Prices up, Metro apartment building sales down in 2017’s first half

Peter Mitham, Business in Vancouver
July 10, 2017

Halftime

The first half of the year is over, and the first numbers bearing out the ongoing strength of investment real estate sales are in.

According to the Goodman team – David and Mark Goodman, and Cynthia Jagger – at HQ Real Estate Services Inc., 87 purpose-built Greater Vancouver apartment blocks sold in 2017’s first six months, down 30% from 124 in 2016’s first half. The aggregate value of the deals was $1.4 billion, 23% higher than in the same period last year.

The sum highlights investors’ willingness to pay for available properties, but the number of deals points to the ongoing lack of properties to buy.

Moreover, markets such as Burnaby and North Vancouver saw a number of properties trade on the basis of their redevelopment potential, prompting the Goodmans to term these two markets “anomalies.”

“In Burnaby, six of the seven buildings sold in 2017 were development sites, along with two in North Vancouver,” the Goodmans said. “These sales have had the effect of increasing the average price per suite well beyond the norm.”

Still, land values are soaring across the region and promise to have a negative impact on rental construction.

“The new normal is now $225-plus per buildable square foot,” the Goodmans noted. “With tight-fisted density and zoning policies imposed by municipalities, coupled with ever-increasing construction costs, we’re seeing more and more of our clients’ pro formas requiring not less than $4-plus per square foot [rents] merely to justify a project.”

The circumstances mean many apartment owners are unlikely to cash out of a market where units are in short supply and command higher rents.

Coupled with the prospect of zoning changes in municipalities across the Lower Mainland designed to facilitate high-density construction on sites now home to detached and low-rise properties, few owners are prepared to miss the chance to collect a windfall from their properties.

“Many such owners, envisioning spectacular home runs, are delaying the liquidation of their holdings,” the Goodman team reported.

Almost a million

The benchmark residential price in Vancouver came nigh on but did not exceed $1 million last week, as the Real Estate Board of Greater Vancouver released its statistical report for June. Still, the benchmark price of $998,700 was up 11.3% in the first half of the year, and nearly 9% from a year earlier. Despite five months of declines from September to January following the province imposing a 15% property transfer tax on foreign buyers of residential real estate in Metro Vancouver, markets have roared back. The difference from last year, as the latest release of data from the province indicates, is that foreign buyers account for approximately 3% of the market (unfortunately, the data for Metro Vancouver is incomplete, with the data set providing “no report” for January, April and May 2017).

This is consistent with the provincial average of 3.6%, and down from the rate reported for Metro Vancouver in July 2016 of 15.1% (a rate higher than the 10% reported when the former BC Liberal government made the decision to impose a snap tax on foreign buyers in the region last summer).

Affordability crunch

Surging markets in Vancouver remain a concern for RBC Economics, but the bank’s analysts are ready to hand the crown for the country’s least affordable housing market to Toronto.

“Housing affordability in Canada’s most populated area has evaporated at a disturbing pace,” the bank said at the end of June, basing its comments on first-quarter statistics.

“After Toronto, it was Victoria that saw the most significant erosion of housing affordability among major Canadian markets in the past year.”

While Vancouver remains the country’s least affordable housing market, with the typical residence requiring 79.7% of monthly household income, the bank cheered the fact that home ownership costs had decreased for a second straight quarter.

“Policy measures introduced last year to cool Vancouver’s market have had a positive effect,” RBC opined.

pmitham@telus.net