It may seem counterintuitive given that the Bank of Canada has hiked its policy interest rate eight times in a row and that interest rates continue to have a significant impact on the real estate market as a whole, but now may be a good time to invest in presale condos in Vancouver.
Yet it helps to look at the ups and downs of the previous few years to see why.
The latest peak of the presale condo rush, according to Jacky Chan, founder and CEO of BakerWest Real Estate, a real estate marketing and sales company based in British Columbia, occurred between 2016 and 2017.
Due to a number of factors, including rising prices, the Canadian government's introduction of the Minimum Qualifying Rate for the OSFI Mortgage Stress Test, the Province of British Columbia's increase in the Foreign Buyer Tax, and the introduction of the Speculation and Vacancy Tax, this rush began to slow down in 2018 and 2019.
The market for presale condos saw "a big upswing" after reaching its lowest point during Q1 2019 as a result of rising immigration targets, which would amount to over 400,000 annually starting in 2021, and plateauing loan rates, which were ultimately lowered to 0.25% during the COVID-19 pandemic.
Chan claims that the presale market was "dead slow" around late 2020 and early 2021. However, after that time, once people had adjusted to the pandemic, many of them began thinking about buying once more, this time with a greater appreciation for where they lived. This was a result of being compelled to stay at home during COVID restrictions as well as the emergence of a widespread work-from-home movement.
Similar to how the market has evolved over the past few years, Vancouver-based realtor Mike Stewart claims that once interest rates were lowered, the presale condo market exploded since so many people had built up savings and credit.
A substantial chunk of the first wave of immigrants from the federal government's ambitious new targets arrived in BC in 2021, which naturally sparked a lot of attention and led to an infusion of capital in Vancouver.
But according to Stewart, a lot of that demand has been put off as a result of rising interest rates, which started at 0.25% in 2022 and are currently at 4.50%. This might pave the way for a market boom if the Bank of Canada waits to raise rates further as it has indicated. The Bank emphasised that "it would be appropriate to postpone any additional tightening to allow economic events to unfold" in discussions leading up to the announcement in January.
If that is the case and a market boom is imminent, it might be best to buy now, as this is the quiet before the storm. "Smart, sophisticated purchasers buy now," Stewart claims.
Businesses of all kinds occasionally decrease their prices in order to continue attracting customers when consumer purchasing power is reduced by inflation or artificially constrained by rising interest rates; the presale home market is no exception.
Chan tells STOREYS that because the market is not as active at this time, offers are typically priced more favourably. Rates are high and there is little competition in the market, yet you are unaffected.
Buyers in Vancouver and British Columbia just need to make a deposit, which is typically between 5% and 10% on the purchase day, as opposed to consumers in China, where the presale condos model requires payments in full before construction even starts. Buyers just have to worry about future deposit installments because the total price is set at the time of purchase and does not need to be secured right now. Buyers are also exempt from paying property taxes and upkeep costs for the home because they do not yet technically own it; they only have the right to live there after construction is complete.
You are really free-riding the developer's purchasing power, financial burden, holding burden, and developers are practically paying the mortgage, according to Chan.
Of course, there is some risk involved in purchasing a condo before it is built.
If the project is delayed, which is conceivable given our present economic climate's skyrocketing construction prices, plans may be interrupted for individuals who buy because it's their dream home. There is a chance that the market could decline during the construction phase, prompting impatient investors to sell low especially those who are buying as an investment and intend to flip.
Yet, not all possibilities are likely to occur, and possibilities are not the same as probabilities.
The drawback, according to Chan, is if the market declines during pre-con. But in Vancouver, this is extremely unusual and unlikely. Vancouver is still quite appealing. You can only speak your native tongue in this city, no matter where you are from. It has a variety of cultures. It is colourful. Hence, the real estate market in this area is primarily an angled line moving upward over time. 99 percent of my presale customers have made money.
The developer's track record is just as significant as the pricing, whether you're a first-time buyer or an investor. Coromandel Properties, a local developer, is already burdened with $700 million in debt, which will probably cause delays, if the projects can even be finished at all.
Chan's company, BakerWest, has worked on projects including One Park in Richmond, the Sun Towers in Burnaby, and — most significantly — the impending 60-story CURV, which is on the short list of most-anticipated projects in British Columbia and is expected to be the tallest Passive House structure in the world. Chan tells STOREYS that CURV presales are anticipated to begin in the next two months and that he wants the project to become a global icon for Vancouver that pushes the presale market forward.
Chan adds that he's seeing a new wave of interest in presale condominiums outside of Vancouver, in communities such as Burnaby, Surrey, and Langley, which are more pro-development, more ambitious, and more affordable. Separately, Stewart notes that Vancouver is experiencing "relatively few new projects, particularly downtown," whereas Burnaby and the Fraser Valley have "a more open attitude" towards new housing.
There isn't enough land, but land use [rules] also make it unprofitable, drive up costs, and make it unattractive, according to Stewart. Although we still have a sizable quantity of supply on the way this year, there are just not enough brand-new presale units. Housing of all kinds is drastically undersupplied here.
Many, if not all, in the real estate sector believe that the federal government's ban on foreign investors won't significantly improve Canada's affordability issue, but some are concerned that it might have an effect on the presale market in Vancouver, which has a significant historical and ongoing connection to Asia. Chan and Stewart concur that the presale market won't be impacted and that the federal government's claims that the restriction will have the desired effect are unfounded.
There were many things that, to be honest, made me uncomfortable and that I felt were quite racially charged before the foreign buyer tax, according to Stewart. Large lineups in presale centres and the presumption that they weren't citizens fueled the perception that Asian purchasers were stealing locals' supplies. Yet, while I was in those sale centres, I discovered that few of the people there weren't citizens and that many had significant historical links to the country, some of which dated back much further than mine. (An example is that Hong Kong has the second-highest concentration of Canadians outside of Canada.)
Stewart continues, "I've worked with overseas buyers. They never made up a sizable portion of the market and only made up a minor portion of my business.
Chan argues that if it were up to him, he would restrict the foreign buyer prohibition to only existing properties and direct immigrants and foreign purchasers towards the presale market because, in essence, they are financing our real estate growth before some of them finally become citizens, he claims. Stewart believes that rather than attacking the demand, the government should instead concentrate on expanding supply.
For customers, Dustan Woodhouse, President of Mortgage Architects, feels there are few terrible periods to buy real estate in Vancouver, therefore the key question should be whether or not buying a presale apartment is the best thing for each particular buyer.
It's a good idea to have a backup plan in place, especially if you're going to be away from home for an extended period of time. Although Woodhouse acknowledges that presale condos have advantages, such as the chance to move into a brand-new home with more time to secure financing, and that prices may actually be discounted right now, she also emphasises the fact that plans in our lives can change drastically in the time it takes for a condo building to be finished, such as a new relationship, child, or job.
“People sometimes feel like a presale is a slide into real estate, entering the market step-by-step, an ease-in,” Woodhouse says. “But for first-time buyers, the question should be whether it’s the right time for you, rather than the question of macro-economics. It really depends on your personal circumstances.”
So, the presale condo market in Vancouver may be a good investment right now, but don't let that override the decision as to whether it's a good idea for you personally.
