Buyer beware of pre-sale condo market frenzy - Ozzie Jurock
Beware pre-sale condo frenzy marketing
April 17, 2004
The cost of a home has shot up by 29 per cent in San Diego, and by 40 per cent in the surrounding suburbs. Los Angeles is up 23 per cent. The median average price of a house in San Francisco is $636,000 US.
Here in B.C., prices in Nanaimo are up by 29 per cent and Parksville is up an amazing 32 per cent.
In Vancouver, used condos have increased in value by 23 per cent. But new condo prices are down 20 per cent, following a trend that started last September. Buyers have every right to wonder what is going on.
Are builders selling smaller units? Are completed buildings having a more difficult time to attract tenants? Are more tenants buying with CMHC's no-money-down financing?
The answers are yes, yes and yes.
Since 1995, I have been advising investors to buy Vancouver condos. Now, the pre-sale frenzy makes me wonder whether all the investors buying today will find the tenants to pay for their investments tomorrow, when the units are completed.
I have warned before about rising vacancy rates in Toronto, Calgary and Edmonton. (Toronto is now at a 14-year high). There are concerns, as well, about Vancouver.
The official vacancy rate only tells part of the story. CMHC only reports on buildings of three suites or more and the individual "investor units" are not included. These investors account for as much as 50 per cent of new purchases, and they will all be looking for tenants.
The real vacancy rate in Vancouver is already likely five to seven per cent in the West End and downtown. Take a look at the "for rent" ads in today's paper, compared to two years ago. The volume of new ads has increased sharply.
This brings us to the recent headlines screaming: Condo Building Sells Out in One Day! Like an Elvis spotting, this sounds too good to be true.
In fact, most condominium developments that sell out in a day or two were actually marketed intensively to pre-qualified buyers for months before the ribbon-cutting.
The day of the "first opportunity" to buy does give some buyers their first look at the property, but not the first crack at buying.
One new building on West Georgia Street in Vancouver advertised its grand opening for March 27 at . However, anyone who walked into the sales centre on March 20 found it was already open. Salespeople told of the building being "80-per-cent sold already."
If you are a prospective buyer, remember that good marketing does not necessarily mean good value.
Some of today's pre-sale units, selling at $500 per foot with few amenities, no parking stall and no storage locker, should make you stop and think.
If you must buy a pre-sale unit, read this first:
1. Take a deep breath.
2. Don't get carried away.
3. Know what you are buying, what the suite will look like when it is finished.
4. Don't buy over or beside a garage entrance.
5. Find out what amenities are included (recreation room, visitors parking, playground, etc.)
6. Ask whether the balcony, hallway, etc. has been calculated in the total square footage of the unit. Ask what square footage has been used to calculate your common area cost.
7. Find out if you own your parking spot or if it is leased. What about a locker?
8. Ask for a copy of the builder's warranty. What items are covered, and for how long?
9. Check the building's design. Some architectural styles are more prone to water leaks than others.
10. Be sure to get instruction manuals and warranty information on all appliances, the hot water tank and the security system.
11. You should also do some investigating of the builder or developer. Ask for the names of satisfied people living in other projects. Check into the company's reputation with the Better Business Bureau.
12. Find out when the building will be completed and what happens if it is not completed on time. Ask when registration of the condominium corporation will take place.
13. If there are several phases to the project, when will they be built and what will the finished development look like?
14. Discover how many units can be sold to buyers who will rent them out. Are these owners local residents, or offshore investors.
15. Find out the total amount of the deposit required and the payment schedule. Is this deposit money held in trust, and with whom? What about closing costs and property taxes?
While all of this might seem like a lot to ask, it is important to get good answers to these questions. If you don't, you should walk away.
This is particularly true if the builder is small, unknown or from offshore.
We advise anyone looking at a pre-sale situation to remember that as the person with the money, you are in charge. Don't rush yourself into signing for a pre-sale deal if you have any doubts.
In today's new "unlimited financing" world, you can own almost anything you want. The trick is to make sure you want what you own.
Ozzie Jurock is the publisher of www.Jurock.com, B.C.'s Real Estate Marketplace -- an independent real estate advisory service.