Vancouver has a problem. We have a population growth of 30,000 to 40,000 every year. Whether we are building one unit or 5,000 new units we have a problem with supply. But to make the issue even worse, there has been an 89% drop in the number of presales. What some are not realizing is that projects get put on hold – and now we have a drastic crash of presales in Vancouver 2019.
Some are saying, “isn’t this drop wonderful for the market?” But they are not realizing that we are creating a huge supply problem later.
Presales and developments have almost become dirty words.
But let’s examine a little closer:
– The developer faces huge upfront fees and risk (Vancouver city fees contribute to 26% of the costs of building a new home).
– They have to have a plan
– They have to hire architects, planners, lawyers, even before they go to the city
– The process at the city takes at least 2-4 years to get off the ground
– Build permit fees, community fees, density bonus fees, offsite costs etc…
On the other side of the equation, we have a federal mortgage stress test of 2% that limits the home buyer from being able to purchase the home by increasing the mortgage qualification rate by 2%.
TAKE A QUICK LOOK: See All Presales in Vancouver & Lower Mainland
There is a major locking system on both ends for New Developments:
1) The banks won’t give developers the construction loans because they need 60% presold units to finance the building, and
2) developers can’t get those sales, because buyers cannot qualify due to the mortgage stress test.
The result is an 89% reduction in supply to an already tight supply market to meet the demand of 30,000 to 40,000 new residents per annum.
The media is having a great “Hurray!” for the drop in prices in Vancouver and somehow think its a good idea to have a dramatic slow down like this, but they are not seeing that the number of jobs lost and the economic effects it is having on the overall economy.
But the biggest problem is that supply doesn’t keep coming on and is creating massive pent up demand.
Developers are estimating over 6,000 condo and townhouse units in Vancouver will not be built and somehow the media is reporting that is a good thing because it will drop the price.
In the long term, it won’t. Fundamental economics is at play here. Supply down, increasing Demand up = Price Up. It’s just that simple.
In the meantime, those of you who are in the buyer’s seat, you can take advantage of this incredible and deadlocked market. I mean it hasn’t been this slow since 20 years.
Presales outside of Vancouver doing very well
From Portugal to The Netherlands prices are up. Lisbon up 40% since 2016, Porto up 28% Also China, Hungary, Taiwan, Netherlands are all up 8-12% and an entire list of countries are up 3%+. Australia is the worst performer at a 5% decline but from the 56 nations reporting – 49 are higher and 40 are more than double the reported inflation rates of 2%.
Read More: Global Price Index from Knight Frank.
New Construction Units and Luxury Homes on the rise in Montreal and Toronto
In other news, Montreal and Toronto condos and luxury homes are up in sales. “Canada’s top property markets went their separate ways,” read a report released by Sotheby’s International real estate agency in Canada, which tracked the number of condos, townhomes and single-family houses sold for over $1 million and $4 million in major Canadian cities.
Meanwhile, in Vancouver’s previously strong property market, luxury home sales continue to come down because of so many government interventions.
The property market continues to be strangled by the burden of tightened stress test mortgage rule, multiple level governmental policies and taxes, and deadlocked sellers/developers and scared home buyers lacking the qualifications to commit to any purchase transaction.
What’s my best option in a new condo market that is falling?
The fact is that you don’t have to wait to have a turn around event happen to the market before you buy. And buy that great deal of a lifetime. Unlike the stock market, buying a presale in Vancouver is all about the deal you make, on your terms, with your pricing. While you may have reasons, like the mortgage stress test, other reasons like fear is precisely why you should proceed. There are few opportunities like these, where you have great demand and BC government intervention of the real estate market.
So get out there and shine this week. Give me a call and let’s chat more: 604-767-3703. And if you’re willing, email me and let me know what is your plan and dreams. I promise that I will take great care of you, whether you are buying 6 months from now or years from now.
Have a GREAT week!
Richard Morrison 🙂