Small is beautiful – or so say the many developers that are currently building micro condos in Canada’s urban cities. A relatively new concept to this country, but prominent in densely populated cities like New York and Tokyo, micro condos are units that are 500 square feet or less.
While they may be suitable for young professionals who want to live in the heart of a city, and want a “mini” mortgage payment to match, there is just one snag: lenders aren’t quite as excited about these properties as their potential buyers are.
“Lenders are hesitant about these units, as many are not familiar with this type of asset,” says James Laird of CanWise Financial. “They continue to look at the asset and assess each (application) on a case-by-case analysis. For example, if it is a project that has sold out – or is near to selling out – and in a good part of the city, lenders will be more inclined to finance it.”
On top of that, as it turns out, size does matter. We saw this when we looked at what makes lenders so weary of tiny houses, and it’s also true with micro condos. Some lenders, including TD and Scotiabank, have a restrictive lending policy for units that are under-600 square feet. Others even adhere to a limit of 700 square feet.
“If a buyer walks into some banks and just asks for a mortgage on a micro condo, without knowing these individual restrictions, they could be denied straight away,” shares Laird. “Only an experienced mortgage broker will know which lenders are more open to lending on these units.”
Some lenders, such as National Bank, have reportedly been more welcoming of this housing option. Laird believes that as these condos become more popular, other lenders will remove some of their restrictions too. Indeed, condo unit sizes have been slowly decreasing over time, as developers respond to demands for more affordable options. And smaller units mean lower prices.
“Ten years ago, the average size of a condo was 800 to 900 square feet. Five years ago, the average was 500 to 800 square feet. But now those same units cost between $650,000 and $700,000 [in Toronto],” says Roy Bhandari from TalkCondo. “Not everyone can afford this size of units, so developers started building condos to match the budgets and lifestyles of new buyers.”
Limited space may be a bone of contention for some buyers, but Bhandari says developers are being more astute with their designs. Many of these new micro condos feature fully built-in ceiling-height closets, kitchen counters that expand and integrated compact appliances (combination washer/dryers).
The attractive price tag – with some starting at just $220,000 – is the huge pull factor for many buyers, many of whom are willing to give up space for location, convenience and amenities. Smaller units also mean less condo fees, another factor that buyers should consider when looking at this housing option.
“[The fact is] these smaller units are not a passing trend; soon they may become the ‘norm’ in our cities,” Bhandari points out. If that’s true, the big banks will have no choice but to “get with the times” and loosen their financing restrictions on micro condos. Until then, if you’re interested in buying one, sit down with a mortgage broker to discuss your options.
Would you live in a micro condo?
Image: Reliance Properties