Presale condo project sales rates hit new lows in Metro Vancouver
Presale condo-project sales rate hits new low
Joanne Lee-Young
The Province
The sales rate for presale condos hit a low of 14 per cent in June, with buyers signing sales contracts for only 73 out of the 519 units on the market in Greater Vancouver and the Fraser Valley.
“It’s the lowest number for a long time,” said Suzana Goncalves, a partner at MLA Advisory, the research arm of real estate marketing company MLA Canada.
It’s a far cry from when the market was hot, when many projects sold contracts for 90 per cent or more of their units within a month or two of starting marketing.
Some developers, including established ones with deep pockets, say they are holding back on presale launches because they aren’t confident they can sell contracts for even 50 per cent of the units, which is the minimum needed to get bank financing for construction.
And that threshold is low, a level reserved for developers with a strong relationships with their financier and a track record. Most projects need to secure presale contracts and down payments for 75 to 80 per cent of the units to qualify for construction loans.
Presales have been dropping for the past year. But in recent months, even as developers have rolled out all kinds of incentives to spur sales, the drop has accelerated. In May 2019, the sales rate was 22 per cent with 120 out of 539 available units sold.
Between January and June of 2018, the sales rate for presale projects across Greater Vancouver and the Fraser Valley was 74 per cent. For that period in 2019, the rate was 36 per cent, according to MLA Advisory.
However, in Central Surrey, over 1,500 units were released in the first half of 2019 and about half of these, mostly concrete highrises near the SkyTrain station, were sold, making it the most active Metro market, MLA Advisory reported.
Goncalves said one has to go back to 2012 to find a sales rate as paltry as June’s 14 per cent.
“Now, success (for a project) is being able to sell out about 65 per cent of units over nine months,” said Goncalves. Developers have a window of nine months in which they must hit the sales rate required by their bank.
Some projects with cheaper, smaller units are faring better, said Goncalves.
For example, some projects involving wood frame condos and townhomes, which are less expensive to build than concrete ones, have an easier time hitting the targets required for financing, she said.
One reason for that success is that it’s easier to split such projects into several smaller phases, each sold and financed separately, rather than aiming for the required percentage in a single highrise of 300 units, especially in an area with many similar large projects.
“Sometimes it’s not about being a large developer with deep pockets,” said Goncalves.
“Brentwood is an example,” she said of the neighbourhood along the Millennium SkyTrain line in Burnaby. “It’s in a great location, but (the area) has had a lot of activity in recent years and there is still more activity to come.”
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