Bruce Constantineau
Sun
Some B.C. condominium projects will fail in the future because inexperienced developers are paying too much money now for land in “silly purchases” that can’t be justified, Concert Properties president David Podmore said Thursday.
“I do predict we’re going to see some failures, where [developers] are entering the market and they don’t know their cost structure,” he told the Urban Development Institute’s annual industry forecast luncheon in Vancouver. “In some cases, they’re selling product and they really don’t know what that product will ultimately cost them. That’s not necessarily good for the industry.
“It’s not a reflection of a weak market. It’s a reflection of a strong market that attracts a lot of individuals and companies that are not very experienced.”
Podmore said some developers are paying “grossly inflated” prices for raw land and they’re depending on continued aggressive increases in land and condominium prices to keep their projects profitable.
“For those of us old enough to remember Alberta in the 1970s, that’s what got people in trouble,” he said. “They had too much land, too much debt against the land and inflation didn’t continue. Despite the strong economy in B.C., you can’t count on [strong price increases] going forward.”
Podmore said there are signs that high-density, multi-family condo prices have reached a ceiling or at least are approaching a ceiling, with future price increases likely to slow down significantly. He said the market has reached a point where a large portion of the community cannot afford the multi-family housing that’s being created.
Podmore said much of the recent price run-up took place because of “equity withdrawal,” where people took the equity from their home sales and reinvested it in the real estate market.
“I think the big impact of that is largely passed for the local purchaser,” Podmore said. “A lot of that equity has already been withdrawn and placed in terms of new purchases.”
He noted that despite moderating condominium price increases in the future, some projects will still command strong prices — particularly those situated near rapid transit lines.
Colliers International executive vice-president Avtar Bains told the luncheon that a year ago, no one could have forecast such a strong B.C. commercial real estate market in 2005.
“Who would have dreamt where we ended up,” he said. “Now people wonder if this is really the new world or should they sell.”
Bains said power brokers in Toronto now realize that much of the country’s future economic prosperity lies in Western Canada, so they are far more willing to finance real estate projects in B.C. than ever before.
“Now the market across Canada is driven by Canadians and that hasn’t always been the case,” he said. “In the past, a lot of the market depended on money borrowed from outside the country.”
Bains said many people still believe that at least 50 per cent of the top 65 buildings in downtown Vancouver are owned by foreigners, but non-Canadians actually own just 13.5 per cent of the best properties in the downtown core.
© The Vancouver Sun 2006