownership and maintenance must be considered, according to David Hutniak, the president and general manager of the association of owners Landlord BC.
Investors who want to offer rental accommodation should carefully consider the viability of their investment, especially when buying a new property, advises David Hutniak. Many investors believe that the risks are too high for an almost zero return.
The combination of investor discouragement and high interest rates could dampen rental supply and the construction of new housing projects for the rental market, according to both Tom Davidoff and David Hutniak. This could further increase rents and put additional pressure on a market that is already struggling to meet demand.
The rental market in Vancouver is facing a complex situation due to rising interest rates and the cost of condominiums. Tenants may face higher rents as landlords try to offset their increasing costs. The lack of supply resulting from investor discouragement could exacerbate the situation, putting further strain on the rental market.
What potential consequences could the combination of diminished investor interest and high interest rates have on the rental market in Vancouver
Article: The Impact of Rising Interest Rates on Condominium Tenants
Recent data from the Canada Mortgage and Housing Corporation reveals that nearly 40% of available rental apartments in the Vancouver area are condominiums. However, the increasing costs of properties and interest rates are making condominiums a less appealing investment, potentially affecting the rental market in the region.
Tom Davidoff, a professor from the Sauder School of Business at the University of British Columbia, explains that the interest in purchasing a condo for rental purposes has significantly decreased due to higher interest rates. While capital gains and rents are still factors, the burden of interest payments cannot be ignored.
Davidoff points out that rent hikes are insufficient to offset the expenses associated with purchasing a condominium and the amplified interest on the mortgage. According to the province’s real estate association, the average cost of a condominium in Greater Vancouver is $830,000. Assuming a 20% down payment and a 25-year mortgage, the monthly payment can amount to nearly $4,000. Additionally, the costs of co-ownership and maintenance must be taken into account, as mentioned by David Hutniak, the president and general manager of the association of owners Landlord BC.
Hutniak advises prospective investors to carefully evaluate the viability of their investment, especially when purchasing new properties. Many investors believe the risks outweigh the potential returns, resulting in a near-zero profit.
Both Davidoff and Hutniak suggest that this combination of diminished investor interest and high interest rates could negatively impact rental supply and the construction of new housing projects for the rental market. Consequently, this could further drive up rents and intensify the pressure on a market already struggling to meet demand.
The rental market in Vancouver is currently navigating complex challenges caused by rising interest rates and exorbitant condo costs. Tenants might experience higher rents as landlords strive to compensate for their escalating expenses. Moreover, the lack of supply resulting from diminished investor interest could exacerbate the situation and place additional strain on the rental market.
High interest rates exacerbate the already challenging rental market situation in Vancouver. With borrowing becoming more expensive, potential homebuyers are forced to remain in the rental market for longer, intensifying competition and driving up prices. This trend further marginalizes aspiring homeowners and perpetuates the cycle of unaffordability in the city.