Vancouver condo construction

Vancouver Condo Developers Ramp up Buyer Incentives As Demand Slows

Steve Saretsky -

With the Greater Vancouver condo market having slowed considerably, sales for the month of September dropped 44% – a six year low, the effects are now trickling into the new development space. Pre sale centres for new developments are beginning to ramp up their incentives and trying to lure buyers with discounts, decorating bonuses, free upgrades, and even a years worth of mortgage payments.

Call it desperation, or call it a brilliant marketing strategy, ‘The Landing’ a pre sale condo development in Langley, has perhaps set a new precedent by offering to pay the first year worth of mortgage payments.

The Landing in Langley
The Landing in Langley.

Just 12 months ago developers were having to contain the madness of crowds, many of whom were lining up overnight to secure a pre-sale contract. Today, incentives have become the new normal.

However, this should come as no surprise to market watchers who have witnessed the pressures of rising interest rates and tighter lending conditions. It’s a real estate cycle which is nearing its bitter end.

According to MLA Canada, the pre sale absorption rate for new developments fell to 38% in September, down from a high of 94% in January. Further, October is expected to be the busiest month for pre-sales in 2018 bringing over 2,000 units to market. This will place added pressure and competition between the re-sale market and the pre-sale market, both which are starved for buyers.

Recent data from CMHC and Central 1 Credit Union suggests the balance between new condos absorbed upon completion and left over inventory are beginning to trend in the opposite direction.

vancouver construction data
Source: Central 1 Credit Union

As the market shifts from a risk-off to a risk-on environment, developers have begun putting new projects on hold. The 12 month sum of housing starts across Metro Vancouver dipped to 26,565 units as per Stats Canada, down 4% from its recent peak in March 2018.

Vancouver housing starts
Vancouver housing starts

However, this slowdown is not exclusive to Vancouver. As global liquidity tightens, reports are growing of weaker buyer demand which is now plaguing real estate developers across the globe.

In Hong Kong, “Developers are rushing to unload their stock, as they are afraid the market will get even worse,” said Derek Chan, head of research at Ricacorp Properties. “Some projects, which have been priced lower, too have failed to get an enthusiastic reaction among buyers. Other developers will not dare to set prices as aggressively as they did before.”

In Australia, the Bureau of Statistics figures show Australia’s July building approvals figures are down -5.6% in seasonally adjusted figures, with apartments the worst hit, down -6.2%.

Join the Monday Newsletter

Every Monday morning you'll receive a short and entertaining round-up of news on the Vancouver & Canadian Real Estate markets.

"*" indicates required fields

The Canadian Economy

Steve Saretsky -

Happy Monday Morning! We got a string of new data this past week confirming inflation in consumer goods, and housing are proving to be more than transitory. Canada’s consumer price index continued to drift higher with prices hitting an 18 year high, up 4.7% from last October. The recent floods in BC...

Steve Saretsky -

The calls for impending interest rate hikes continues. CIBC’s chief economist, Benjamin Tal, was out recently suggesting the Bank of Canada could hike its benchmark interest rate at least six times beginning in early 2022. “I think there is a risk of getting into the market at today’s rates,” noted Tal....

Steve Saretsky -

The BC Government announced it is looking at several cooling measures for the housing market in 2022. They have highlighted two measures. The first is an end to the blind bidding process, and the other is a mandatory “cooling off period” which will allow any buyer a 7 day recession...

Steve Saretsky -

The Bank of Canada continues to slowly drain liquidity after flooding the system with a firehose of cash during the pandemic. Bank of Canada governor Tiff Macklem announced the end of Canada’s QE program (also known as money printing). Furthermore, in Macklems words, “We expect to begin increasing our policy...

Steve Saretsky -

Consumer price inflation ripped higher in September, surging 4.4% year-over-year, the fastest pace of price increases in 18 years. Let’s discuss this further. We have an inflation problem and the Bank of Canada remains of the view that inflation will be transitory. Although they really can’t say otherwise, for if...

Get the Saretsky Report to your email every month

The Saretsky Report. December 2022