Welcome to 40 Panorama Court., in Toronto, Canada – where units are around $50,000 on average – more than 10 times less than an average condo within the Greater Toronto Area. This sounds like a great deal. But here’s the catch – the skyrocketing maintenance fees and poor management.

According to the Toronto Real Estate Board, the average condo in Toronto sold for $454,304 in May, up 3% from the same time in the previous year. May 2016 Toronto-area condo sales are up 76% – mostly a result of the low supply of detached homes available within the Toronto area, and the record breaking prices. Many millennials are shifting towards condominiums, since they’re typically more affordable than detached homes.

If the Toronto Real Estate market is so hot, then why are the condo units at 40 Panorama Court much cheaper than average? It’s because of the lack of proper management, and expensive maintenance fees. According to Realtor.ca (MLS) listings, maintenance fees can range from $600 to almost $1000 in this building. According to condos.ca, the average Toronto area maintenance fee for 1 bedroom, 2 bedrooms, and 3 bedroom condos are $365, $588, and $786 respectively (2015).

Especially in today’s low-interest rate environment, maintenance fees are also seen as an opportunity cost to many home buyers. A $1000 monthly maintenance fee has the opportunity cost of an additional $200,000 in mortgage principle (if the interest rate is around 2.5%). Keep in mind, this is an approximate number – there are many factors to take into consideration, such as the amortization period, and interest rate.

Townhouses are a perfect example that show the maintenance fee opportunity costs perceived by buyers. There are two types of townhouses – freehold townhouses, and condo townhouses. Condo townhouses typically have a fee that covers building insurance, garbage, snow removal, and parking in some cases. Freehold townhouses would typically go for a couple hundred of thousand dollars more than condo townhouses – just because there is no maintenance fee.

Although condo townhouses are cheaper, it may have the approximately same monthly payment as freehold townhouses – since it would require a maintenance fee and a mortgage payment. Keep in mind, freehold properties typically yield a greater return on investment – they do not have the risk of being mismanaged, leading to sky rocketing maintenance fees – as seen in 40 Panorama Court.

According to The Star, 40 Panorama Court has past records of mismanagement – leading the condo to being behind by millions of dollars in repairs, and an operating deficit of a couple hundred of thousand dollars. Management and owners declined efforts to raise monthly fees to cover the cost of necessary repairs, such as parking garage (which is partially blocked), falling concrete, and elevators, which are falling apart.

Consumer Alert: Battling Rising Condo Fees

Many Panorama Court condo owners want out – desperately selling at such low prices. According to The Star, Zarik bought a three bedroom condo unit at $124,000 in 2000. Currently, there are two three-bedroom condo units for sale in the building, for $49,900 and $60,000. That’s more than a 50% drop in 15 years, where Toronto Real Estate prices have been increasing each year.

“I will never buy a condo again” Zarik admitted to The Star, after going through a decade of mismanagement, and rising maintenance fees. These factors have led the Panorama Court condo owners to significantly depreciate in value, even in the long term. Typically, Toronto Real Estate appreciates in the long term, however, this is a rare case of a property depreciating in value year over year.

 “I will never buy a condo again”

As the building continued to be in a management crisis, with severe financial conditions, the condo corporation asked the Superior Court judge to assign an administrator to manage the building, to get it back on track (The Star).

This is one example of a mismanaged condominium. Before purchasing a condo, always do prior research on the condo building – how well is it being managed? How much have the maintenance fees risen in the past few years? What do the maintenance fees include? These are the type of questions you should be asking yourself. Its also best to consult with a real estate agent in your area, as they would typically have a better understanding of which one would be a better buy.

Is the end near for 40 Panorama Court? With never ending repairs – would it be cheaper to sell off the land to developers, and split the profits among unit owners? In this 202 unit building, lets say the average unit sells for $50,000. That would be approximately $10.1 million for the developer to buy the whole building. This can be a bargain within the Toronto Real Estate, since older condo buildings tend to have more land – sometimes enough to build 2 – 3 high rise condo towers. Recently, a 5.18-acre residential infill redevelopment site in East Toronto was selling for $10.7 million to developers.

This is the type of problems that has the risk of arising in any condo building. Chris Jaglowitz, a lawyer specializing in condo law for Gardiner Miller Arnold LLP mentioned that this is a coming crisis that nobody is talking about (The Globe and Mail). To avoid being in this situation – its important to do your research, understand the building as much as you can before making a decision on whether or not to buy it.

You may also be interested in: Real Estate Investing: Tips & Tricks

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Writer: Jelani Smith 

Disclaimer: All investing can potentially be risky. Investing or borrowing can lead into financial losses. All content on Bay Street Blog are solely for educational purposes. All other information are obtained from credible and authoritative references. Bay Street Blog is not responsible for any financial losses from the information provided. When investing or borrowing, always consult with an industry professional.