Is there any connection between the 2010 Winter Games and a remarkable recovery in the Vancouver housing market?
Even though he had never purchased real estate before, Alym Abdulla could sense that the market was heating up as he began looking at downtown condos last spring. The 24-year-old pharmacist started seeing suites in late March, and before long he realized that some of the units were receiving multiple offers from prospective buyers.
“I must have looked at close to 50 places,” Abdulla told the Georgia Straight in a recent interview in his living room. “I put in offers on two other places that didn’t go through because the market started to pick up.”
He said he was getting discouraged and was ready to quit when his real-estate agent, Stu Bell, recommended that he check out a home in a Bosa-developed building near the corner of Hornby and Smithe streets. When Abdulla entered the suite in the middle of May, he was immediately impressed by the layout, which featured two full bedrooms, each with an en suite bathroom, on either side of the living room. “The thing that really sold me on this place was the balcony,” he said. “It’s quite large. It makes you feel like you’re not trapped in your little shoebox downtown.”
Abdulla ended up paying the $508,000 list price. He said he bought then because he wanted to take advantage of the low interest rates. With a smile, he acknowledged that some of his friends look at him differently now that he’s a homeowner: “One of my friends who I used to live with in university, he’s like, ”˜I feel since you bought your place, you’ve matured. You’ve completely changed in the way that you are. Before, we used to live the student lifestyle. Now, you’re always cleaning your place. You have plants. You look after them. You’ve even got a cat now. It’s like you’re an adult.’ ”
Last spring’s brisk sales activity took some people by surprise after what Vancouver real-estate marketer Cameron McNeill has referred to as the “terrible nuclear winter in our industry”, which took place in 2008 and early 2009. Now as the Olympic Games are fewer than 100 days away, the sales-to-listings ratio has increased fourfold compared with a year ago. Buyers have been snapping up units in large, competitively priced projects like District in the South Main area and the Maynards Block on the southeast side of the Cambie Street Bridge. Last month, 680 condos sold in Vancouver through the multiple-listing service, according to the Real Estate Board of Greater Vancouver, a 186-percent increase over the 238 condos sold in October 2008.
Demand has been especially heavy for single-family houses in upscale neighbourhoods. For example, the real-estate board reported that on Vancouver’s West Side, the benchmark price—almost $1.5 million—was up 16.6 percent in October over the same month in 2008. In West Vancouver, the benchmark price for a detached house was up 24.6 percent over October 2008.
So is all this activity in Vancouver’s real-estate market linked to the city hosting the 2010 Winter Games? McNeill, whose company sold more than a billion dollars worth of real estate in the hot housing market of 2007, told the Straight by phone that he thinks the Olympics will keep a spotlight on Vancouver and magnify positive fundamental factors driving demand. According to him, those factors include low interest rates, a shortage of downtown land, good provincial government stewardship of the economy, and a safe investment climate.
McNeill added that it doesn’t make sense to compare Vancouver—which has broad international appeal—to other Winter Games host cities. “Who wants to live in Salt Lake City?” he asked. “Lillehammer? I didn’t know that town existed until the Olympics happened.”
McNeill also claimed that Vancouver is the second most densely populated city in North America behind New York. He believes that our compact urban environment, coupled with a stable financial system, makes Vancouver a safe place to buy. In his eyes, this makes the city “the Swiss bank of international real estate”.
“I think the Olympics creates a euphoria,” he stated. “But honestly, I don’t think prices are going to spike preceding or post-Olympics significantly. I believe the real benefit of the Olympics is going to come in one, two, three, four years down the road.”
Bob Rennie’s company Rennie Marketing Systems has sold billions of dollars of real estate in Vancouver. Rennie also told the Straight by phone that he always thought the effect of the Games would be felt in future years. “It’s after the Olympics that we’re going to see the impact on real estate,” he said, noting that Vancouver has a much higher profile than other recent Winter Games host cities. “I don’t believe that anyone ran back to Turin or Lillehammer or Salt Lake City”¦to buy a secondary residence or to move the family to safety or to move some money to safety. Vancouver is on the map. We’re a world city. We’re a brand.”
One thing is clear: if the market turnaround lasts through the middle of next year, it will reduce Vancouver taxpayers’ liability due to the Olympic Village. Earlier this year, the city took responsibility for much of the financing for the billion-dollar development through a syndicate of chartered banks. Rennie’s company is responsible for selling the project, which includes 730 market condominiums and 120 rental units developed by the Millennium Development Corp. The city will own an additional 252 units, also developed by Millennium, which have been proposed for affordable housing.
Rennie praised the city and the developer for taking his advice not to sell the units earlier this year and wait for the market to turn around. “If [city manager] Penny Ballem and Millennium made me sell last February, we would have lost money,” he said. “But you can see how the market has rapidly stabilized.”
The Vancouver real-estate industry has experienced a remarkable transformation since the market began its descent in February 2008. The deterioration continued with the global financial meltdown and credit crunch of September and October 2008, which caused banks to stop financing new developments. Over time, this reduced the supply of new units coming to market.
“That prevented the Olympic overhang if there ever was going to be one,” Rennie said. “We cleaned up the inventory in the 18 months previous to the Olympics rather than after the Olympics.”
Last fall, international investors and local buyers got cold feet, which sent prices tumbling.
The real-estate board has reported that by January 2009, the number of residential sales had fallen 58.5 percent below sales in January 2008. The dollar volume of residential sales had fallen 64.8 percent from January 2008, and prices were down 8.8 percent. And in February, the City of Vancouver took over responsibility for $700 million in financing of the Olympic Village from Fortress Group, a New York–based hedge fund. According to Vision Vancouver councillor Geoff Meggs, this will save between $90 million and $100 million.
