Metro Vancouver developers slash condo presale launches as demand drops
The number of condo presale units released for sale in 2019 fell sharply, as developers responded to plummeting demand.
The number of condo presale units released for sale in 2019 fell sharply in Metro Vancouver, as developers responded to demand that fell off a cliff.
Developers put 7,588 units up for presale, less than half the 18,998 released in 2018.
The drop was more pronounced for more expensive, concrete condos in high-rise towers than for wood-frame units in smaller, low-rise developments, according to Michael Ferreira of Urban Analytics, which tracks data for the real estate industry.
Developers held back on larger, concrete projects because they weren’t sure they could sell enough presale contracts to qualify for bank financing in the allowed time period of nine months, said Ferreira.
He said it is much harder to presale towers that are 40 to 50 storeys and have some 400 to 500 units than it is for a less-expensive, low-rise or townhome development of only 80 units. Lenders typically expect developers to lock up presales for 60 to 70 per cent of units before providing money for construction.
In the spring of 2019, as buyer interest waned, some developers tried to draw attention to presales by offering gimmicky treats such as free avocado toast or glasses of wine a day for a year.
By June, even some larger, experienced developers with deep pockets and more favourable financing thresholds to meet said their sales volumes had dropped as much as 70 per cent and they were putting on hold several high-rise, transit-oriented towers that had zoning and building permits secured and promotional brochures printed.MLA Advisory, which tracks monthly presale launches, found different ways of saying things weren’t on track in 2019, with projects “shifting their releases,” or “testing with minimal inventory,” or postponing “for more favourable market conditions.”
The retreat of the investor-buyer, who no longer had confidence that buying a contract would end in allowing them to sell the completed unit at a profit, hit presales hard. In a hot market, investor-buyers had been generating an immediate urgency to buy. Without them, it is taking much longer for developers to sell presales contracts, said Ferreira.
The Real Estate Development Marketing Act allows for a period of nine months, but developers have been asking the superintendent of real estate to consider lengthening this time.
If this period was several years long, it might mean that projects might get cancelled after tying up buyers’ deposits for too long, said Ferreira. However, with presales taking longer to sell, lengthening the marketing period to, perhaps, 18 months might be a middle ground that allows developers to get to the construction phase, he said.
He said developers were also grappling with having paid peak prices for land, adjusting to rising construction costs and navigating increasing bureaucratic hurdles and taxes.
Developers are warning there could be a shortage of new housing and a jump in prices in a few years as population grows and demand returns.
Gauging the effect of the fall in presale launches in 2019 on housing supply and prices will take until 2021 to 2022, said Ferreira. Currently, buyers of presales are only just now getting possession of units they would have bought at the height of the market boom at the end of 2016 to 2017.
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