More bad news for owners of condos in Ontario
If owning a condo property in Ontario wasn’t already hard enough – price per square foot on new builds continues to climb, making one of the last “affordable” property types in the provinces even less so; COVID-19’s throttling of tourism has killed many investors’ income streams, leading many market-watchers to speculate around a looming mass sell-off; a lack of immigrants and students has forced the owners of countless condo units to lower their rents – it’s starting to get a little tougher.
A new report by rate comparison site LowestRates.ca has found that, as in British Columbia and Alberta, where a similar trend is already leaving a hole in condo owners’ wallets, condo insurance rates in Ontario are rising at what many would consider an alarming rate.
The site reported that, on average, condo insurance prices in Ontario were 8% higher at the end of the fourth quarter of 2020 than they were a year prior, and 3% higher compared to Q3.
The worry, according to LowestRates.ca CEO Justin Thouin, is that these significant quarterly increases will soon add up to equal the more painful hikes being paid in B.C., where condo insurance is 18% more expensive than it was at the end of 2019, and in Alberta, where condo insurance prices ballooned by 20% over the same period.
“Those prices have increased gradually quarter over quarter over quarter,” Thouin told Mortgage Broker News. “The concern is that what’s happening in B.C. and Alberta is now happening in Ontario, and that owners of condos could see their insurance continue to rise dramatically over the subsequent quarters and years.”
Such a sudden jump in insurance costs will seem extreme to some Ontarians, but it’s a trend already established in B.C., where Thouin said the price of condo insurance has been increasing consistently by between 4% and 7% per quarter. If the same rate of change takes place in Ontario, he said a 20% year-over-year increase in condo insurance costs isn’t out of the question.
Why are Ontario’s condo insurance prices rising?
Due to a number of factors, the exorbitant cost of extreme weather-related insurance claims chief among them, insurance companies’ loss ratios have taken a severe hit over the past few years. To compensate, the firms still offering insurance for condo buildings have begun increasing the deductibles these clients have to pay. Those costs, for buildings that lack the reserve fees needed to cover them, get passed on to individual condo owners.
Another significant problem, Thouin feels, is that the number of companies willing to insure condo buildings is dwindling.
“When you have fewer insurance companies willing to insure something, prices are inevitably going to go up. And that’s what you’re seeing in the condo insurance market,” he said, adding that today’s historically low interest rates are preventing insurance companies from generating income through the interest paid on their cash reserves, a historically reliable source of funds.
A building’s age also plays a factor in insurance costs, and there is no shortage of older condo developments in Ontario.
“Some of the infrastructure is getting older, so it’s breaking down. And with the values of basically all real estate in Ontario having increased over the past five or 10 years, it costs more when things break, so those repair costs are higher and the insurance companies have to pay out more in claims,” Thouin said.
Homeowners have so far escaped the pain being felt by their condo-owning brethren. In Q4 2020, the average cost of home insurance had fallen by 1% year-over-year in Ontario and by 4% in Alberta. It was 3% higher in B.C.
Implications for condo owners
Under normal circumstances, an 8% increase in condo insurance costs would not likely break the back of the average condo owner. But owners attracted to the condo market because of its affordability, who have had their income disrupted by the pandemic, may not have a lot of financial wiggle room to work with.
“This insurance increase certainly doesn’t come at a good time,” Thouin said. “Condo prices are down. Many condos are owned by people for investment purposes, and a lot of these people are highly leveraged, so anything that’s going to increase costs at a time when revenue is down could be problematic and could force these individuals to have to sell these condos.”
How can mortgage brokers help? Thouin said it’s important that condo owners are reminded that they have the option to compare rates and find an insurance plan that better fits their budget. Condo insurance may not even be on their radar when it comes time to trim a little fat from their monthly obligations.
“If, overall, rates are going up 8%, that’s just an average,” he said. “With some companies, you might be able to get a better rate than last year, whereas with others, your rate might go up 20-30%. You absolutely need to compare your options, because it could give you more money to put toward your mortgage.”
Thinking of buying or selling a property, or have a question regarding the real estate market? Fill out the form below and I'll get back to you promptly.