Vancouver’s presale condo market reaches fever pitch

Vancouver’s presale condo market is in need of regulation and transparency, say realtors whose clients are being routinely shut out of the frenzied market.

The presale market is the “wild west” of the industry, says realtor Steve Saretsky, who posted a blog post recently, titled “Vancouver Pre Sale Condo Ponzi Scheme.” Mr. Saretsky, who often speaks out against his own industry, says it’s common that offshore investors get first dibs on presale purchases. Those purchases are assigned, or flipped, to local buyers at a premium. He says in recent months, as the condo market has hit a fever pitch, so too has the flipping.

Speculative buying is driving prices up, shutting out owner-occupiers and adding to an already unaffordable market. Mr. Saretsky says that the presale market, once considered an unknown entity, is now viewed as a low-risk moneymaker. Full financing isn’t required until completion, which is several years away. During that interim, buyers can flip the property, and assign it to other buyers. If they are foreign, they dodge the 15 per cent transfer tax, which isn’t due until completion. He sees buildings that completed long ago remain half empty. Many of the units appear on Craigslist or the Multiple Listing Service once the building is complete, a sign that buyers have already maximized the gains to be had.

“Obviously they presold them offshore,” says Mr. Saretsky. “They bought them three years ago, made a lot of money, and they don’t have any intention of living in them.

“If you call one of the developers, they say, ‘we are only selling to friends and family and we are open to the public next week.’ But what is friends and family? What is the definition? It’s basically offshore. And everybody in the industry knows it, and nobody likes to talk about it.”

Ontario Finance Minister Charles Sousa recently made headlines when he called such speculators “property scalpers.” In B.C., however, the practice rages on, unabated.

Realtor Shali Tark, creator of, says investors are snapping up the most desirable condos, such as those around transit corridors. The frenzy for those units is on, she says.

“Those units are usually gone right away,” says Ms. Tark.

Investors either rent them out or leave them empty. It’s like placing your chips on an especially low risk bet, which is what Vancouver’s hot property market has become, especially with a near-zero vacancy rate and high rents.

Ms. Tark started her website, which lists available presale units, because she was having trouble finding units for her clients. When big projects come onto the market, many of the units are usually spoken for, snapped up by offshore buyers or those who have an inside connection to the developer, she says. Marketers of big developments will say a project is sold out, but in fact hold back several units that will be released later, at a higher price. Ms. Tark compares it to purchasing concert tickets. Buyers who line up all night for a presale think they’ll have their pick of the units, but are surprised to find that they’re getting leftovers. They’re also often surprised at the prices, which fluctuate greatly from what’s advertised.

“I get people that are wanting certain units in projects, and I’m straight up with them, that it’s just not going to happen unless you know the developer personally,” she says. “That’s the reality, and it’s not fair. When they say they are starting at $399,000, a really good price, that’s just used to market [the project]. They are rarely selling them for that.

“So local buyers themselves don’t get that advantage that they need to get into the market.”

The practice of selling off units en masse ensures the success of a development, she says.

“They try to do the bulk sales. They want units to be sold and earmarked, or get that interest, get the deposits and money and be able to claim they sold so many units. It gives them a bit more presence. It says, ‘this is the hot project.’”

Realtor Keith Roy says he doesn’t have an issue with developers selling to offshore buyers. Like any homeowner, the developer has the right to sell to whomever they want, says Mr. Roy. Developers are a private business with a bottom line. Should a homeowner be told that they can’t sell to the highest bidder?

“Yes, stuff is being sold primarily overseas because it is the path of least resistance for the seller,” he says. “The demand is unlimited…I don’t think that not selling a 60-storey highrise luxury-apartment is going to solve the affordability issue in Vancouver.”

Mr. Roy argues that luxury housing to foreign buyers creates construction jobs and a larger tax base. However, he also sees a need for transparency when it comes to assigning of presales, which is an unregulated practice without available data. Presales are usually not listed on the MLS, like resales. And if a presale unit has been sold repeatedly before it completes, those transactions are invisible to the public.

Some developers forbid assignments because they don’t want competition against their own project. Others charge a fee once the building has sold out, generally a small percentage of the sale.

Mr. Roy wants assignment sales to be registered with the land titles office, like any other sale.

“Knowledge is power,” says Mr. Roy. “And the consumer would be better served if we had that data. Developers and marketers would also be better served if they had that data. The consumers are the ones who benefit most if we start registering assignments.”

If the consumer could see the number of times a presale has been assigned, or flipped, and the price for each transaction, that would show speculation activity. That activity would shed light on where the speculation is, and what type of housing it attracts. It would also give a marketer an idea of current values. As is, there isn’t even a resource for the consumer to find presale asking prices.

Bob Rennie, the household-name marketer of presales, has also been pushing for data on Vancouver’s mystery market.

“The condo market is on fire, but the problem with the Greater Vancouver market is that nobody knows the amount of presales going through and the price levels they are selling at,” Mr. Rennie says.

The Urban Development Institute looked at the possibility of using the MLS to list presales, but decided against it, partly because it is an expensive service, and would add to the price, says president Anne McMullin.

“You could argue that there is a minor gap on that final sale price,” says Ms. McMullin. “If there is a lag between sales, like 16 to 18 months to sell, there may be different prices and we won’t know what those different prices are until closing, just like if you sold your house.

“I think that’s legitimate [to want that data]. But I don’t know how we would track that.”

With the market as ridiculously hot as it is, somebody needs to start tracking it, says realtor Ian Watt. He’s seeing “stupid money” thrown at condos, mostly from locals who believe in the power of the market. He worries that over-leveraged buyers will get burned, especially if the offshore presale buyer pulls out. For wealthy investors, it wouldn’t be too painful to walk away from a 5- or 10- or 15- per cent down payment. If enough were to do that, it would create oversupply.

“It’s 100 per cent hype,” he says. “So many Canadians are buying because they believe it’s never going to go down.”

Ms. Tark also wants a system overhaul.

“In the last three years, all this speculation has added more fuel to the market. I think it definitely needs to be addressed in more of a think tank manner rather than the government rolling out taxes and then rolling them back.

“Even though local representatives try to implement certain provisions, I don’t think they are understanding the big picture.

“Developers aren’t doing anything illegal by making their projects known to the international markets, but there needs to be some sort of cost in place for anybody buying offshore, to give the local people more advantage. Also, they need to pay into the infrastructure if they are not going to live here.

“You look at a master planned community and they have amenities and schools. How is that going to be supported?”

Mr. Saretsky believes in the need for a speculation tax.

“We were talking about the condo market in my office and how totally out of control it is — basically multiple offers are happening anywhere and everywhere. With presale condos, there’s got to be a speculation tax or something.

“My issue is when developers are pushing for density like it’s the solution, and then they offload that supply offshore. The product getting built in Vancouver, the stuff on the eastside and presale stuff, is going for $1,200 a square foot. That’s not helping anybody. I understand it’s a business — they have to make money. But everything being built in my opinion is luxury in Vancouver, so I don’t think it’s making anything affordable.”


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