Everywhere we look there are still cranes in the air. Condominiums are still being built — even as residential real estate markets correct and balance across the nation. In a country where real estate dinner discussions are no longer taboo, much like religion and politics, it makes sense that would-be homeowners, upsizers and downsizers are trying to make sense of a possible future housing purchase.
Of course, condos make a lot of sense. Often, condos provide an affordable entry point for many first-time homebuyers and this type of property is ideal for a downsizing next home. But given all the hype, you may think condos are the only option. They aren’t.
In fact, there are plenty of other housing options that offer buyers and vacationers a chance to own and enjoy without big-ticket purchases. Here’s our rundown of the best condo alternatives currently available in the Canadian market.
Fee-simple row houses
“Fee-simple” is real estate/legal term for a property not held by an association. Fee-simple is the ultimate form of property ownership because the titleholder owns both the land and everything developed on it: house, yard, plumbing, electrical connections, paths and walls.
Almost all detached homes are considered fee-simple — meaning you own the property and land outright. However, across Canada, you can also find fee-simple row houses or townhouses. Just like detached homes, a fee-simple townhome means you own everything on your property, including the driveway, garden, plumbing, and electrical wiring. The only thing you share is the wall dividing your home from your neighbour’s home. In simple terms, if there is any damage to the wall that is shared and the damage is only on one side, the resident on that side would have to handle the repairs. If it’s on both sides, both homeowners would be responsible for splitting the repair costs.
The biggest advantage of a fee-simple row house is the lack of obligation to pay any strata fees or the necessity of complying with bylaws. Your neighbours have no say in what kind of pet you can have or what colour you paint your deck. Mind you, it works both ways: you can’t tell your neighbours what to do either, and you have no control over who those neighbours might be. Fee-simple row houses are not as common in Canada as in Europe due to the extra expenses developers incur to install independent plumbing and electrical wiring in each unit.
A good example of fee-simple rowhouses in Canada are the Stoneleigh rowhomes in Silver Ridge neighbourhood of Maple Ridge, British Columbia. The initial buyers of these rowhomes saved as much as 20% compared to almost identical, single-family houses located in the same development, says Rob Grimm, principal at Portrait Homes, the developer. Plus, since buyers aren’t required to pay strata fees they qualified for a higher mortgage.
Another example is Crawford and Massey Streets in Toronto’s Queen West neighbourhood of Trinity Bellwoods. These fee-simple row houses offer downtown house-living but at a reduced price than what buyers would expect to pay for a detached home in the same (or similar) neighbourhoods.
Of course, most townhomes are not built as fee-simple units. Instead, most townhomes are legally structured like condominiums, with bylaws and a strata-board that is responsible for upholding rules, collecting fees and paying for common repairs and maintenance. Strata-townhomes are commonly referred to as just “townhomes” but can also be called “landominiums” as well as “multifamily units.”
Co-housing or shared home ownership
Co-housing is a highly communal arrangement in which private homes are built around common spaces. A co-housing project will often have 20 to 30 units and usually a common house where you may find a large kitchen, laundry rooms, recreational amenities and a communal dining area.
Co-housing is meant to facilitate and encourage interaction among neighbours. As a result, there are regularly scheduled events to get community members involved. For example, there are scheduled shared meals, parties, games and film nights. Sharing also extends to resources such as lawnmowers, leaf blowers and even vehicles.
Co-housing units tend to have prices comparable to those of townhouses. However, the highly communal way of life and the shared resources typically allow for lower living expenses. Co-housing units are very popular in Denmark and in other places in Europe although the idea is starting to gain some traction in Canada partly because of the high-cost to enter the housing market.
Essentially, co-housing and shared home ownership enable buyers to pool their resources. This larger sum of money enables the owners to buy a property — together. After this, the arrangements for how the property and amenities are shared can vary. Recent examples in Toronto have property co-owners splitting all costs evenly among the buyers to co-owners obtaining separate mortgages from different lenders but sharing communal (and previously specified) costs.
While co-ownership seems ideal to keep in mind it’s not a simple solution. Complications can always arise and it may not be easy to exit (or enter) into a co-housing situation that is already up and running. Still, for buyers who can’t afford to go it alone, co-housing and shared home-ownership do have big advantages.
Co-op housing, also known as a housing company or a housing cooperative, refers to a cooperative that owns real estate. In residential real estate, these legal entities actually pre-date condo-strata, but they differ quite dramatically from condo boards. For starters, homeowners neither own the units outright nor hold title to them. Instead, they own shares in the company — the company owns the property. The cost of these shares is proportional to the value of the units, and each shareholder has the right to live in one of the units.
