Condo complexity can add uncertainty

By Romana King on May 26, 2011
Estimated reading time: 2 minutes

Debate regarding condos as an investment highlights the fact that issues impacting a condo's value can be more complex than the same factors that impact a home's value.

Two comments on yesterday’s post really highlight the importance of looking past the square footage cost and low maintenance fees and researching condo developers and management corporations. MoneySense reader Brent Reid posted:

“It might be, depending on the location, quality of construction, and market movements. The more subtle hazard, though, is the strata council, which is often managerially and financially incompetent, and toxic in their deliberations and interactions with their fellow owners.”

Brent makes a good point. The strata council is comprised of condo owners elected by their peers to oversee the condo buildings operations and budget. Each member is a volunteer and effective councils should receive absolutely no perks or discounts for performing their duties. And I would say a vast majority of councils operate in this manner. Unfortunately there are a few bad apples in the bunch, but thorough research of council’s past actions and decisions should highlight those boards with significant management issues. Another problem is when an effective board runs into bad construction. This is what many strata council’s had to face on the west coast when leaky condos began to crop up. Despite best intentions these boards often must way increasing maintenance fees with overall value — two major concerns in any property. Another reader, Carl Vella posted:

“A condo in the right neighborhood is always a good investment, no different than a home. It’s a different lifestyle. The article fails to mention how the condos the newspaper references are in less than desirable neighborhoods.”

And Carl, you also make a good point, although not entirely accurate. While condos can be a good investment — even in less than optimal neighbourhoods — the factors that impact long-term value are more complex when compared to a home. For instance, both a condo owner and a homeowner needs to consider location, future development and construction quality. But condo owners also need to factor in the impact of maintaining more common elements (most homes don’t have pools, communal workout or game rooms, BBQ areas, patios, decks, elevators and tennis courts, to name a few), or the impact of mass psychology (an issue The Star article illustrates and Brent’s point alludes to), or the impact of the builder’s integrity and consistency. As with all investments, a well-researched decision will probably save you from making a costly mistake. If you intend on purchasing as an investment you’ll need to thoroughly research the history of strata decisions and operations, the condo’s developer, the building’s maintenance history, the unit’s history. Only once you’ve established that the building is effectively run, solidly built and has room for future growth, should you consider whether or not square footage costs are appropriate or maintenance fees are too high.