Critics attack mayor’s plan to curb pre-sale speculation
Granting local buyers of pre-sale homes priority access has its faults, critics say
Vancouver Mayor Gregor Robertson is preparing a motion for city council that he says will give local buyers of pre-sale condos priority access ahead of foreign purchasers.
It comes as there are more acute signs of speculation in the pre-sale condo market, which has seen sharp price gains. But the idea is already drawing criticism and a realization that there isn’t a silver bullet solution.
Jon Stovell, chairman of the Urban Development Institute, which represents property developers, said that any such move would do little to help affordability for local buyers. Offshore buyers, he says, make up only about 10 per cent of the market buying pre-sale condos.
Nevertheless, Stovell’s company, Reliance Properties Ltd., admits there has been a rapid increase in buyers interested in making a significant profit by re-selling contracts, signed in 2015, to buy its condos. It recently changed its policy for allowing buyers of presale condos to assign contracts to other buyers at its One Burrard project in downtown Vancouver. To discourage the practice and get some upside itself, Reliance will now take 25 per cent of any profit made in such a transfer.
Stovell prefers to focus on the lack of units and the protracted process of constructing more of them rather than foreign investors accessing condo units ahead of others, flipping them in great numbers and, in doing so, driving up prices.
This may or may not be the case, but indeed, there are definitely sources of speculation in other sets of buyers who also get a first crack at buying pre-sale condos. They are local and would be challenging to stem too.
In real estate circles, they are known as “friends and family.” Next in line, there are the “VIP buyers” who are served by “VIP agents.” Some even refer to themselves as “V-V-IP” or “V-V-V-IP” in a distinction that hints at varying levels of access and timing in a hot condo market where in recent years, the earlier a buyer gets in, the less he or she pays and the more there is to be gained as prices accelerate.
Developers defend their practice of tapping such VIP buyers and agents before anyone else because they have a proven track record of quickly nailing down a large set of committed sales. Going to the public and gathering buyers, each with an unknown level of commitment, one by one, is harder and riskier.
“In pre-sales, there is the right of rescission,” said Stovell.
Buyers can cancel their contracts in seven days, so developers prefer to “get certain realtors whom they know will bring serious buyers. Nobody likes uncertainty.”
In the end, there is a segment of local buyers in the public that feels shut out of these channels. They have fumed at being able to buy condos only by taking so-called assignments from the VIP buyers, who, of course, ask for more money for the same, as yet unbuilt condo. A few outspoken realtors have pointed to the lack of regulation against this kind of assigning for speculative reasons in the pre-sale condo market compared to what has been imposed, since May 2016, on single-family home sales, where prices have steadied.
Andrey Pavlov, who specializes in real estate finance at Simon Fraser University’s Beedie School of Business, believes more supply of a variety of condo units is a mantra worth repeating, but also suggests that offerings of pre-sale condos could be set out “like an (initial public offering of stocks) where you can’t give a different price to different people” at different times.
Robertson was not available for comment.