The operations within the pre-sale condo market in Greater Vancouver are rather murky, and obtaining reliable data can be tricky. However, a recent report from MLA Canada, a company whom works closely in the marketing of pre sale condo developments, shed some light on the rather secretive sector of the housing market.
Over the course of 2018, MLA Advisory has been tracking pre-sale inventory releases and same month sales rates to assess current demand versus incoming supply, as well as buyer urgency in Greater Vancouver and the Fraser Valley’s housing market.
Here’s what the company found:
“The mid-year data shows an exceptionally high absorption rate in January 2018 of 94 per cent for new units entering the marketplace. In contrast, June 2018 saw same month absorptions land slightly below 50 per cent. Overall, the market has experienced a downward trend for pre-sale absorptions, indicating a shift from the hyperactive levels experienced over the past two years to more normalized market conditions. Historically, normalized pre-sale activity is viewed as projects experiencing 50 to 65 per cent sales absorptions within the first 6 to 9 months and sell-out periods of 12 to 24 months depending on the size and complexity of the project.”
Much like the resale market, where Vancouver condo sales are hovering near five year lows, demand peaked in early 2018 and has been sliding ever since. The absorption rate for pre-sales dipped down to 48.9% in June 2018.
While the trend is certainly unwelcoming news for condo developers, the current absorption rate is nothing to panic about, not yet at least. What could trigger a cold sweat are current market trends continuing at a time when housing starts sit at record highs.
Earlier this week, the BC government announced a crack down on tax evasion in pre-sale condo assignments. If approved by the legislature, the new amendments to the Real Estate Development Marketing Act will require developers to collect and report information on pre-sale condo assignments to ensure buyers are paying the appropriate taxes. A move which real estate consultant and architect Michael Geller suggests “may take investors out of the market, especially those whose primary motivation was to flip the agreement before they closed. The net result may be a number of projects being put on the back burner because they can’t achieve their pre-sale targets demanded by the bank.”
New developments are also competing with a slowing re sale market which is witnessing prices cool and inventory grow, up 45% in June. This has triggered a growing chorus of Realtor bonuses and decorating incentives to prospective buyers. To think it was just 12 months ago when buyers were camping out-front sales centres.