Shades of Miami 2007

Steve Saretsky -

It’s 2007, and dozens of condominium towers conceived during Florida’s real estate boom near completion, investors who snatched up units in the pre construction phase in hopes of turning a quick profit are increasingly trying to break contracts, even walking away from fat deposits. “Motivated” sellers are flooding online forums like Craigslist with advertisements for condo units still months or years from being finished. 

Lawyers have been inundated with calls from people hoping to avoid closing on units they bought during the speculative craze of 2004 and 2005. “I get two or three of these calls a day,” said James Ryan, a lawyer in Boca Raton who said he had 40 clients looking to get out of condo contracts.

People who thought they could “flip” condos — buying, then selling for a steep profit before construction is done — are parting with that fantasy. After years of stunning price increases — 25 percent in the West Palm Beach-Boca Raton area, for example, from March 2005 to March 2006 — condo prices have started dropping.

Foreigners are largely to blame. Real Estate analysts say South Florida drew a barrage of investors. “Between the Latin American influence and the out-of-state buyers who have a love affair with Miami because of its ambience,” said Jack McCabe, a consultant in Deerfield Beach who tracks the South Florida housing market, “they flocked to it and pushed it to the point where about 70 percent of all sales were to investors.”

Fast forward twelve years and we’ve arrived in Vancouver. New annual home completions just reached a record high, dumping just a shade under 25,000 units onto the market at the end of 2018. The much needed supply is perhaps a blessing and a curse, providing a relief to home prices but cornering speculators who have bet on rising prices.

Per the official MLS benchmark price, condo prices in Greater Vancouver have slid 6% since the month of June, an unprecedented decline following years of double digit price inflation.

Research from MLA Canada, a Real Estate advisory service working alongside developers suggests investor demand has largely dominated the pre-sale condo scene. Measuring pre-sale buyer activity in the Burnaby area of Brentwood and Metrotown, real estate investors made up 67% of all purchases in 2018, up from just 11% in 2012.

Purchaser intentions in Brentwood/MetroTown

A growing portion of that investor demand came from foreign buyers. Per CMHC, condo developments completed between 2016-2017 have a 14% homeownership rate amongst foreigners, compared to just 4.6% for homes of all ages.

As prices drop and the prospect of future price growth diminishes, investors are increasingly looking to move pre-sale contracts. Unfortunately sales have slumped and buyers are shying away from pre-sale assignment contracts. There are still over 40,000 units under construction and an additional 25,000 housing starts underway.

New home transactions as a percentage of total sales continues to grow, reaching a whopping 19.5% across Metro Vancouver in November. Ultimately suggesting there are no immediate issues with buyers failing to close. However, the longer this downturn lasts the increasing likelihood closing issues will surface.

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The Saretsky Report. December 2022