Condo crisis? Analyst warns of massive Metro Vancouver presale drop-off

A B.C. real estate market analyst is sounding the alarm about a steep drop-off in condo and townhouse presales.

“We knew there was something going on, but when we saw the final numbers we were pretty shocked,” said Michael Ferreira, managing principal with Urban Analytics.

The company recently crunched regional data for 2019 and found a 60-per cent drop in new condo and townhouse units coming to market.

Looking at highrise construction only, the dip was even steeper: 76 per cent.

While Metro Vancouver appears to be a forest of towers under construction to the eye, Ferreira said the impact of the presale slide is currently hidden.

That’s because presale units usually take about three years to reach completion — meaning a cut in new supply will be felt down the road.

“The concern for the lack of new supply that was added to the market last year isn’t necessarily this year or next year, but into 2022 when those units would be completing,” he said.

1:53 Condo owner launches petition demanding gov’t action over rising strata insurance

“If we see a lack of new, completed supply coming onto the market and there’s any increase in demand between now and then, we could see a spike in prices just like we saw a couple of years ago.”

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The drop in presales is significant because developers usually need to sell 60 to 70 per cent of units before they can secure financing, Ferreira said.

The 2019 dip in presales came amid efforts by B.C.’s NDP government to cool a frothing and overheated market that saw home prices skyrocket in just a few years.

But the BC Liberals say the NDP’s policies haven’t really improved affordability and now risk constricting crucial supply.

2:05 Apartment and condo owners face staggering insurance increases

“A lot of developers aren’t sure because of the taxes that we’ve implemented, the school tax, the speculation tax,” said Richmond-Queensborough MLA Jas Johal.

“Many of them are sitting it out or going to other markets like Calgary, Edmonton, Los Angeles, Phoenix, Seattle.

“Sooner or later the market’s going to catch up and we’re going to have a huge surprise.”

The looming dip in supply comes as the condo market faces growing concerns about the skyrocketing price of insurance.

Rapidly-climbing premiums and deductibles have left many owners saddled with hikes to their strata fees, and have raised fears they could further scare off wary would-be new condo buyers.

1:56 Condo prices falling in Metro Vancouver

“It’s an incredibly complex issue, because this is private industry, the insurance companies obviously set their standards,” said Finance Minister Carole James.

James said B.C. isn’t the only market facing the problem, which she said has roots in climate change, the age of buildings and the number of insurance companies active in the market.

“We are working right now on all ideas that are coming forward, we’re working with the insurance industry … and I hope in the next few weeks that we’ll have some ideas coming forward, but it’s not a quick fix.”

In the meantime, Ferreira had one suggestion to help offset the decline in presales.

He said he’d like to see provincial regulators drop the nine-month window that developers are given to pre-sell units, which he said could help more get to market.