“Part of the change in the long-term arrangement with Millennium was to extend the deadlines a little bit so that we could have more flexibility in terms of delivering the units to the marketplace,” Meggs told the Straight by phone.
McNeill said that by the time January 2009 rolled around, the entire market was frozen. “Customers were still coming into our show homes,” he recalled. “They had a desire to buy in time [eventually], but they were afraid to buy. And they also didn’t know what was good value.”
That’s when McNeill decided it was time for radical action. One of his clients, the Onni Group of Companies, had more than 400 finished homes that were being sold at a rate of about one a week. In his heart, McNeill believed it was a phenomenal buying opportunity because interest rates and prices had fallen so low. After doing a present-value calculation of Onni’s inventory of condos, McNeill determined how much could be saved in carrying costs and marketing expenses by selling the units within 90 days.
“We actually made a commitment that we would sell everything at 25- to 40-percent off,” he said. The company “screamed from the mountaintop” about the discounted prices, which were in effect from January 15 to March 15 of this year. McNeill said he tried sending a different kind of message than usual with yellow, crass-looking ads designed to catch people’s attention.
“We wanted to take Onni’s desire to move their product and do something that felt like a Boxing Day sale,” he explained. “We aggressively used the word liquidation. For some people, that meant a negative thing and had connotations of distress. That wasn’t the situation.”
It worked so well that all the units were sold within 60 days. The marketing blitz attracted the attention of other developers. Three big players—Amacon, Embassy Development Corp., and Intergulf Development Group—worked with McNeill’s MAC Marketing Solutions to sell more than 300 homes in a period of eight to 10 weeks. This new campaign featured garish red advertising with the slogan, “We’re doing it again.”
“It was a collaboration, which had never been done before,” McNeill said. “Developers always do their own thing.”
He acknowledged that some people thought his marketing tactics were detrimental to the industry because they felt his methods put downward pressure on prices. He rejects this, however, claiming that the condo liquidation sales established a price floor, which enhanced buyers’ confidence. “That marked the turning point of the rising market,” he said. “After that time, the entire market—which had been frozen for six months—started to develop quickly.”
McNeill noted that inventory levels have since fallen sharply, and developers are having trouble bringing their projects to fruition quickly enough. “The reason why I felt people should buy through this entire downturn is because Vancouver, in the next three to five to 10 years, is going to be an incredible place to own real estate,” McNeill said.
Bryan Yu, an economist with the B.C. Real Estate Association, told the Straight by phone that near-record-low variable mortgage rates have been the primary cause of the market rebound in Metro Vancouver. He said that the low rates are making homes affordable for more buyers.
He pointed out that the Bank of Canada has stated that a rising dollar relative to the U.S. currency is one of the biggest economic risks facing the country, which relies heavily on exports. Yu suggested that the Bank of Canada’s concern about the value of our dollar will likely keep interest rates low through the first half of next year. “Earlier this year, we did have a buyers’ market,” he said. “That’s being reflected in prices that have risen, but we are expecting them to plateau.”
Yu noted that a year ago there were approximately seven sales in the region for every 100 listings. This month, he said, there is a 29-percent sales-to-listings ratio, which means a far greater percentage of homes on the market are being bought. “There’s a lot of pent-up demand from lower sales that really started in late 2007 through 2008,” Yu said.
Near the end of MAC Marketing Solutions’ second condo blowout, Abdulla entered the market, along with many other buyers, and purchased his first home.
Rennie discovered how strong the demand was around that time when he marketed an Aquilini Development project called Richard’s. He said it was the first “pure presale downtown after the economic collapse”, with 185 of the 220 units selling in June.
Aquilini Development relied on Rennie again in October to market the 220-unit Maynards Block. More than 140 units were quickly snapped up and, according to Rennie, most of the buyers are homeowners, not investors. “What’s really surprising is we’re selling from the top down,” Rennie said, noting that the usual pattern is for cheaper units on lower floors to be purchased first.
Nic Jensen, manager of sales and marketing for Amacon, got a firsthand look at the explosive demand in the market in October when his company put a new project called District in the market. The first building in the Main Street and Broadway area contained 103 units, and Jensen told the Straight by phone that he had hoped to sell anywhere from 50 to 75 percent of the units by the time the Olympics ended. Next spring, Amacon would begin selling a second building in District with 148 homes, confident that the nearby Olympic Village would boost the appeal of surrounding areas.
To Jensen’s delight the response was overwhelming, in part, he believes, because the units were priced below those of competing buildings in the area. Virtually all the homes in the first building were sold, which enabled Amacon to proceed with selling the second building months ahead of schedule.
“It’s been a long time since I’ve seen the type of buyers we’re getting at District,” Jensen said. “We’ve got people who are super-passionate. We’ve got so many first-time home buyers, so many people that have lived in the area and have been waiting for something like this to come along.”
McNeill, who is involved in the marketing of District, said that approximately 200 units have sold so far. He suggested that demand for condos in Vancouver reflects the desire of people to live here. He said that this not only applies to middle-class buyers at places like District but also to the very rich, who tend to prefer a $3-million downtown penthouse to a $6-million mansion an hour’s commute away. “We [Vancouverites] have less propensity to jump in our cars and drive out to the suburbs than anywhere else in North America,” he said.
Abdulla is a living example of this. His downtown condo is next to the Scotiabank Theatre, which has nine movie screens. Dozens of restaurants are within walking distance of his front door. The Vancouver Art Gallery is around the corner, and he’s just a few blocks from work. Living in this location, there’s no need for him to take on the cost of a vehicle.
“Without having a car, I’m saving quite a bit on gas as well as on maintenance costs,” Abdulla said. “So it allows me to spend a little bit more on my mortgage and on my personal life as well.”
And, he added, by walking to most destinations, he’s getting some exercise and reducing his ecological footprint, which is good for the planet.