Condo or co-op?

A handsome red-brick heritage building in the Golden Triangle, 320 Waverley St pictured below is in fact one of the very few buildings in Ottawa owned as a ‘co-operative’:

More common to larger cities such as Toronto and New York, a ‘co-op’ is a private corporation that has full ownership of a building, its units and common areas. Whereas a condo is governed by the statutes and legislation of the Condominium Act, a co-op is created by articles of incorporation and runs on its own by-laws, rules and regulations, as well as the private contractual agreements that exist between the corporation and its shareholders, otherwise known as members.

Rather than purchasing actual real estate, a co-op Buyer is purchasing one or more shares in the corporation that owns the building. The Buyer now becomes a member of the co-op and has voting rights, along with an occupancy agreement granting them long-term exclusive possession of a specific unit.

A co-op usually has one mortgage for the building itself; an agreement will set out a member's obligation to cover their proportionate share of the mortgage, the operating expenses and the building's annual tax bill. Many older co-ops have no mortgage at all and the Buyer must pay cash, or make a sizeable downpayment (25% or more) and have the remainder financed by the co-op. It is important to note that most banks will not finance the purchase of a co-op apartment—a lender cannot foreclose without a deed and a mortgage.

Also of note is that both ownership and responsibility is joint; should one member default on payment of the mortgage or taxes, all other members must pay out of pocket to make up the shortfall, or possibly risk losing their equity in the corporation. As a result of such risks assumed by a potential Buyer—and the difficulty in financing these purchases—co-op units are often priced well below market value.

The importance of getting along with your neighbours—in this instance fellow shareholders—can not be overstated. Those who follow the tabloids may remember that Madonna sued the members of her co-op board in NYC for blocking her purchase of an additional unit in her Central Park West building.

Retaining the services of a good real estate lawyer is a must when buying into a co-op. She will be the one reviewing the corporation's documents, financial statements and terms of the co-tenancy agreement. Any offer to purchase a co-op must also be drafted on forms specific to co-op purchases. Lastly, note that any offer made by a Buyer is subject to approval by the Board of Directors of the corporation (aka other residents). A review of the applicant's suitability, financial and otherwise, will be undertaken and form the basis of their approval.

Food for Thought: Condo By-Laws

“One of the problems in general with condos is that the most anal people always end up on the condo boards. As an example, I find the rule that you can’t rent out your parking spot to an outside person unnecessary, especially in a building with visitor parking. The idea that I can rent my condo to someone on parole for sex offences, but can’t rent my spot to a mid-level bureaucrat who doesn’t live in the building, doesn’t make sense. This is especially an issue in The Mondrian where a parking spot is probably worth $200 a month to someone working in the immediate area.”

—A Resident

New Mortgage Rules

The federal government has introduced new mortgage rules that come into effect Monday with talk of curbing the overheating condo market being witnessed in cities such as Vancouver and Toronto

To summarize:

• Maximum amortization period has been reduced from 30 to 25 years
• Maximum refinancing has been reduced from 85% to 80% of the loan-to-value ratio
• CMHC mortgages will only be available on properties purchased for less than $1 million
• The gross debt service ratio is 39% (percentage of your total annual income needed to cover your housing costs)
• The total debt service ratio is 44% (percentage of your total annual income needed to cover all your debts)

Those thinking of investing in the condo market will be most affected by the limit on amortization period. Capping mortgages at 25 years means that in many cases the investment math on rental condos will only work with a larger down payment... which is a good investment strategy to begin with.

Monday Mixed Bag

Some of the Google searches that have brought visitors to this blog over the past week:

"Down payment on a condo ottawa"

When looking at new construction, be prepared for a downpayment of anywhere between 15% to 20%, although some builders will be flexible, depending on the project and overall sales activity. I have previously negotiated downpayments as low as 7% for my clients, but I would say this is an exception, not the rule.

By contrast, your downpayment when buying in the resale market is dictated by the lender you deal with. Currently the minimum for CMHC insured mortgages is 5%, but a higher downpayment may be required depending on factors such as length of employment and credit score.

"Ottawa condo advice"

This one is easy — first and foremost, buy what you can comfortably afford both in terms of monthly mortgage and condo fees.

Buy in a location you *like* — the smaller space of a condo means that your immediate neighbourhood becomes an extension of your living space. Therefore… like where you live.

And lastly, remember that a unit's size, orientation and building can't be altered. Old carpets can be replaced with hardwood floors, kitchens and bathrooms can be renovated, and walls can often be removed… but you can't add extra space, extra sunlight or redecorate the lobby, so if these factors matter to you, then always keep them top of mind.

Food for thought: Is Infill Working?

Some very interesting thoughts on the growing demand for condos in downtown Ottawa...

