For the world, everyday now is a triage for the best actions or rather any action that can restore confidence and stability back market. Lately, there have been news on British Columbia residential real estate developmental projects that have either been postponed or shelved altogether. Let us examine the market to get a better understanding of what is to come.
85% of Canadian wealth is portrayed in home ownership. Since 2001, we have experienced a bull real estate cycle that has been described as once in every 50 years, and it has been coupled with the emergence of high-rise real estate. For Canada which has abundance of land, this was a huge change in real estate structure indicating a shift to higher density communities. Then with intensified population growth and business thriving as a result, profits were almost a given with the focus on maximizing the profits. However, the adulation of this bull cycle is the bear cycle that will follow and surprisingly, while people should be well aware of this simple logic, many underestimate the impact this coming bear cycle will bring.
People were buying residential units or lots, do some makeover and renovations, and then selling it at much higher price. Another group of flippers pay 5% or so for the down payment of pre-sale units, and find another buyer to buy it off them at a higher price. Problem is if you do not find someone to buy it off you by closing date, you either complete the deal which means you need to come up with the remaining 95% or you forfeit your deposit and face the possibility of being sued for damages if the real estate market price have fallen. To complete, there will also be other costs such as lawyer’s fees and transfer taxes. So in any case, the market condition is very crucial when you are investing to flip.
There are also long term investors or home owners who are not looking to sell in the short term. Naturally, they undertake less market risk than the flippers. However, there are many who has mortgages on their real estates increasing their financial burden when the market retreats.
So market demand has been dwindling especially with less foreign investors as their own countries slip into recession. While the prices have adjusted downwards (over 10%), the potential buyers are still waiting on the sidelines, waiting for the market to hit rock bottom.
Now, let’s take a look at some of the residential development projects that has been caught in the down cycle.
- RITZ CARLTON - Holborn’s $500 Million Ritz Carlton project has stopped at 50% completion. Despite what they claim, I have reliable sources that reveal that they have cash-flow problems.
- THE HILLS - The project on Kingsway have been pushed back indefinitely.
- INFINITY - the largest project in Surrey’s history. The developer filed for protection from creditors and sought major financing. Of the five proposed towers, one is completed, two is under construction and two have zoning approvals but have not started work.
- SKY TOWERS - Also in Surrey, Sky Towers have both condo towers sold but work has not started.
- BRIO - The 28 storey project which is to be the highest residential condo between downtown Surrey and downtown Calgary have also stalled.
- EVELYN - Millennium Developments’s Spokewoman Valerie Wan denied rumors of the Evelyn project stalling, claiming that site cleaning and grading have been completed. The marketing for pre-sale is scheduled for Spring 2009.
- COSMO - Concord Pacific’s Cosmo on Georgia and Beatty in Downtown also stopped work. However, they explained that it is due to late materials delivery and they plan to resume in January or February 2009.
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WHATS TO COME
What can we expect from the Vancouver Winter Olympic 2010? If there is any boost to the economy, it would have probably been reflected in the bull cycle the past 3 years. Also, most expected related projects will be completed by 2009 leaving a lot of workers with no new projects considering the lack of market demand now. Since the full effect of the US recession is expected to be felt in Canada sometime next year, we can expect that the British Columbia real estate market will take another plunge sometime next Winter.
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