Unlocking Opportunities: Presale Dynamics in February 2024

Source: MLA Canada

“January saw very few projects release new inventory into the market. The story of the month was centred around incentives on existing inventory, targeted toward both prospective buyers and agents. As we enter February, we are starting to see increased foot traffic at Sales Galleries that is likely to carry forward into the Spring. Anticipated project launches in February will serve as a good litmus test for market breadth and will help developers, many of which are in “wait and see” mode, decide whether to enter the market.”

– Garde MacDonald, Director of Advisory

NAVIGATING TODAY’S MARKET ENVIRONMENT: UNRAVELING THE COMPLEXITIES

Describing the current market environment as merely “tricky” would be an understatement. Costs related to financing and construction are on the rise, while revenues remain stagnant. This disparity has constrained developers from introducing new supply to the market and has heightened the criteria they require before initiating contract writing. Paradoxically, there is an unprecedented level of pent-up demand from buyers. However, their aspirations of homeownership are hindered by a lending environment that leaves much to be desired, deterring many from entering the market until interest rates begin to decrease in the latter half of this year.

In January, three presale projects were unveiled, introducing 434 units into the market. A significant portion of this new inventory originated from Encore, the second tower in Beedie’s Fraser Mill’s development. Encore has made a notable impact on the market, with 50% of its inventory sold within the first month of sales. Although detailed pricing information is scarce, it is estimated that Encore has achieved a gross blend of $1,075 per square foot, surpassing Debut’s $1,050 per square foot yet remaining below the $1,140-$1,150 per square foot range typical of towers along the North Rd Corridor.

As we analyze these recent developments, the future of the real estate market relies on a delicate equilibrium between cost, demand, and access to financing. Encore’s launch exemplifies how opportunities still exist for developers who can entice buyers with a competitive price point amidst a challenging economic landscape.

Presale Home Summary. Source: MLA Canada

RENTAL MARKET UPDATE: HISTORICALLY LOW VACANCIES AND SIGNIFICANT RENTAL PRICE INCREASES

Presently, vacancy rates in Metro Vancouver linger at a meager <1-2% across most submarkets, reflecting more rental friction than actual vacancies. This condition has contributed to an 8% rise in average rental rates in 2023, with new rental leases experiencing an even more substantial surge of 24%. This escalation is propelled by a growing number of renters, constituting approximately 34% of Canadian households, a demographic expanding at twice the rate of homeowners. This trend is fueled by affordability challenges and a considerable influx of individuals arriving through immigration, study, and work permits, who primarily rely on rentals upon their arrival.

The supply side of the market also confronts its own hurdles, notably a prolonged shortage in purpose-built rental construction. This issue, stemming from historical underinvestment, witnessed rental starts accounting for only 7% of all housing starts in 2010. Although initiatives such as the CMHC rental housing subsidiary have recently bolstered this figure to 38% as of 2022, challenges persist. Additionally, the removal of the 5% GST cost on purpose-built rentals and policies prohibiting short-term rentals aim to alleviate some pressure by promoting more long-term rental availability. Despite these efforts, the rental market continues to play catch-up, contending with lengthy timelines required to bring new rentals to market, which can span 3-7 years.

In the near term, some relief may be anticipated as interest rates adjust, potentially easing vacancy rates as prospective homeowners transition out of the rental market. However, the structural challenges within the rental market are expected to persist.

NEW YEAR, NEW PROJECTS, AND ENHANCED MARKET INCENTIVES

With the arrival of February comes the Lunar New Year, sparking anticipation for a resurgence in market demand and a surge in project unveilings. The market’s momentum has largely been fueled by active initiatives that offer substantial incentives. For instance, in Burnaby, buyer incentives range from $20,000 to $40,000, accompanied by realtor bonuses scaling between $5,000 to $10,000.

MLA Advisory forecasts the launch of five presale projects in February, introducing a total of 770 units to the market. Among these, Juno by StreetSide in Surrey City Centre stands out by relying on its 10% deposit structure to attract investors. Offering such minimal deposits at the commencement of the sales program is a daring strategy that could yield significant appeal. This approach, coupled with the project’s extended build-out period, underscores the tactics developers are employing to capture interest, especially during a period of subdued overall market activity.

Presale Units Forecasted. Source: MLA Canada

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Tags: presale. presales, presale merket February 2024, presales 2024