Micro Condos – Can They Get Any Smaller?

The explosion of condominiums in the GTA over the last 10 years has also seen a marked decrease in the size of condominium units.  In an effort to maintain affordability in the face of rising land and construction costs, developers have found creative ways to reduce the square footages of units while making them extremely functional and liveable.  The average area of a condominium unit in the GTA has dropped by more than 100 square feet within the last 10 years and the trend to smaller and smaller units continues. 

The latest form of small units, otherwise known as "micro condos", is being sold at the Smart House, a 256 unit condo tower at Queen and Simcoe where a third of the unique and efficiently designed units are well under 500 square feet.  The project has been 80% sold and has been a great success.

In a recent article in the Toronto Star, (  http://tinyurl.com/pmyc4l5 ) Susan Pigg took a look at the potential difficulties that purchasers might have in financing purchases of smaller units.  Apparently, some banks have policies that prohibit financing under 500 or 600 square feet such as Scotiabank.  Interestingly, the smaller units under 500 square feet, pursuant to an Urbanation study done of the Entertainment District rental rates indicated that units under 500 square feet were going for $3.34 per sq. ft. vs. $2.80 per sq. ft. for those over 600 square feet.  Clearly, the rental values are there.  It is likely that most of these micro condos are being purchased by investors for rental, and given the values that Urbanation has discovered in terms of the rental rates and the insatiable demand for new rentals in the downtown core, banks should not have any concern over marketability of "micro units".

Also, all builders require their purchasers to obtain mortgage commitments for their purchases or provide evidence of financial ability to close with cash.  As far as the developers marketing these micro condominium units are concerned, there has been no issue in purchasers obtaining mortgage commitments.  Given the tremendous amount of mortgage money in the marketplace, not only through Schedule A banks, financing these units should not be an issue, even if one or 2 banks are not in the game.

The more interesting issue that arises from this discussion is the actual size of units and how small units can become before purchasers or tenants say "enough is enough".  Apparently, even 275 square feet will work if it is designed correctly.  Many projects have 2-bedroom, 2-bathroom condominium suites of 625 square feet.  Necessity has made developers become creative in the sizing of their units and the manner in which they are equipped to make them totally functional.

So notwithstanding Susan Pigg's comments in her Toronto Star article, micro units are definitely both marketable and financeable.