Differences In Housing – Making An Intelligent Purchase That’s Right For You

Homewatch Newsletter Archive


In the city of Toronto, there are now a myriad of different housing types available for purchase. Beyond the traditional row, semi and detached houses one can buy throughout the city proper, the growth of the condominium has blossomed to now account for one of the largest and fastest growing segments of the market.
Mid-rise and high-rise condominiums are sprouting up at an unprecedented rate, with stacked and attached townhomes becoming equally as ubiquitous. How do you decide what makes sense for you?

The Freehold Housing Market.

A freehold property is more popularly known as a “traditional” house. You own the parcel of land in its entirety as well as all the structures on it, with no other party accorded any rights with the exception of municipal, provincial and federal bodies who may, if required, access your property for the purposes of running services like water, gas, electrical or cable lines under or over your property, or take portions of your property (or all of it, at fair market value) for the purpose of road widening or creating spaces for a larger public use. In some instances your neighbours may also have rights, including a right to access their property by passing over yours (most often in the form of a driveway or laneway), or the ability to have their services cross your property to serve their dwelling. Depending on where your property is, restrictions will dictate particulars, like size, position and location, among others. Other policies or design guidelines may stipulate construction specifics like rooflines, colours and materials. Despite restrictions, this form of ownership is one of the most coveted and desired.

In the freehold housing market what often sustains the value of a property, and in fact causes it to increase, is the parcel of land it sits on. In fact, the sale price of an older city home usually accords about 90 percent of its value in the land itself, with the building being valued at, or less than, 10 percent depending on its condition. Generally, the older the house the more centrally located it is, such that in some parts of the city the parcel of land becomes so valuable as to no longer warrant just a single family dwelling on it but be combined with other parcels of land in order to accommodate a much higher and better use, like a high- rise condominium. Whereas a block of ten houses may have once accommodated ten families, those same parcels of land may be combined to accommodate 200 units in the form of a high-rise tower. Even in an area where the city zoning might not change to allow such a development, a downtown residence within walking distance to the city core commands a premium. Neighbourhoods such as South Cabbagetown, Leslieville, Little Portugal, and Roncesvalles Village are testaments to how the demand for centrally located property in any condition has dramatically escalated in value.

Much like other commodities, such as an automobile or an appliance, a building is constructed and designed with obsolescence in mind, requiring potentially frequent injections of capital. Whereas one hundred years ago houses were built of solid brick, slate roofs, and handcrafted fittings solid enough to withstand several decades, nearly every component for building today is constructed with a life expectancy of less than thirty years. Windows, wiring, plumbing, roofing, heating, cooling, siding and framing are all made with the intent of being replaced anywhere from ten to thirty years. So from the moment a new house is built, it becomes a depreciating asset that requires on-going investment in order to retain its value. This is something many buyers don’t identify when making a house purchase, nor entirely calculate as an expense when selling.

The Condominium Housing Market.

When it comes to condominium housing, the value of the asset lies with the building rather than the land. In condominium ownership you own the title to the unit your suite’s floor space encompasses, plus a percentage interest in the parcel of land and all the common elements collectively shared with other unit owners. Because you do not own the land yourself, it has more limiting factors and accounts for a smaller percentage of the property’s value. Instead, beyond the convenience and desirability of the condominium’s location, the value of the property is based more on the quality of the building, the finishes in the unit and how well the condominium is operated. Furthermore, the monthly common fee all unit owners pay includes a portion into a Reserve Fund, which is a fund that provides capital to repair or replace every building component at the end of its life expectancy. What this ensures, theoretically, is the building never fully deteriorates to become obsolete.

Unlike freehold properties where a building might become so run down it is better to knock it down and construct a new dwelling, the legally required reserve fund of a condominium provides a futures fund for building component replacement. As a result, the building, under a comprehensive maintenance, upgrade and repair program, should not suffer a dramatic decrease in value.

However, in this style of ownership, you do not have the same opportunity to exercise control in protecting your asset. The board of directors running the condominium corporation may not place as high a priority as you in maintaining quality standards. The management or board of directors might cut concierge or building services, reducing hours of operation or even wages and salaries, resulting in less care and attention by employees that ultimately scar a building’s sterling reputation for good service. The board may also defer a major repair for a few years in an attempt to build more capital, in the interim compromising appearance or comfort. If that is the time frame in which you sell, you may not garner as strong a return because the building’s first impression or financial documents are not as desirable.

For those who are concerned about protecting equity in condominium housing, there is an active role to play to influence the building’s mandate. For others who do not have the time or the inclination, the risks can be greater. And for some, the inability to maintain control of their asset in a condominium setting makes it an inappropriate choice for them. Many do prefer this style of ownership, because of the turn-key lifestyle.

Steven Fudge, Sales Representative
& The Urbaneer Team
Bosley Real Estate Ltd., Brokerage
(416) 322-8000


Previous Post
July 2013 Home Of The Month – South Annex
Next Post
Our July 2013 Homewatch Newsletter