Vancouver Pre-Sale Condos – A Good Investment?
(the following is a video transcription)
For the past decade, buying a pre-sale condo or a townhome in the greater Vancouver area has been a great investment for people.
What’s going on right now is that we have a record number of units being built. What that also means with a record number being built, is that we have a record number of people waiting for these condos to be finished and to close on them. There are some potential problems that could come from all this.
What’s happened typically beforehand, is if a building took 2 or 3 years to build people would put down their $50,000 down this year and 18 months later they may assign that contract to someone else before they even have to close. They probably had no intention of closing and they’ve made themselves $100,000 to $250,000 and so on. But that market is starting to dry up, its getting much harder to assign contracts now and what is going to happen is these people are going to have to complete on these properties. Another issue is that if you paid $1.1 million for the property for the property let’s say 18 months ago, right now it might only get appraised out at $900,000.
With all the new mortgage qualifications you wouldn’t pass the stress test as well. Secondary lenders now have a better choice who they can lend to instead of doing a 2nd mortgage to someone who may only have 80 or 70% equity in this property they now have someone else they can lend the money to obviously at higher rates than they would have had before. I’m not trying to say the entire market is going to crash here because that’s not what I’m saying at all, I’m just saying that there are some potential difficulties in this market with all these things going on.
What happens if these people can’t close? Well, they will lose their deposit, and secondly, they will probably get sued by the developer and if enough of them do it, well that will cause problems for the developer at closing time and can even cause even larger scale potential issues. Are pre-sales still the great investment they were over the last decade?
That’s for you to decide!