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Developers underestimating Toronto condo fees, review finds
Wednesday, January 31, 2018
Most Toronto buyers who take possession of newly constructed condominium units are paying higher monthly maintenance fees than the developers estimated when the units were marketed and sold prior to construction, a review has concluded.
The review's author, Toronto realtor Scott Ingram from Century 21 Regal Realty Inc., said condo fees were higher than estimated across 97 per cent of the 124 new buildings he reviewed. On average, fees were 21 per cent higher than estimated, while 12 of the projects had fees 40 per cent higher than the marketing estimate prior to construction.
Mr. Ingram said some of the increase may be attributable to inflation or unexpected costs, but he is concerned some developers are underestimating future maintenance fees to make projects seem more affordable to potential buyers.
"All they're trying to do is move units," he said. "If that makes them look more attractive, then I can see why they do it, because it looks like there is no recourse [for buyers]."
Condominium fees are paid monthly by unit owners to cover communal costs, such as building repairs. When new buildings are marketed prior to construction, the future maintenance fees are estimated by developers based on the building's features and their market experience. The final amount is determined once the building is registered and ownership of the units is transferred to the buyers.
Mr. Ingram studied 124 new condominium projects in the Greater Toronto Area that were completed in a two-year period between the first quarter of 2015 and the first quarter of 2017, comparing the monthly maintenance fee the developers estimated when the project was initially marketed to buyers with the actual condo fee during the first quarter of 2017.
While costs could rise between the time of the initial sale and the project's completion because of inflation or other unexpected issues, Mr. Ingram said developers should factor in normal price increases to give buyers a better sense of the costs they can expect to pay.
"If you know that this building is not going to be ready for three years, you should build in some inflation in your estimates," he said.
The projects Mr. Ingram reviewed had an average estimated maintenance fee of 50 cents a square foot when initially marketed, and an actual maintenance fee of 60.7 cents in the first quarter of 2017.
For an 800-square-foot condo, the maintenance fee of $400 a month at 50 cents a square foot climbed to $480 a month when the cost rose by 20 per cent.
On an annual basis, that added an extra $960 of additional maintenance fees, he said.
Mr. Ingram, who is also an accountant and runs a blog about housing issues, said his experience working with condo buyers is that they should take the advertised maintenance fee and build in a 20-per-cent buffer for their budgeting purposes in case the final fee is higher.
He said he anticipated the price gap would be greatest in older projects within the two-year time range he studied because they had more time to raise maintenance fees by the first quarter of 2017.
Instead, he discovered there was little correlation with building age in that group, with some of the newest projects showing some of the largest fee gaps.
Data from Urbanation Inc., which provides information and analysis on Toronto's condominium market, shows average condo fees in Greater Toronto Area buildings completed and registered in 2017 were about 23-per-cent higher than advertised prior to construction, senior vice-president Shaun Hildebrand said.
Urbanation said the average monthly maintenance fee for all condo units completed and registered in 2017 was 58 cents a square foot - including units that have parking and lockers - while the average preconstruction advertised rate for the same buildings was 47 cents a square foot.
Mr. Hildebrand said that the marketed presale-maintenance fees are base rates that don't factor in the extra costs of having a parking space or a locker, which can account for a lot of the final difference from the advertised rate.
Developers are also allowed to increase advertised fees if projects take longer to complete than anticipated to account for increased costs, he said.
Mr. Ingram said the worst example he found was a two-phase condo project in Mississauga where the maintenance fees for the first phase were 63-per-cent higher than estimated at the time of sale, while fees for the second phase were 79-per-cent higher.
However, both phases had well-below-average maintenance fees of just 39 cents and 43 cents a square foot even after the increase.
Mr. Ingram said condo owners typically see fees jump within a couple of years after buildings are completed when the condominium board does a reserve fund study, which often leads to the conclusion that the project needs a larger reserve in case of problems. But he said his review tried to look at fees at an earlier stage as projects were first completed.
The review found that, on average, Toronto area condo fees were 21 per cent higher than estimated, while 12 of the projects had fees 40 per cent higher than the marketing estimate prior to construction.
FRED LUM/THE GLOBE AND MAIL
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