"Consider a theoretical urban professional who moved into a downtown condo tower. Has a car in the building garage. Maybe works in Kanata. Has friends in the 'burbs. Has a cottage/second home/chalet at a ski resort or recreates frequently at upscale resorts, here and abroad. Has a spouse with independent employment characteristics and demands. Hasn't this household just relocated an energy-intensive suburban lifestyle to the inner city? Are these high income in-comers behaving the way traditional inner city residents do? Maybe, location is not the determining factor, but income is. Moving in high income people may just relocate their old lifestyle."

Full article at http://westsideaction.blogspot.com/2009/07/is-infill-working.html

Friday Mixed Bag

I occasionally review web logs to see which searches bring visitors to this blog. Sometimes these take the form of a question, a few of which are answered below:

"Are Claridge condos any good?" Well, good is a relative term, isn't it? I have several clients who have been very happy with their Claridge purchases while others have told me that they don't care for their projects. Evaluating a builder is a very subjective exercise that starts with your expectations, but the Tarion website does provide a limited summary of builders' track records:

http://www.tarion.com/HOME/Find+a+Builder+2.htm

"Is it better to buy a condo or a freehold townhouse?" I cover the pros and cons of condos versus freehold ownership pretty thoroughly on my website—click here. Again, any clear answer would depend on your own wants and needs but most townhomes do offer more space for your money, along with more maintenance and sometimes more expense.

"How secure is EcoCité Ottawa?" Well secure is a subjective term, isn't it? But almost a third of the project's 25 units were still unsold after 5 years... the project became insolvent in August 2009 and all original purchase contracts were cancelled... buyers who paid up front for upgrades to their units have not been reimbursed... all units were relisted on MLS in October 2009 for up to $150K more than their original price... a number of the buyers retained legal counsel and requested that Tarion investigate the builder... and when I drove by last week the building's front doors remained barricaded and no units have been resold on MLS. But as I said, 'secure' is a subjective term.

2009 Sales of 1-Bedroom Condos

While on the topic of the market for 1-bedroom condos in downtown Ottawa, I recently compiled a summary of 2009 sales in the downtown core for my Buyer clients, something which may prove useful for those of you considering a purchase in 2010. While I can only share this kind of sales data with clients, an edited version of that report can be accessed by clicking on the link below:

2009 Sales Summary of 1-Bedroom Condos in Downtown Ottawa

Food for Thought: EcoFiasco?

"I've walked by EcoCité many times and always thought the building was quite unattractive and very expensive, two elements that could compromise any project. It was an admirable attempt but they simply didn't get it right, eco-friendly or not."

—BruceHatch

EcoCité on the Canal, Take 2

Purchasers of EcoCité on the Canal condos on Bank St received a rude awakening this past Wednesday with news that their purchase agreements—some dating back 5 years—had been cancelled as the mortgage company seized the project.

In layman's parlance, investors were unwilling to front any more money to the cash-strapped project, where almost a third of the 25 units remained unsold after 5 years of continuous marketing. As such, the mortgage company now owns the physical building and is free to resell previously sold units, but at current market value. With 1-bedroom downtown condos now selling around the $250,000 mark, that could see most of the EcoCité units selling anywhere from an additional $50,000 to $100,000.

Little wonder that CBC reports the lender is eager to enter into new agreements with the stranded buyers, some of whom were said to be living in hotels after being told they would be occupying their new condo this Labour Day weekend. CBC further reports that a number of EcoCité's original buyers are talking to lawyers and as well as representatives from Ontario's Tarion Warranty Corporation.

Food for thought...

"Canadians believe in homeownership—a fact best illustrated by the purchasers who ventured forward in recent months and snapped up some of the best real estate deals the Canadian market has seen in years. Those who chose to sit it out on the sidelines are now facing a market in transition, characterized by the threat of rising interest rates, low inventory levels, and upward pressure on housing values."

— Michael Polzler
Executive Vice President
RE/MAX Ontario-Atlantic Canada

Condo Insurance a Must for Unit Owners

Last night's fire at downtown's Gramercy Park condos on Lyon Street underscores the necessity for condo owners to carry their own insurance policies, specific to their unit and possessions:

Click here for article

While condo fees include "building insurance", this is usually a Master Policy that covers the basic structure (walls, roof, floors) and common elements such as elevators or a parking garage. Depending on the condominium, a Master Policy may or may not extend to the interior of each unit to cover appliances, carpeting, cabinetry, flooring, etc.

An owner's condo policy can insure not only the interior of your unit and your personal possessions, but the value of any improvements you've made, such as installing new counters, hardwood floors or kitchen cabinets. Some policies even go so far as to protect an owner against any assessments as a result of inadequate insurance on the building. Keep in mind that as a condo owner you are sharing in any liabilities incurred, should your condominium corporation ever be sued for damages.

A number of insurance companies offer policies specifically designed for condo owners and it is well worth the time to research various options. Some links to get you started:

http://www.statefarm.ca/ca/insuranc/condo/condo.htm http://condominium.insurancebroker.ca/
http://www.axa.ca/en/Products/Ontario/home.jsp

And finally an excellent legal blog talking about condo insurance:

http://www.ontariocondolaw.com