British Columbia developers are becoming wary of real estate sales to speculators who sign pre-sales on proposed condominium buildings in the Vancouver market, says a developer who pulled the plug on a major Fraser Valley high-rise, refusing to accept them as buyers.
Condo Development
British Columbia developers are becoming wary of real estate sales to speculators who sign pre-sales on proposed condominium buildings in the Vancouver market, says a developer who pulled the plug on a major Fraser Valley high-rise, refusing to accept them as buyers.
“I basically said ‘no’ to the speculators. There were 20 deals I would not sign. So, the marketing became a real problem,” said Karen Matty, principal in the Matsqui Group of Companies which has developed extensively in the B.C. Fraser Valley.
The company announced last year it planned to build the $90 million BRIO, a luxury high-rise that would dwarf any structure in Abbotsford.
Matty said in an e-mail that she made the mistake of choosing the wrong marketing firm and campaign, which did not produce the quality buyer she was looking for.
Instead, it produced speculators and today’s developers are being cautious about selling to this type of buyer, she said.
Late last year, an unhappy Matty returned the deposits on all the pre-sales with interest.
“When these flippers get in on a building and the market levels off or corrects slightly, I know what can happen,” she said.
“They do not close. This started happening in the States last year. I did not want that for the BRIO.”
The 28-storey structure’s plans were halted in November.
Her company had sold 40 pre-sales to its target group – 45 to 75 year olds with some young professionals – who wanted to live in a luxury building where 173 units were selling from $279,000 to $1.1 million.
The structure was designed to be 11 storeys higher than any other building in Abbotsford.
Matty said that buyers, who want to live in the building, have been placed on a reservation list. She said they are working to rekindle the BRIO and construction could begin this summer.
It will depend upon her ability to secure the buyers she is looking for.
The difficulty that Matty and other developers are running into is that banks will often determine the number of pre-sales that a developer must reach before financing is granted.
However, that can lead to disastrous results if the market nose-dives before the building is finished and speculators simply walk away.
“One hundred per cent sold out can mean only 50 per cent sold out if the market flattens,” she said.
That can leave the developer in a bind with the banks.
In some markets, such as Florida’s Miami, media stories tell of empty condominium towers where speculators and buyers have fled, seeing the deposit as a small loss compared to the plummeting prices. In a hot, up-surging market, said Matty, speculators can be carried along.
But, she believes that B.C. is currently edging toward the end of a brisk cycle.
“All that means is that we have to adjust our marketing approach. Both the banks and the developers will have to re-think their approach to the market. Too many speculators can cause an over-supply which is what has happened in the U.S.,” she said.
Others agree.
“The first to leave a sinking ship or a falling market is the speculator,” said Peter Simpson, chief executive officer of Greater Vancouver Home Builders Association. Simpson does believe that the market is showing some signs of “moderating” but that in the long term Vancouver and Metro Vancouver area will have strong drawing appeal.
This moderation is causing speculators to retract from the market.
“Speculators are a concern for everyone. There are not as many as there used to be because we are coming into a more balanced market,” he said,
Keith Sashaw, president of the Vancouver Regional Construction Association, said that one way developers can try to control speculators is to limit the number of units within a complex that they are able to purchase.
“I spoke with a developer in Surrey who is not allowing anyone to buy more than two units in a building,” he said.
Matty has partnered with Scott Construction.
“We have no project management issues. Our company is very strong and Scott is first class. Our team is ready to go,” she said.
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