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The pre-sale model responsible for financing a huge proportion of new homes built in Metro Vancouver over the past three decades is now, in the estimation of different industry professionals, ‘on its knees,’ ‘dismal,’ or ‘dead, dead, dead’
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On a sunny Saturday in April 1996, hundreds of prospective condo buyers showed up at a sales launch for a two-tower downtown Vancouver development still years from completion.
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The turnout was so large that people were forced to line up along West Georgia Street and around the block.
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Bob Rennie was overwhelmed.
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Rennie, whose company was marketing Westbank’s Residences On Georgia condo project, hustled over to the London Drugs on Robson, purchased 2,000 chocolate bars, and walked up and down the lineup of hopeful homebuyers, telling them he was sorry and handing out confections.
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“I was apologizing, saying: ‘I know this is an uncomfortable way to buy,’” Rennie recalls. “We were totally overwhelmed with the activity.
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“The next day, we were prepared. We had pastries.”
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A Vancouver Sun front page displayed a photo of Rennie on the sidewalk dispensing croissants and danishes to people waiting in line, with the headline: “Crowd flocks to buy future condos.”
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Most of the 500 units in the two 37-storey towers were sold over the weekend, The Sun reported, with people clamouring to buy homes that wouldn’t be built for another two years. “You could be forgiven for thinking it was a party,” said the story.
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But no party lasts forever.
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The pre-sale model responsible for financing a huge proportion of new homes built in Metro Vancouver over the past three decades is now, in the estimation of various industry professionals, “on its knees,” “dismal,” or “dead, dead, dead.”
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The current market conditions are due, in part, to deliberate actions by governments, and are good news for many British Columbians. Tenants are seeing lower rents and more choice, and first-time buyers are getting into the market at lower prices than would have been possible a few years ago.
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But if the current slowdown continues or worsens, there are worries about a more dire housing shortage coming years.
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Two tales of one city: Vancouver’s housing industry is both booming and struggling
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Metro Vancouver’s glut of empty condos: What’s unsold and why?
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From novelty to necessity
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Pre-sales weren’t always the norm.
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When Michael Audain was looking to buy his first condo, he walked, with dozens of strangers, through a furnished suite in a newly built tower in Vancouver’s West End on a Sunday in 1974. Audain liked what he saw enough to pick up a one-bedroom unit on the tower’s 19th storey for $44,900, and he soon moved in.
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“In those days, that’s how people would do it,” Audain said. “They would build the damn thing, finish it, and then put up a sign: ‘For sale.’”
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The concept of condominiums was “old hat in the crowded cities of Europe and South America,” but still quite new in North America, a Vancouver Sun editorial reported in 1966, when the B.C. government introduced the Strata Titles Act. “Western man’s stubborn desire to own his own little nest, even if it is suspended 15 storeys in the air, has been given official recognition by the provincial government.”
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In 1980, Audain founded Polygon Homes, which became one of B.C.’s largest developers, building tens of thousands of condos. By the mid-1980s, Audain started hearing about a new concept in the Toronto and Hong Kong markets: Developers were selling condos before they had even been built, what they called “selling from plans.”
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“We were surprised that there was a market for people wanting to buy homes two or three years or even more down the road,” Audain said. “We had assumed people would want to come in and try the taps and get a feel for the apartment.”
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But the idea took off.
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Back in 1996, when Rennie was handing out pastries on The Vancouver Sun’s front page, the condo pre-sale was still a relatively new phenomenon. The tone of media coverage at the time was somewhat incredulous, conveying surprise that people would shell out money for a home that did not yet exist.
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But pre-sales quickly went from being a novelty to a necessity.
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It soon became standard for banks and other lenders to require a certain number of units to be pre-sold before advancing construction loans. That meant a project couldn’t even break ground until a developer had sold that proportion, often around 60 per cent, but sometimes higher. For lenders, this was an effective way to “de-risk” a project.
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For the last few decades, hitting those pre-sale targets didn’t seem to be a problem for many of Metro Vancouver’s biggest developers, as condo towers sprouted up and units flew off the shelves. One afternoon in 1992, Rennie’s company sold out an entire 142-unit downtown tower in four hours and 22 minutes.
