Can you smell the speculation?
As an expert on the Kelowna real estate market, I’m concerned.
As a general rule, I’m a pretty positive guy, but as I survey our local real estate landscape I see a couple of issues that leave me scratching my head.
No. 1: I fear speculation is creeping into the Kelowna market. Speculators are those who acquire an asset in the hope that it will eventually be worth even more money.
Essentially, you buy a property that you don’t need for $700,000 today, and you hope it will be worth $900,000 at a later date. This speculation is leading to issue No. 2.
Overbuilding. Now, don’t get me wrong, development is a great thing. I’m pro-development. However, it has to be the right kind of development, and I’m seeing some construction that is at that alarming intersection between speculation and overbuilding. I’ll give you an example.
As I write this, there are 17 spec houses listed for over $1.2 million in Kelowna’s Upper Mission alone (27 in all of Kelowna), but there have only been eight recorded sales of new spec houses in the Upper Mission this year.
Not only that, as I drive around town, I notice that there are also a lot more signs from builders who are not listed on the MLS. I get the sense we’ve got some speculation happening in our market.
Given the average wage in Kelowna (just over $47,000) how many can truly afford a $1.2 million home? With 20 per cent down ($240,000) your payment on a $1.2 million home is going to be $60,000 per year (including property tax). Again, $60,000 per year — just on your house.
Who is going to buy these properties? I know many people want to live in Kelowna, but where are the jobs to support that level of property value? We have a growing tech sector, but those jobs are not paying anywhere near the type of money some of these homes are listed for.
To add to my concerns, there have been a number of condo developments approved recently. We’re looking at thousands of condos going up for sale over the next 12 months or so. Sounds great, right?
However, how affordable do you think those condos will be? Not only that, Kelowna averages under 1,500 condo sales per year, so that’s a huge amount of units offered for sale in a short space of time.
Again, I ask, where are all these buyers going to come from?
From a pure macro economics point of view, I fear we’re making some missteps and I’m watching closely. I’m not trying to scare or alarm anyone, but this is the type of market where mistakes are made.
Make sure you’re working with a true real estate professional who can guide you through this changing market.
What do you think: Are we overbuilding? Is there too much speculation in the market? I’d love to hear your thoughts.
Mark Walker is a real estate agent and the broker/owner of Kelowna’s Walker Real Estate. His organization runs KelownaProperties.com Kelowna’s most comprehensive real estate search tool. Walker Real Estate specializes in retirement properties, and you can contact their office at 250-764-4344.