Experts and industry watchers come at the question from every possible angle, but the underlying theme, the common thread uniting them all, is the belief the market of 2010 remains solid for the long-term investor.
"We will likely never again see the massive influx of naive, newbie investors we saw during 2006-07," acknowledged Manuela Miecki, senior vice-president of marketing at Ledingham McAllister. "But it's a misconception to think they're gone as a result of the HST. These buyers were already out of the market, because most of them should never have been in the market in the first place. They had already leveraged everything they could, and they were tapped out financially."
The reality of this new market, she adds, was a rude awakening for many. Even smart investors were blinded by the lure of a fast return on investment - often stretching their finances to what would, in another market, be perceived as ridiculous and dangerous levels based on the anticipation of flipping the property for huge returns.
Condo marketing expert and self-confessed numbers man Bob Rennie believes it is and always will be a case of supply and demand - or in the case of the downtown Vancouver market where historically many privately owned condominiums are rentals, a case of undersupply and demand.
New supply falling
"In 2007, we saw approximately 3,200 completions," he said. "In 2008, that number dropped to 2,200. In 2009, it fell below 2,000 units. This year, 2010, will see the number of units completed drop to 990, next year it will fall below 800 and, in 2012, there will be less than 500 new units completed and delivered. There is, quite simply, not a lot of new supply coming."
While Rennie says there will always be a niche market for well-heeled buyers who fail to blink at the thought of adding a multimillion-dollar waterfront property - or two or three - to their portfolio, he stresses there's also an insatiable demand for more affordable properties: condos priced less than $500,000.
Project marketer and industry expert Bill Szeto of Otezs Project Marketing Group agrees. He sees a growing number of these units being snapped up by the burgeoning middle class of Mainland China who view Vancouver as a way to circumvent their country's restrictive policies against owning investment property. "These buyers may not have the $2 million or $3 million for a Coal Harbour property," he said. "But they do have $500,000 or $600,000, and they're willing to spend it."
The numbers are almost inconceivably vast. "If we're selling to just 0.01 per cent of a billion people, it equates to 100,000 - meaning we would be selling out tower after tower as fast as we could build them," Szeto pointed out. But it's a fussy demographic. "This demographic wants access to quality education as well as something a little edgy in a premium location - a location perceived as a safe haven physically, politically and economically. Downtown Vancouver fits the bill on all counts."
Watching cash flow
Well-known local real estate investment guru Ozzie Jurock said it's rare that multimillion-dollar Coal Harbour condominiums make sound long-term investment sense in any case. "I believe you should always own your own home, but after that an investment has to make a return," he said. "That Coal Harbour condo might rent out for $2,500 or $3,000 a month, but unless you have very deep pockets, you'll most likely be topping up the mortgage payments by several hundred dollars a month." He contrasts the Coal Harbour reality against purchasing a two-bedroom, $160,000 condo somewhere like Kamloops. With a 50 per cent down payment and a predicted rental rate of $830 a month, this investment not only covers itself, he postulates, it generates a positive cash flow that could then be used as leverage against a second property.
Jurock also draws a clear delineation between the long-term investor who is looking for rental properties and the quick-in-quick-out investment style of a flipper.
"If you're a true-blue flipper, the number 1 requirement is guts," he stressed. After that comes persistence. "It's work. You have to go out every day, stand in line if you need to, and look at every single property that comes on the market. Eventually, you will find someone who needs to sell, you'll know it's a good deal and you can still make money - but you need to be very, very careful."
Numbers from Landcor Data Information support the idea that the long-term investor will likely remain a strong presence in downtown Vancouver.
"Over the past 10 years, the median price of [Vancouver] condominiums has risen from $220,000 to $540,000, an increase of over 145 per cent," said Rudy Nielsen, Landcor president. "During that time, the median price only faltered once: during the recessionary period when the price dropped from $524,000 to $450,00 between 2008 and 2009, only to rebound back in 2010. Of interest is the change in percentage of owner-occupied condos during that same period, which showed a 5 per cent fluctuation. However, as prices increased, owner occupation actually decreased, perhaps suggesting a sell-off to investors with deeper pockets."
Rental stock
Realtor Maggie Chandler of Chandler Realty, who specializes in downtown condominiums, notes that the resale condo market is seeing near-record listings in what she calls a good buyers' market.
"June saw listings drop but still nearly double what they were a year ago," Chandler said. Sales for the month were down to 121, the second-worst month for the year after February. Average days on the market jumped to 40 and the listings that didn't sell and came off the market were the highest for the year, she reports.
In July, total condominium sales on the West Side of Vancouver, which includes the downtown, fell to 369 units, down from 584 in July 2009, according to the Real Estate Board of Greater Vancouver.
Chandler estimates the price per square foot for a downtown condo at $629.
Still, there remains a lingering question: with vacancy rates in downtown hovering at 2 per cent or lower, where will new rental stock come from?
One answer could be private condo rentals: units held by individuals with the patience and tenacity to ride out the inevitable cycles of the market. This remains one of the few things all industry watchers and analysts agree on.
from Western Investor September 2010