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As the pre-sale mania ramped up, and home prices rapidly escalated out of reach for local incomes, there were controversies. Some developers were criticized for marketing their projects overseas, sometimes before locals even had a chance to buy. During the red-hot market of the 2010s, pre-sale condos were sometimes flipped multiple times, for ever higher prices, before the units were built.
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It’s a different world now.
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‘Completely paralyzed’
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Wesgroup CEO Beau Jarvis says the Metro Vancouver condo pre-sale market is “completely paralyzed and atrophied.”
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“It’s just stopped,” Jarvis said. “I’ve never seen anything like this in my 25 years in the business.”
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Slow pre-sales were a factor in Wesgroup’s decision last year to cancel a 204-unit condo project in Vancouver’s River District, and in other project cancellations across the region.
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ASPAC Developments recently cancelled a high-end condo project in Richmond after some units had already been sold, and the company is now returning deposits to pre-sale buyers.
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“It simply wasn’t the right environment to proceed with the project as designed,” ASPAC vice-president Gary Wong said this week. “Our intention is to redesign the project to better reflect market conditions, but it’s too early to speak to specific plans.”
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Metro Vancouver recorded fewer than 6,000 new condo sales last year, about a third of which — fewer than 2,000 — were pre-sales, according to data from Zonda Urban analyzed by Rennie Intelligence.
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That’s a far cry from a decade ago, when interest rates were low.
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“Everyone was moving to Vancouver, and the party was on,” said Ryan Wyse, lead analyst and market intelligence manager for Rennie’s real estate services firm. In 2016, there were more than 20,000 condo sales in Metro, and most of them were pre-sales in buildings that sold out or nearly sold out before construction.
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“So many projects were able to sell out before they started construction that we actually called the new home market ‘the pre-sale market,’ because that was the bulk of the activity back then,” Wyse said.
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Many pre-sale buyers during that heyday were investors, who included short-term flippers as well as owners looking to hold a condo long-term and rent it out. A key reason for the current pre-sale slump is that those investors are on the sidelines.
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At projects marketed by Rennie from 2021 to 2023, about half of the condos were sold to end users who wanted to live in the units, and half to investors, Wyse said. In 2024, the percentage of investor-buyers fell by about half, to 26 per cent, and remained about the same last year, Wyse added. He predicts that percentage will be lower this year.
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The dramatic decline in investors can be attributed to several factors. With home prices and rents declining while interest rates and carrying costs rise, condos are not as desirable an investment as they once were.
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Other factors are the result of deliberate actions by governments. Vancouver introduced the empty homes tax in 2016, the B.C. government announced a new tax on short-term flipping in 2024, and the federal government has banned all foreign ownership of residential real estate until at least next January.
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The current situation is not bad news for everyone. Buyers, including those in the market for their first home, are able to shop around and compare prices on different units and take time to make their decision, instead of rushing to close on a unit before the next person snatches it up. International investors are out of the market, and with fewer Canadian investors around, local people looking to buy a place to call home are facing far less competition.
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Developers are offering deals and incentives, with some even subsidizing buyers’ mortgages.
The Vancouver region now has a significant number of unsold, vacant units in recently completed buildings. In some cases, developers are reportedly selling newly built units “below their bottom line,” meaning for less than what it cost to produce them. The president of one major Vancouver-area developer commented: “I joke that we’re a not-for-profit home-builder right now.”
While that is good news for buyers, the current situation does not bode well for future housing supply. Developers may be willing to unload some condos for a lower profit or even at a loss right now because they need to move the units and repay their lenders. But they are not going to launch new projects if they expect to lose money on them when they are completed in a few years.
That is the worrying aspect of the current pre-sales slump, said Bryan Yu, chief economist at Central 1 Credit Union. Some projects are struggling to pre-sell 20 per cent of their units, Yu said, which means those projects will not go forward.
“It’s pretty dismal,” he said.
While B.C.’s housing starts have been relatively strong in recent years — largely buoyed by a surge in purpose-built rental projects, spurred by government policies — the fall-off of pre-sales likely means fewer projects starting in the near future, which could lead to a housing supply crunch a few years from now.