One big advantage to co-ops is that they are often priced well-below (or slightly below) the market price of comparable condos in the area. This means buyers get to purchase the “shares” of the unit at a lower price — a real advantage for those trying to buy into expensive real estate markets. Like condos, co-ops can offer lower homeownership costs as members pay a monthly fee which covers the co-op’s umbrella mortgage payments (the big mortgage that covers the entire building that’s divided up among owners, based square footage lived in), taxes, maintenance, and emergency funds allocation.
There are some disadvantages, however, of co-ops. Typically in Canada, the buyer must put a down payment of 20% or more (some co-ops stipulate a 25% down payment minimum). Plus, you won’t hold title to the property and this can make it harder to find a lender who is willing to finance the mortgage. It is also difficult to pass your shares through inheritance, as each co-op has a much greater capacity to accept and reject new owners. Finally, there is a smaller market for this type of housing which means it can take more time to sell your shares, should you decide to sell and move.
Fettered ownership is an affordable alternative to co-op housing or townhouses. The basic premise is that buyers purchase a unit or a home at a certain discount, usually 20% below market value. But to get this perk the buyer must also agree, in writing, to provide the same reduction should they sell. The term was first coined by long-time housing advocate, Michael Geller.
The biggest advantages of this type of ownership are that a buyer can purchase a home at a reduced price, making it easier to afford a home and to qualify for financing.
For many old-school fettered ownership arrangements, the restrictions are never lifted. However, there are more updated arrangements created by geared-to-income condo sales or non-profit condos.
Non-profit condos are developments built by builders who focus on affordability rather than profit. That doesn’t mean you get a dirt-cheap condo in the middle of nowhere. Buyers often get access to condo units that are valued at market rate but offer a discount or an equity top-up. Most non-profit developers also take quite a bit of time to search out land to develop in up-and-coming areas, which means buyers often get in on the ground floor of an appreciating neighbourhood.
A good example is the Greater Toronto Area-based Options for Homes a not-for-profit condo developer that helps home buyers to purchase a new-build condo using an equity top-up.
The equity program works by providing first-time buyers with a second mortgage that’s registered against the property. This second mortgage acts like an interest-free loan — providing buyers as much as 13% of the down payment on a new condo. Buyers who take advantage of this top-up are not required to pay this second mortgage back until they sell their property. Using this approach, Options for Homes is able to lower the size of the first mortgage by increasing a buyer’s down payment to 20% or 25%.
Here’s how it works: Say you opt to be a buy a one-bedroom condo for $350,000 but you only have $24,500 saved for a down payment. If you were to buy a regular condo you’d have to tack on mortgage default insurance fees (also known as CMHC fees). That’s an extra $13,020 added to your buying costs. But purchase an Options for Homes condo and you could be eligible for an additional $45,500 equity contribution. This would help you avoid CMHC fees and wouldn’t increase your debt-to-income ratio — an important factor in determining whether or not you qualify for a mortgage (and how competitive that rate will be).
Equity top-up loans for condos
A few for-profit builders are starting to realize that without help average Canadians can’t afford to get into the housing market. To help, these builders partner with provincial and federal governments that offer equity loans to first-time buyers (note: this is a government-led initiative that builders can choose to participate in).
In Toronto, Trillium Housing and Daniels’ are two developers that offer equity top-ups. In Vancouver, Townline stepped into the affordable new condo development with the launch of The Strand in Port Moody.
While all three of these developers have their own requirements, in general their equity top-up programs are restricted to buyers who have never owned real estate, who plan on living in the unit they buy and who earn enough to qualify for the mortgage, but don’t earn more than $82,600 as a family or $40,000 as an individual — thresholds set by federal, provincial and municipal home affordability programs that help fund these developer equity top-up programs. Like Options for Homes, some of these for-profit equity top-ups loans require buyers to live in the property for at least two years to avoid penalties. If you opt to sell before the deadline you must pass on the remaining portion of the equity loan to the next buyer.
Laneway and coach homes
Coinciding with the tiny house movement, laneway and coach homes have surged in popularity. In the past, this compact form of housing functioned as servant/in-law/mortgage-helper suites. These units were traditionally built above a detached garage, affixed to the main house, or across the garden of a villa. While technically separate parts of the residential property, they were still included in the main house title. In recent years, however, these laneway or coach houses have been legally annexed from the main house and developed their own legal ownership. As a result, more and more cities are now updating their zoning bylaws and building regulations to allow for the construction of purpose-designed laneway and coach homes.