Real estate prices may be about to dip

Friday, January 21st, 2005

Any fall is likely to be brief and the long-term trend will be up, industry leaders say

Michael McCullough

After four years of ever-stronger growth, real estate and property development in Greater Vancouver may be in for a bumpy ride in 2005. But industry leaders remain bullish on the longer-term outlook.

The current real estate cycle is probably coming to a close, but the downturn will be brief before a new growth phase starts, panellists at the Urban Development Institute’s annual industry forecast luncheon seemed to agree.

“We’ve been in the throes of a strong housing cycle for at least four years,” said Polygon Homes Ltd. president Neil Chrystal.

The development boom was fuelled by declining interest rates, stable construction costs, and steadily building economic growth. Investors could speculate successfully by buying into unbuilt developments and flipping them once they were finished.

“That all ended last June,” he said. “Most of us expected September would be the bounce-back month, but it wasn’t.” Interest rates remain low and job creation and in-migration remain strong, but the rise in land values and building costs has begun to push prospective buyers out of the market.

“Some areas of the market will be oversupplied,” Chrystal said, singling out downtown south and parts of Surrey and Langley. In the former, he expects many of the 6,000 condominiums approaching completion will come back on the market as investors who bought them in pre-sales seek to flip them. In the latter, there is simply too much of the same product (townhouses mostly) coming on the market at the same time.

Should interest rates rise sharply, the picture could worsen. But Chrystal anticipates a softer landing as rates stay low or rise gradually, and growth resumes in subsequent years.

Macdonald Development Corp. president Rob Macdonald related his experience working in Atlanta around the time of the 1996 Olympics to illustrate what he believes will happen to Vancouver over the next 10 years. There, not just the economic activity but also the international exposure of the event created a growth period that lasted until at least 2000, when Macdonald sold an office building for three times what he paid. At its peak, more than 100,000 people a year were moving to the city, and Macdonald predicts Vancouver could see in excess of 80,000 net new arrivals in coming years.

“We are just in the early stages of a momentum buildup in this region,” he said. “When the world wants a piece of you, it has a powerful influence on property prices.”

Although there will be bumps along the road, Macdonald predicted a 10-year “golden era” for Vancouver through at least 2014.

The increase in land values means developers have to be creative to make money, he added, urging his colleagues to look for ways to provide public amenities in return for rezoning and higher density. Deals such as his own company’s redevelopment of a lot at Granville and Dunsmuir downtown — which will provide the first condo tower in the middle of the financial district and save TransLink $15 million on new handicapped access to the Granville SkyTrain station — represent “triple-win transactions” where the developer, governments and community interests all benefit, he said.

Instead of just reacting to government demands, “Seek out or dream up ideas that can benefit your community,” he told the packed ballroom. “We should create winning situations for government.”

Avtar Bains, senior vice-president of investment for leasing and sales brokerage Colliers International, advised the assembly to pay attention to what’s happening in the outside world because it is affecting local markets faster and more profoundly than ever before. The industry is cyclical and will remain so, Bains said, but instead of the old seven- or eight-year cycles we will experience shorter cycles with less dizzying highs and less paralysing lows.

© The Vancouver Sun 2005

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