• An article came across my desk the other day, and I’m going to provide the full text below, with my take at the very end. The article is credited to The Province and Sam Cooper. Here it is, reproduced for your reading pleasure

    __________ Begin Article __________

    The buzz is back.

    In scenes rarely seen since the Vancouver real-estate market peaked in early 2008, a horde of hungry investors lined up for hours in a downpour Saturday to get first dibs on pre-sale condo units in a tower to be erected in Yaletown.

    Cam Good, who is heading up marketing for “The Mark” by Onni, said some investors even slept outside Friday night to ensure prime line-up positions.

    “We’re blown away by the turnout,” Good said from inside the downtown pre-sale centre as about 50 investors scrambled around a model of the building.

    He said 190 units in the first 26 floors of the tower, to be completed in 2013 and located at the corner of Pacific and Seymour, were offered in the release, and prices ranged from about $320,000 to more than $900,000.

    Developers hope to get approval for 41 floors, Good said, with top-floor sales targeted at international investors expected to be in Vancouver for the 2010 Olympics in February.

    While the global debt and credit crisis continues to haunt developments in former real-estate hotspots like Dubai in the United Arab Emirates, Good said Vancouver is back in boom times.

    “The [real-estate] strength in Vancouver is unlike anything in the world,” Good said.

    Mayur Arora, who told The Province he hoped to land a top-floor unit, and his realtor K.D. Dhaliwal, said location and scarcity make the site an attractive investment.

    “I’m here because they are selling Yaletown at today’s prices, but the speculation is [that] prices will go up after the Olympics,” Arora said.

    Steve Dhana was amazed by speculator interest as he watched investors rushing to place bids on units.

    “The prices went up $50,000 last night,” Dhana said. He hoped to buy a unit in the $500,000 price-range, and also expected prices to surge in February 2010.

    The City of Vancouver will also be banking on an Olympics-fuelled condo boom at the $1.2-billion Athletes Village on southeast False Creek. Marketer Bob Rennie decided to take project units off the market until after the 2010 Games. The city hopes to recoup taxpayer dollars on the property by selling about 730 market condos.

    According to the latest benchmark figures from the Real Estate Board of Greater Vancouver, October 2009 prices for all residential properties in Greater Vancouver increased 6.8 per cent to $553,702 from $518,668 in October 2008.

    Residential property sales in Greater Vancouver totalled 3,704 in October 2009, an increase of 4.1 per cent from the 3,559 sales recorded in September 2009, and an increase of 171.6 per cent compared to October 2008.

    __________ End Article __________


    So, back in 2006 and 2007, one of my clients was trying to buy a pre-sale. “It’ll go up by 20% by the time I have to complete, and even if I HAVE to complete, I can still make 10% profit on a $300,000 purchase. That’s $30,000! Any I only need to put a $40,000 deposit down.”

    The beauty of leverage, right? You put down $40K and get $70K back in 2 years. That’s a 75% return on your investment.

    The problem is, leverage is a two edged sword. Just like a climbing market can cause great returns on your investment, a falling market amplifies your losses. If that same investment drops 10% you’ve lost $30K of your $40K investment, and this doesn’t even take into account realtor commissions, property transfer taxes, and all the other closing costs. All that, only with a 10% swing in prices. Swings much greater have happened many times before.

    So what happened to my client? The value came in short, she was forced to complete, and is now listing the properties and hoping to break even. However, she has handled the situation better than many people would by holding out on completion, completing months late, and doing everything possible to get the price reduced: something she accomplished, surprisingly. I really hope it works out for her, and the recent rise in prices can’t hurt.

    Why did this situation occur? Because there was a panic to get into real estate. There was a panic to buy pre-sales because with the market that hot, “you can’t go wrong.” I heard this so many times it made me want to get out of the market. In fact, I did, for a while. Once everyone got scared of real estate in January 2009, I dove back in when the fundamentals were stronger, and when the Real Estate Mania that gripped the city was gone.

    Well, now it’s back. Let’s ask a simple, basic question: If you read about the market moving on the front page of the Vancouver Sun or Province, do you really think that the profits are there still?

    By the time the mass media gets hold of story, the market has run its course. I’ve read several articles in the past weeks about how real estate is RED HOT, and real estate is a can’t miss buy, and with rates so low, who WOULDN’T want to own?

    There is one quote from the article above that makes shivers go down my spine:

    “While the global debt and credit crisis continues to haunt developments in former real-estate hotspots like Dubai in the United Arab Emirates, Good said Vancouver is back in boom times.

    “The [real-estate] strength in Vancouver is unlike anything in the world,” Good said.”

    Really? Vancouver has it right, and every other developed nation has it wrong? Real estate in every country in the world has fallen sharply, and capital markets have dried up. However, we in Canada have found some special panacea for real estate downturns and the market is just going to go higher, higher, and higher?

    Really? Who believes this?

    Not me.

    If you want to bet on it, go buy an investment condo in False Creek and wait until the government releases 730+ units after the olympics and come talk to me in the summer. With 757 active condo lists as of Monday this week, that will effectively double the supply of condos on the market in downtown Vancouver. Supply side shock. It’s a basic economic fundamental, and no one but of a few of us labeled fear mongers and pessimists is talking about it. Add to this potentially rising rates and lower affordability, and I’ll sit on the sidelines, thank you, and put my money into something else. There are thousands of options out there, and yes, real estate has had a hell of a run in the recent past, but it still looks like the Greater Fool Theory of sales to me.

    Until next time, happy investing!

Leave a reply

Cancel reply