In a stagnant market, there are examples of developers using various techniques to keep buyers in the dark about actual housing sales and prices. Some tactics are seriously manipulative.
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“Eighty per cent of homes already sold!”
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How many times have Canadians seen that kind of marketing of a new residential project?
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The developers behind such campaigns aim to create a sense of scarcity. But their claims are often impossible to verify.
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“There are a lot of developers who just come out and say their project is 80 per cent sold. But I would say, half the time, with half the developers, it’s actually not true,” says Ross McCredie, president of Sutton Realty, which has 6,000 realtors across the country.
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The problem with disguising real sale volumes and prices is a special concern in the stagnating B.C. and Ontario markets. Some developers, stuck with an abundance of inventory, don’t want would-be buyers to know they are desperate.
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Metro Vancouver has roughly 2,500 to 3,500 newly completed condos sitting empty, the highest inventory in two decades, according to teh Canada Mortgage and Housing Corp.
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Distress sales sometimes come to light. Vancouver real estate analyst Steve Saretsky found that a two-bedroom condo in Westbank’s luxury downtown tower, the Butterfly, was bought before construction for $2.6 million. Now complete, it sold this year for $1.51 million. A similar price drop showed up at Westbank’s Kengo Kuma highrise. A pre-construction unit that originally went for $2.03 million recently resold for $1.38 million.
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To try to avoid such losses, McCredie describes what often happens when a project has excess inventory. “If you’re looking at a building in which a developer has 100 units left, he’s not going to put 100 empty units out there for sale. He’s going to tell you there’s just three or four for sale.”
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Like McCredie, Saretsky generally believes that’s prudent business, even while it lacks transparency.
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The question of so-called “price discovery,” determining the fair value of a product, is especially relevant in today’s vast pre-construction sale market. Even though the market is slow, many buyers are anxious to resell their completed units in transactions called “assignments.”
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Despite “a plethora” of such condos, Sarestky spotlights an apparent contradiction: Fewer pre-sale units are being listed on the Multiple Listing Services, which provides open data on trends in the housing market.
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“This is happening because developers are increasingly restricting pre-sale buyers from listing inventory on the MLS as they attempt to limit price discovery,” Saretsky said.
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Developers have the authority to make sure their project’s pre-sale properties are sold privately, or directly between the seller and buyer, without an agent. That makes it possible for them to hide how many units in a building are empty.
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“I personally don’t have any issue with developers selling predominately off-market. It’s a free market after all, and is the case in any other major housing market,” Saretsky said.
