With low supply, steady demand, and limited options because of affordability challenges, house hunters are increasingly becoming more creative in their housing hunt. For many, this mean exploring co-ownership.
Co-ownership is becoming a more sought-after housing ownership model, not just for the purposes of affordability, but as a means of self-creating a community. It can take many forms including building a new home or renovating or adding to an existing home to create multiple units to house co-owners (made possible with the introduction of Toronto’s new as-of-right multiplex policy). I wrote about this phenomenon in this post: Build A New Multi-Generational Family Residence, Co-Housing For 4 Friends, An Income Property Or Small Condominium In East York, Toronto
Another option is to purchase a unit in a co-ownership building, where units are able to be purchased through a co-ownership model. Although on the surface, you may be wondering, isn’t living in a condominium a form of co-ownership, because several units are shared in the same building but owned by separate owners?
While there are common features between co-ownership and condominiums, it is the key differences that make co-ownership a different type of homeownership altogether.
Let’s explore!
Co-ownership may mean different things to many people, but for a growing number of homebuyers, it represents a way to get onto Toronto’s pricey property ladder for a much more economical price. For the most part, a co-ownership is very much like a condominium, but there are a few noteworthy differences.
In a condominium, buyers own the interior of their unit and receive a deed as proof of ownership, which they can register a mortgage against from a conventional lender. The buyers also share an interest in common elements (the area outside of the interior of the unit) that they share with other Condominium Corporation members.
With a co-ownership apartment, purchasers own a percentage interest in the building, often calculated as building ‘shares’. Owners effectively receive a deed to the entire building – including the common areas – with their ‘shares’ granting exclusive right to occupy an individual apartment. The title of the building is fractured, which allows residents to register their individual mortgage on the complex. Only a select number of lenders have lending programs for this type of complex, but with this form of ownership fairly common in Toronto, there are several financial institutions that offer mortgages on this property type.
In a condo, maintenance fees do not include property tax. The owners receive individual tax bills they are responsible for paying whereas, in a co-ownership building, owners pay their proportionate share of property taxes as part of their monthly maintenance fees. While this often makes the co-ownership monthly maintenance fees appear to be higher than condominiums, once you extrapolate the proportionate sum for the unit common fees and its property taxes, the total costs are often on par with each other.
There are also a number of benefits to co-ownership buildings.
With co-ownership units, there could potentially be more options for size and layout. Low and mid-rise condominium buildings are hard to find, but a lot of co-ownership properties fall in that coveted low and mid-rise category.
These properties are not usually “shiny and new” as this RightSizing article “What’s The Difference Between A Condo, A Co-op, And Co-ownership?” points out, but these properties typically have larger layouts and sensible floorplans that more than make up for that.
For Buyers who have sizable down payments, co-ownerships offer a lot of upside for Buyers. First, co-ownerships are frequently less expensive to purchase. Second, many co-ownerships are situated in older well-constructed buildings with spacious floor plans in prestigious neighbourhoods.
Location is a major draw with co-ownership buildings, in that they are often located in desirable, established downtown neighbourhoods, sometimes where condominium buildings may or may not be permitted to be built. It gives buyers options to have a condominium-like property, but in a location that is most appealing to them.
These buildings tend to have lower turnover – because they have fewer tenants – and are typically owner-occupied. What this often translates to is a tighter-knit building and a greater sense of community among the residents.
Co-ownership properties are fantastic for those looking to downsize. Since the units are usually bigger than today’s new condos, which can help homeowners feel like they are not compromising on space. It’s challenging to find a “house-like” condominium.
One drawback with co-ownership buildings is that can be challenging to get financing for a co-ownership model, and buyers would not qualify under high ratio CMHC insurance. This is in part because of the small size of the market, banks are not compelled to underwrite these loans.
Financing for a co-ownership versus a condominium is quite different and worth noting. In a condominium, you actually get ‘title’ to your individual suite of which a traditional mortgage can be registered against. In the event the owner defaults on their payments, it’s easy for a lender to repossess a unit and sell it under ‘power of sale’. However, because a co-ownership consists of ‘shares’ in the ownership of the building, it’s more like owning ‘shares’ in a corporation which are less liquid than owning ‘title’ to an individual unit. This makes it more challenging for a lending institution to extract its capital in the event an owner defaults, so lenders view this as a riskier proposition.
A buyer may have better luck through a credit union or trust company in getting financing.
This Globe and Mail article provides good context around co-ownership apartment building conversions: A New Twist On Home Buying. It was published in 2007, but the info is still pertinent- even more so- as the race is on in Toronto to create housing supply, particularly in the missing middle.
The city does not permit apartment buildings to be converted into condos in order to preserve affordable rental stock, which is indeed a problem with such low vacancy. Condominiums are subject to much more policy and regulation, whereas co-ownership apartment conversion is a bit more of a grey area.
The above Globe and Mail article explores how one Forest Hill landlord went through the process of converting apartment units as they came available to co-ownership units for sale. Back then there was an uptick in interest in co-ownership units and apartment conversions, and, in the time since that article was written, there have been more of these buildings converted. However, they still represent a low proportion of properties (estimation of around 50 in Toronto).
At the time, the provincial government became increasingly concerned about the filtering of affordable rental spaces from the market, and therefore introduced the Rental Housing Protection Act, which propelled forward an explosion in condominium development, which in turn deterred the conversion of apartments into co-ownership units. This act was repealed by Mike Harris in 1997.
Policy around rentals is back in the forefront again, with skyrocketing rents, razor-thin vacancy and low, low inventory. With high immigration targets over the next few years (which additional pressure on the tight rental market), the calls for reform will probably get louder.
This Toronto Star article provides some more background on co-ownership ‘Co-ownership, Condo Ownership Have Commonalities’, as does this post, ‘Co-Ownership Explained’.
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As coveted and rare-to-market as co-ownerships can be, we are thrilled to announce that one has just come to MLS!
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