August 2, 2017
What is a Micro-Condo – and Should You Buy One?
Micro-condos have become a popular buzzword, snatching headlines nationwide and promising to reshape cities and our lifestyles as urbanites rush to embrace compact living.
What is a Micro-Condo?
In dense Canadian cities with tight markets, such as condos in Toronto or Vancouver, buildings containing these tiny units – which are typically between 450 and 500 square feet – have been cropping up everywhere in recent years. In Toronto, a development called Smart House boasts units as small as 289 square feet, and the Janion Building in Victoria, B.C. has apartments even smaller than that, measuring in at 250 square feet.
However, some realtors say that the hype about micro-condos is overblown.
“Most of my experience with these units is with buyers who look at them and decide that they don’t want to go down that road,” says David Florida, a Toronto-based realtor with Royal LePage Signature Realty.
“Once they have to put their mind around where they’re going to put furniture and how they’re going to eat their dinner and where things are going to be placed, a lot of them start to re-evaluate their options.”
Small Living For Young Singles
Those who do buy micro-condos tend to be young, single executive types who want to live right in the downtown core, says Florida – “the young Bay Street type.”
Typically, they sell the unit a few years later, after they meet someone and decide to shack up, says Florida. After all, the units are typically too small to accommodate a couple, much less a family.
Because of their small size, micro condos require owners to be creative in organizing their living space. Some residents enjoy the challenge of downsizing and finding ways to make the most efficient use of their limited square footage.
“They enjoy getting interesting furniture to go in them, they enjoy the different convertible stuff you can get,” says Florida.
Micro-Condo Mortgage Challenges
However, anyone considering buying a micro condo should be prepared to get creative when it comes to financing, as well. That’s because often times the big banks, which tend to be conservative when it comes to taking on risk, don’t want to finance these types of units. Some of the big banks have even gone on record saying that they won’t provide loans for units below 600 or 700 square feet.
“If someone defaults on their payments, the bank needs to know that they can liquidate the property quickly and easily,” says Florida.
Micro-condos are considered to be somewhat of a niche market, and the banks are concerned about how easy it will be to re-sell these types of units in a pinch, says Florida.
For buyers, that means they’ll have to turn to an alternate source of funding to get a mortgage on a micr-ounit. Monoline lenders – mortgage lenders that secure their loans with mortgage insurance – are often willing to finance these properties.
At the end of the day, Florida says micro condos aren’t going anywhere. But he doesn’t anticipate that they will take over the city’s real estate market – particularly given the recent emphasis on family-sized apartments.