The Elusive Three Bedroom Condo Suite

January 2015

Condos come in all sizes so long as they have no more than two bedrooms.

Those who want or require more than two bedrooms are faced with two choices. One option is to avoid purchasing a condo. Another option is to turn another room, such as a solarium, into a bedroom. However, this may run afoul of some condo rules or bylaws if it means more people will be residing in the suite.

The scarcity of three bedroom condos is the result of government policies, financing requirements and the response from developers.

Condo developers find they can increase profits by selling smaller units which is why they dominate the condo marketplace. Part of the reason for this is municipal and provincial land-transfer tax rates.  These rates, which are higher for units valued over $400,000, discourage construction of larger and costlier condo units. Fewer are willing to purchase them and pay a higher land-transfer tax.

Smaller units are more popular with first time buyers who are generally younger. This group is more likely to pre-purchase a condo thereby making it easier for developers to obtain construction financing.

Larger units, which carry a higher selling price, are less likely to be purchased by first time buyers.

Buyers of larger units generally want to see a finished unit before the purchase. This requires that developers build in advance of sale which forces them to carry the cost of development instead of pre-selling. This also increases the risk that there will be unsold units during and after construction.

In today’s condo market, the increased financial risk associated with larger units will continue to result in a scarcity of three bedroom condo suites.