Pre-sale condo market cools off
The Metro Vancouver pre-sale condo market, which had been seeing double-digit-percentage price gains of between 30 and 60 per cent, with each new project seemingly selling out and setting ever higher prices, is showing signs of slowing.
It’s a part of the real estate market that is unique because the sales aren’t immediately subject to the foreign-buyer’s tax implemented in July 2016. Also, sales and prices for pre-sale condos aren’t recorded in MLS figures, or monthly reports produced by real estate boards, until the units are constructed and the deals are finalized in land-title records, which can take a few years.
“There is an adjusting of expectations,” said Michael Ferreira, managing principal at Urban Analytics, which crunches data about new condos that is used by developers. “Now, there is either a flattening of pricing to get some absorptions” or the decrease of the number of sales.
Gone are the days when it didn’t matter who was building it.
Developers depend on cash from the pre-sale of condos and need to achieve a certain percentage of their total projected revenue in order to qualify for financing.
Ferreira said it has been condo projects targeting homeowners downsizing from single-family homes in higher-priced neighbourhoods that have seen “not as much urgency by buyers.” They’re faced with “greater uncertainty over the value of their current home today, let alone in two to three years when the pre-sale unit they’re considering completes.”
Meanwhile, investors and buyers entering the market for the first time are also becoming more price-sensitive and selective. They’re asking more questions about the value of projects and the “local track records” of developers.
“Gone are the days when it didn’t matter who was building it. There is a flight to quality and brand,” said Ferreira.
Ferreira said that “after holding its own in the first quarter of 2018, Metro Vancouver’s new multi-family home market began to feel the effects of the various policies introduced by various levels of governments and agencies early this year.”
He continued: If “market conditions remain flat ... the number of unsold units at the end of the third quarter of 2018 (will) exceed the number of unit sales during the quarter for the first time since late 2015.”
Projects that took these factors into consideration and adjusted prices managed to still sell well, said Ferreira, but those that neglected them “experienced much lower buyer-urgency levels and slower absorptions,” meaning instead of selling 70 to 80 per cent of units in a project within a few weeks, it might take “more incentives to get 40 to 50 per cent in a few months,” and then longer for the rest to sell.
There is generally a nine-month window from when projects start to pre-sale to when they have to begin submitting documents for financing, but extensions are granted.