Douglas Todd: Vancouver's luxury builders should be nervous
Credit to Author: Douglas Todd| Date: Thu, 23 Jan 2020 15:18:28 +0000
In Manhattan, half the luxury condos built in the past five years remain unsold.
Vancouver builders are watching as thousands of New York City condos in glistening “super-skinny” towers, rapidly erected to serve a flood of demand from global millionaires, are largely empty as that city core’s real-estate bubble is bursting.
The future is looking wobbly for high-end developers in potentially more risky Vancouver, where prices in the past decade have risen three times faster than in the Big Apple. In both places, middle-class young people are being squeezed out of home ownership.
Even though there are differences between the affluent housing markets in New York and Vancouver, which are routinely ranked among the world’s sought-after destinations, the downward trend is similar in the East and West Coast cities.
As with New York’s flashy highrises, many luxury condos with spectacular views in Vancouver are going un-bought. Dramatic price drops are also occurring among the posh single-family residences of Metro Vancouver, where prices have plunged by more than one-quarter since the peak in 2017.
Global media outlets have noted that popular Canadian singer Michael Bublé last year had to sell his sprawling West Vancouver mansion for 28 per cent less than its assessed value. It was bought by the only one who showed interest: An increasingly hard-to-find buyer from China.
Prices have plummeted by more than 25 per cent in the past two years across hilly West Vancouver, which is often ranked as the municipality with the highest per capita income in Canada. A similar dip has occurred in the city of Vancouver and many of its suburbs, where assessed values went down by more than 11 per cent in 2019 alone.
The city of Vancouver’s luxury condo market might not be quite as hard hit as Manhattan’s. But it’s struggling considerably, with roughly one quarter of the city’s most opulent inventory going unsold.
Hundreds of condo units in towers rising in Vancouver’s Oakridge neighbourhood, with price tags in the multi-millions of dollars, don’t have buyers, for instance. Most of these swank tower homes are priced at more than $2,400 a square foot, completely out of reach of local wage earners.
Yet that’s a common square-foot cost for thousands of other exorbitant condo units being built in this West Coast city, which is often ranked among the world’s most unaffordable. The gap between median wages and median housing costs in Vancouver is far greater than in New York City, which has the advantage of being a global financial centre.
Knight Frank Global Real Estate Consultants, which tracks prices in 15 of the world’s most sought-after cities, projects that New York City’s overall housing prices will fall again in 2020, by 4.4 per cent.
Vancouver’s housing values are forecast to tumble even more this year, by 10.2 per cent overall, which Knight Frank says will be the steepest drop in all 15 of the world’s “prime” cities (which include London, Hong Kong, Los Angeles and Dubai).
“Developers globally thought the way to make money was to build luxury,” says a Vancouver-based real estate analyst, Steve Saretsky. “But the general theme is the luxury market in global cities has really died off. It’s going to be a sluggish market in Vancouver. The luxury bid, particularly out of China, has really slowed down.”
Tighter local government regulations are a factor. The B.C. government’s 20 per cent foreign-buyers tax and speculation and vacancy tax, which are designed to discourage offshore and domestic investment, have been working. But they’re similar to rising restrictions in most of the world’s top housing markets.
The most important thing curbing elite housing is the global economic slowdown, plus restrictions on the amount of money allowed to flow out of China, whose buyers account for one out of four purchases in Sydney and London.
The power of buyers from China has been even greater in Vancouver, which has a much higher proportion of ethnic Chinese residents. China is home to one-sixth of the world’s new millionaires, a cohort that’s been expanding at the rate of 250 an hour for the past eight years, according to The Economist.
And the Hurun Global Housing Index says relatively small Vancouver remains the seventh most sought-after city in the world for investors from China, many of whom are looking for a haven for their capital.
Even though the valuations on Metro’s most pricey single-family homes are clearly declining sharply, one could argue that Vancouver’s trendy needle towers are not hit quite as hard as those in New York City. Still, figures indicate a slowdown.
Vancouver’s top-of-the-line developers used to boast they could entirely “pre-sell” towers of condo units ranging from $2 million to $20 million each, before they’re built. Now figures from the Altus Group shows a significant portion of the thousands of upmarket condo units being constructed have not found buyers.
“The market in Metro Vancouver today has kind of switched back to being a local market,” says Saretsky.
“The high-end market is coming down. What is moving is the affordable stuff, including the one-bedroom condos in the City of Vancouver. They’re getting multiple offers, and in some cases their prices are actually pushing up, because it’s all anyone can afford,” Saretsky said. Developers, especially in Surrey, Richmond and Langley, are responding again to the domestic market.
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High-end developers might end up stuck with more of their units than they would have liked, he said. “I don’t know if they’re worried, because they’re well-capitalized. But they could end up in a situation where they finish their building and wonder: Do we cut the prices, or do we rent them out and wait for the market to turn around? If they start discounting prices quite a bit, that kind of screws everybody who bought into the building initially.”
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Saretsky can’t say how it’s all going to play out for domestic buyers. “Do the reductions at the high end trickle down? Or does it all trickle up?” The key thing he knows is the Metro market is now extremely segmented.
That’s the case in most of the world’s desirable cities, where there is a crisis of homelessness, as well as unaffordability for the middle class, at the same time the world’s multimillionaires have been, at least until two years ago, driving up values.
Whether the downturns in New York, Vancouver and other prime cities will stretch on for years is difficult to predict. But the immediate drop in the luxury market offers a glimmer of light to the expanding number of ordinary people whose housing needs are, to say the least, going unmet.
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dtodd@postmedia.com