There’s certainly no argument as to the important role new housing development has on the BC economy. As one of the main pillars of GDP, I find it extremely valuable to keep an eye on the Metro Vancouver development arena. With some help from Urban Analytics and their recent state of the market report, there are a few items to keep an eye on.
Due to the recent housing correction, project launches, along with total units released nosedived in 2019. This resulted in fewer sales as well. New project launches fell 30%, new units released fell by 60%, which sent new home sales tumbling 50% compared to 2018.
In other words, it was a tough year to be Property developer. What we are seeing is investors have pulled back from the pre-sale market, mostly because future price growth expectations have faltered. Investors are not being enticed to risk their capital and have it tied up in a project for several years. Particularly considering prices in the resale market have adjusted lower, while pricing for pre-sale projects simply haven’t adjusted much at all. This has created a much wider spread between pre-sale and resale pricing, as illustrated below.
We are seeing continued weakness for expensive luxury projects, which are failing to attract wealthy investors, particularly those once coveted from Asia. This has resulted in a steep plunge in new concrete projects being launched as developers wait things out. New concrete projects and total units released for sale fell to their lowest annual total in a decade.
This is spurring conversations on how to revive this segment of the market. Obviously at this rate there could be future housing shortages. There seems to be lots of discussion to amend the Real Estate Development and Marketing Act which requires developers to hit their construction financing targets within 9 months. Developers are typically required to pre-sell about 60% of their project in order to obtain construction financing. Of course 9 months is not a lot of time to pre-sell 60% of your project in a soft market.
The simple answer would be to just drop their prices, although in many cases that makes projects unfeasible. Meanwhile, municipalities are showing no desire to lower community contributions and various development fees to keep projects from being delayed. In other words, the tug of war continues, the implications of which won’t be felt until several years down the road.