The housing market will pick backup eventually, Yu expects, after the current unsold inventory and units under construction are bought up and occupied.
But if a severe supply shortage causing rapid price escalation and low rental vacancy rates is the only thing that will spur builders to start building again, that won’t be good for the housing system either.
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‘We need the housing’
It’s not all grim news for Metro Vancouver’s homebuilders. Industry sources say that projects at the right price point in the right location are still selling, although maybe not at the pace of years past.
While the pre-sale model that financed condo highrises for decades is not currently working, lenders are willing to advance construction financing for smaller buildings, which are less expensive to build than highrises and considered lower risk, and the developer can sell during construction.
Real estate development firm Peterson recently started construction on a four-storey condo building near Oakridge. It isn’t selling as fast as in past markets, but it is selling at a decent pace, moving a unit or two a month, which is enough to keep the project moving forward, said Barrett Sprowson, Peterson’s senior vice-president of residential.
One reason the Oakridge project is selling well is that it is “hyper-focused on the end user,” with a desirable location, practical amenities, and affordable strata fees, Sprowson said. This is even more important in a “softer market,” where investors have largely disappeared, he added.
Similarly, when Polygon launched sales last month for a six-storey, wood-frame condo project under construction in Coquitlam, 150 visitors visited the pre-sale office on opening weekend and about a third of the units were sold, company president Neil Chrystal said.
“That is the best sort of outcome I could have hoped for,” Chrystal said. “One reason was our price. We said we’re going to sell a two-bedroom home from $599,000, and a one-bedroom home from $499,000, so that price was right.”
There were a few investors, Chrystal said, but not many. Almost all buyers were end users, and most of those were first-time homebuyers taking advantage of the GST rebate.
While these kinds of projects can work in the current market, the old model for financing condo highrises is essentially “broken,” Chrystal said. And towers will be required, in some locations, for Metro Vancouver to produce enough housing for projected longer-term population growth.
“We need the housing,” Chrystal said. “If we want to get those highrise towers going again, we need to be thinking about how do you attract investors back into that market.”
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Last summer, leaders of some of B.C.’s largest real estate companies, including Chrystal, sent a letter to provincial and federal leaders, urging policy changes to allow foreign investment back into the market and spur new construction.
The federal government gave no indication of considering changes, and the reception in Victoria was brusque: “We are not going back to the Wild West days of empty condos, and foreign investment racking up the prices,” said Housing Minister Christine Boyle.
Some industry figures say there are changes that could allow foreign investment without going back to the “Wild West” days where unrestricted offshore money was pricing out locals looking to buy a home.
Tony Letvinchuk, executive managing director of Macdonald Commercial, points to Australia, where a surge of foreign ownership in recent years was blamed for pushing locals out of the market. The Australian government responded by banning offshore purchases of existing homes, but allowing foreigners to buy pre-sales or new homes.
This policy, Letvinchuk said, “aims to reduce buyer pressure on their older, more-affordable housing stock while maintaining buoyancy for new product so that projects get off the ground and more residential supply continues.”
Yu, the Central 1 economist, expects that pre-sale activity will eventually increase, but he doesn’t think a return to the pre-sale mania of past decades is likely, or desirable.
“I hope not. I don’t want to see that, because it’s not healthy, that’s what drives speculation … and that hysteria around pricing,” Yu said. “Things will get hot again. … But I think buyers will be a little more wary.”
Rennie agrees. He doesn’t foresee the frantic pre-sale frenzies of past decades coming back in the same way. And although his business did very well in those days, he says, that’s not a bad thing.
“We’ll get back to a nice, stable market,” Rennie said. “The market you look at today, you go home and talk about it with your family, and you can phone me back tomorrow and buy it. We were at a time when you had five minutes to pick the suite, or the guy behind you is going to buy it. It was never supposed to happen like that.”
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Do you think foreign ownership should be allowed to boost slumping condo pre-sales? Is the current slowdown a good thing? Send your views to dfumano@postmedia.com
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