About 70,000 condominiums in Metro Vancouver are held by investors as rental units, according to Canada Mortgage and Housing Corp. (CMHC), representing the second-largest pool of rentals outside of purpose-built rental buildings.
But bleak new reports say Vancouver’s investor condo sector is being upended by a plunge in immigration, notable dips in local rental rates and a provincial rent freeze that has been extended into 2021.
The changes could mean trouble for condo investors in the city, and has persuaded at least one Alberta condo developer to pitch a new Calgary project directly at Vancouver buyers.
“COVID-19 has severely disrupted the flow of immigrants moving to Canada - a major source of [Metro Vancouver] housing demand,” RBC senior economist Robert Hogue stated in an October 29 report from RBC Economics. In the first quarter of 2020, migration to Canada had fallen to 70,400 individuals compared with 82,900 the same period a year earlier. But by the second quarter - stretching from April to June - migration had plummeted 94 per cent annually, from 152,500 to just 9,700 individuals.
B.C. immigration numbers went negative in the first half, according to BC Stats, falling 111 per cent from a year earlier.
The most recent rental survey by PadMapper found that average rents for a two-bedroom Vancouver apartment have fallen 15 per cent since September of last year, to $2,750 per month. A separate study released October 15 by Rental.ca and Bullpen Research & Consulting found that condominium rents in Vancouver were down 17 per cent compared to the third quarter of 2019.
“Demand [for rentals] near post-secondary institutions has softened too, due to the switch to online study and the closing of our border that kept many foreign students abroad,” the RBC report stated. Hogue found that rental declines have been mostly concentrated in Vancouver’s higher-density, downtown locations, which also hold the most condo rentals.
“Underlying the shift is a surge in rental supply as the short-term rental business dries up and new purpose-built rental and condo units are completed,” Hogue stated.
Another challenge facing the Vancouver market is the swelling supply of new condos (up 20.9 per cent annually as of September) as more buyers try to unload pre-sold units in assignment sales.
In October, 75 per cent of the 1,524 new condos and townhomes launched as pre-sales in Metro Vancouver failed to sell, according to industry research firm MLA Canada – and this was on par with monthly performance since COVID-19 arrived in March.
A further nine projects with 811 new strata units, mostly concrete tower condos, hit the pre-sale market in November, MLA adds. A big problem for Vancouver tower developers, MLA notes, is a lack of offshore students and other foreign investors who once dominated the new condo market but have virtually vanished during the pandemic.
Calgary developer pitches in
Alberta’s Graywood Developments has recognized the condo investor angst in Vancouver and is pitching a new Calgary concrete condo project as a potential solution.
Half of the condos in the 117- unit, six-storey Theodore condo building in Calgary’s Kensington neighbourhood have sold and 85 per cent of the buyers were out-of-town investors, mostly from Vancouver and Toronto, according to Patrick Briscoe, vice-president, development, for Graywood.
Briscoe said the project is enticing Vancouver investors because the condo apartments start at around $290,000, compared to a benchmark resale condo price of $683,500 in Greater Vancouver.
Also, he noted that Alberta has no rent controls, and the Theodore is offering incentives to out-of-town investors.
“This means positive cash flow,” Briscoe said.
The Calgary Real Estate Board reported that October condo sales in the city have been slowing this year as new listings increase. The benchmark resale condo price is now $248,600, down 1 per cent from a year earlier.