Rents plunged and condo sales took a powder for a good chunk of 2020. But investors, whose newly constructed units came up for occupancy last year, still saw handsome appreciation in their property values, according to a new joint report from market research firm Urbanation and CIBC Economics.

The study showed that the average pre-construction unit that sold for $415,175 three to five years ago was worth 40 per cent more last year — $595,614.

Despite a 13 per cent drop in condo rents last year, 63 per cent of those new-construction investors managed a positive cash flow on their units.

That compares to 80 per cent of resale condo investors, who lost money each month last year.

For the last 15 years, investors have benefited from buying pre-construction condos, giving them time for rent prices to grow and property values to build before they have to even close on the sale, said Urbanation president Shaun Hildebrand on Wednesday.

“It’s this past performance and long-term performance that keeps investors buying,” he said.

But, as prices rise, that kind of appreciation and positive cash flow will be more difficult to achieve in 2024 and 2025, Hildebrand cautioned, and that has implications for the Toronto region housing market.

Investors buy more than half of the pre-construction condos and are the largest source of the GTA’s new rental stock.

Most are mom and pop buyers, who are an average of 47 years old and treat their condos as part of a long-term retirement strategy. They plan to hold their units for about 20 years, using a tenant to pay the mortgage as the value of the condo appreciates.

But Toronto’s reliance on those rentals points to the need to diversify the housing supply, said Hildebrand.

“We need to see a much higher share of development focused on traditional purpose-built rental, also single-family housing because that’s where demand is shifting into the suburbs,” he said.

“To rely almost entirely on mom and pop investors who are barely breaking even, I don’t think it’s a stable strategy for encouraging housing supply over the longer term.”

Hildebrand says the price gap between expensive ground-oriented housing and more affordable highrise units will feed demand for condos in the foreseeable future, but there does come a resistance point.

“When the average price of a one-bedroom unit rises to $700,000 or $800,000, it’s just not feasible for first-time buyers to get into the market,” he said.

“Interest rates can’t get any lower and then you’re really relying on the economy to offset that growth in price, which is a difficult thing to do,” he said.

CIBC deputy chief economist Benjamin Tal told BNN Bloomberg on Tuesday that the study’s findings suggest that Toronto increasingly faces the affordability challenges of cities like London and New York.

Investors are already diversifying into more affordable markets where carrying costs are already lower, said Hildebrand. For the first time in 2020, the 905 overtook Toronto in new condo sales. The study also found that studios were the most profitable investment units but comprised about 6 per cent of the market.