Low interest rates and Ottawa's tight rental market are currently luring in investors, who are typically existing homeowners looking to buy their second property, says A.J. Plant, a broker and manager for Exit Realty Matrix.
But he notes these investors are mostly buying up condos that are under construction. Recent new projects include Fortress Real Capital's Gotham and Claridge's Tribeca East.
Once all these projects are finished, and investors put their units on to the rental market, there will be a glut of inventory that could put downward pressure on rents, he says.
"It's going to be interesting to see if the rental market - meaning the (available percentage) of rentals - will go up, meaning there's a lot of inventory on the market. That will affect the rental prices," he says.
If the cranes scattered around downtown were not enough of an indicator of condo activity, the Canada Mortgage and Housing Corp.'s numbers for October illustrate a 12-fold increase in local apartment-style starts year-over-year.
In October 2011, 330 starts broke ground in Ottawa compared with just 25 last year. But in the long-term outlook for the nation's capital, CMHC said there is enough demand from young professionals and older empty-nesters to keep the market balanced.
"Builders continue to operate largely in tune with demand fundamentals and have so far refrained from speculative overbuilding in a market segment that is drawing in growing investor presence," CMHC stated.
Approximately 20 per cent of local condo starts are taken up by investors, says Barry Nabatian, director of the market research division at Shore Tanner & Associates, adding apartment vacancy rates below three per cent make the asset class even more attractive.
The investors are also responding to the lack of purpose-built apartments constructed in the past few decades.
Much of that local inventory is 40 or 50 years old, says John Dickie, a local lawyer and chair of the Eastern Ontario Landlord Organization.
Ontario's tax system favours other forms of residential development, he argues, adding provincial rent controls and capital gains taxes also discourage purpose-built rental units.
"Many landlords are operating their properties, renovating them to preserve their life and their quality," he says. "But the average quality of (a typical) rental property is declining because there is relatively little new rental property."
CMHC Outlook for Ottawa
"Construction activity for new condo apartment units is ... expected to remain historically high by the end of this year and next, but still below the all-time record posted in 2010. Healthy demand for smaller but trendier condos closer to the core is coming from affluent young professionals and empty-nesters looking for an active and convenient urban lifestyle.
"This in turn constitutes evidence suggesting that builders continue to operate largely in tune with demand fundamentals and have so far refrained from speculative overbuilding in a market segment that is drawing in growing investor presence ... With only few plans on the drawing boards, rental apartment construction is expected to remain subdued, opening the door to continued investor activity."
Source: Housing Market Outlook: Ottawa, CMHC
