Kelowna’s supply of micro suites has become a speculator’s haven.
Kevin Bird of K West, the developer of Cambridge House on Leon Avenue, said many of the building’s 313-square-foot units have had multiple owners before it was even complete. Prior to registration, the complex’s units have changed owners more than 40 times.
Royal LePage real estate agent Andrew Smith said there have been 38 sales after its registration.
Nearby, Sole KLO, another property touting affordable micro homes for Kelowna’s residents, has also built significant interest from investors, with the property now 75 per cent sold.
While Smith said it’s not possible to see if speculators are eyeing up micro suites at Sole KLO until it is registered— registration being the point when the building is complete and livable— his suspicion is that building will follow the same trend.
“My guess is it would be over 50 per cent speculators,” he said. “People are buying and renting them out, or people from outside of our market area are using them as an intro to the market, if you will. I doubt very much it will be (buyers) living there full time. I think it’s speculators, people who think the market is going to go up by the time it’s finished or at least people who are going to put renters in there.”
Andrea Kelly, in sales at Sole KLO, said the building has gathered interest from investors who continue to sell units. There are some people who purchase with the intent to live there, but rent them out afterwards, she said. Investment properties are common, she added.
At Sole however, people can’t purchase and reassign their contract to make money, so flipping before registration isn’t possible, Kelly said.
“It has mostly been investors and there have been a few purchases from single males who are just looking to get into the market,” she said.
Not an affordable housing solution
But for Kelowna resident Jack Vogt, who researched micro suites when his son Nico was looking for buy a home a few years ago, micro suites were more expensive than he initially thought And he found them impractical for his son’s needs.
“It seemed like we were lured in, or he was lured in with the price,” said Jack Vogt. “But then you know you have to start considering (specialized) furniture, because you can’t put regular furniture in there, and there were all kinds of other costs that came up that ended up being significantly more.”
“They actually weren’t set up in a way you would want to live long-term. It was more of an investment for people, turned into long term rentals.”
His son opted for a regular three-bedroom apartment that ended up being cheaper than the micro suites, he said.
Kelowna city planner Ryan Smith said micro suites are filling the community’s need and there have been other projects in the past seven years that the city has been building in terms of townhomes and condos.
Those micro homes are good for people from places like Alberta who spend a small amount of time in the city, and there hasn’t been a negative impact on the city with the suites, he said.
Foreign buyers make up less than two per cent of Kelowna’s market, so Smith doesn’t think it will play a significant role in preventing speculators in micro suites.
The largest number of micro suites are being built near the university and are being used for students, he said. The project, Veda 2, was planned in 2016.
There’s room for micro suites to be student rentals and investments, said Smith. But with the province’s new speculation tax coming into effect, he expects people will buy fewer for that purpose.
“Slowing that trend down is good but certainly the micro suites are an important component that is filling a need in the market,” Smith said.
While he feels it’s unlikely a micro suite would be more expensive to furnish—as there’s less furniture needed than for other larger homes—the challenge would be in the places that are unfurnished and where special furniture needs to be purchased.
Purchased at a good time
Chuck Spence, an owner at Cambridge House, said he bought a suite in 2016 for about $160,000 in order to downsize. He said the complex was in a good location and a decent price when he purchased it, but “a lot of these places have been bought on speculation and a lot of them are for sale. They’ve upped the price considerably.”
“It’s small but it’s fine. It’s like a nice hotel room.”
Spence said the units in his building are practical for young single individuals as they are close to downtown. But he said he wouldn’t buy a micro suite with today’s prices. A 313-square-foot one-bedroom was listed in the complex on Nov. 14 for $220,000.
Kelowna Mayor Colin Basran said micro suites have a benefit to the community when they are rented, but he would like to see a flipping tax imposed by the province to prevent owners from reselling their properties prior to the complex’s completion, instead of the speculation tax.
“I don’t believe someone is going to purchase those and leave them vacant (so)there’s still a benefit to people living in the community.”
He said micro suites are affordable compared to the average price of a home in Kelowna, which is now around $700,000.
But Basran said it is concerning that there are Kelowna residents who want to own their first home but aren’t able to because someone has seen it as a way to earn easy money.
The market dictates the price
Coun. Luke Stack had concerns with micro suites when they were first proposed.
“I do have an issue with them not paying (development cost charges), particularly if you have a tiny space,” he said “DCCs help pay for community parks. So they don’t help to pay for parks or roads or any public service. I would think in a small suite you would want to use stuff like that.
He’s also not a fan of investors taking advantage of the market situation but doesn’t see a problem with investors renting out units in the building.
“I’d love to see the people that need the housing get the housing, unfortunately, the market is the market. We can’t control it,” he said.
The province has introduced legislation that owners who buy and sell properties without living in them or paying capita gains tax. The speculation tax, which will tax foreign owners and satellite families two per cent unless properties are rented, will come into effect in January 2019.