The real estate industry in Metro Vancouver, and across the province of B.C., holds steady despite new regulations and market fluctuations
British Columbia remains top of mind for developers, purchasers and vendors interested in investing long-term in real estate. While the hot residential market, a new interest-free loan for first-time homebuyers and a tax for foreign nationals continue to dominate the headlines, leaders in the industry are as excited as ever for the potential that B.C. has to offer investors. Spoiler alert: They’re less concerned with the temporary ups and downs of the market and more focused on the big picture.
“We’ve just come out of a year with very strong residential condominium sales,” says Brian McCauley, president & COO of Concert Properties. “Just under 19,000 sales were completed in 2016, which is up 52 per cent over sales in 2015.” But this hasn’t been without its hiccups. In August last year, a new property transfer tax of 15 per cent was introduced in the Greater Vancouver Regional District. It affects residential purchases by all foreign nationals. “And then there’s the Federal government’s additional stress-testing for mortgage qualifications, and the impact that has had on first-time homebuyers,” says McCauley. “That’s why the Provincial government has tried to help them with this new interest-free loan [implemented January 2017]. There are a lot of policy issues that are going back and forth, and it’s confusing the market, making it hard to dissect whether it’s helping or hurting.”
However, it seems like this uncertainty is just a blemish in an otherwise steady landscape. Sales are still strong and population growth continues to increase, creating even more demand for housing in the province, especially in Metro Vancouver. This is a key factor in the ongoing affordability issues.
“The biggest challenge,” says McCauley, “is getting through the approval process in order to get more product to market and increase supply. This continues to fuel higher housing prices. We need to be able to deliver more housing, faster. All levels of government need to focus on how to expedite development approvals, and then we might see some softening of prices.” With B.C. poised to remain a stable and safe place to live and invest, the desirability of the province will continue to push affordability unless more homes are built.
The year ahead for development site sales and assemblies looks equally as secure.
“We continue to experience significant increases in land values for transit-oriented sites,” says Ben Williams, a commercial real estate broker at London Pacific. “I suspect we won’t see the dramatic increase in land values of 2016; however, the combination of ever-increasing presale price points and competition for quality land will continue to drive values in 2017.”
Market trends suggest that opportunities for developers to build outside of Vancouver’s borders will continue to increase in the coming years
There will also be a continued trend for established developers to focus beyond Vancouver’s borders for coveted development opportunities. “We’re actively pursuing opportunities in Metrotown, Brentwood, Coquitlam Centre, Burquitlam, Port Moody and the Lonsdale Corridor with the same considerations that a site in Vancouver’s Cambie Corridor might garner, and often with more success,” says Williams.
Developers will need to determine which areas have peaked and which will continue to produce land-appraisal surpluses going into construction financing.
“It will be difficult to find quality sites that don’t come with a price tag to match,” explains Williams. “This competition is the same with smaller sites in transit corridors, meaning that the less-established developers are feeling the squeeze on the land and financing.”
Determining the market value of a property is the crucial first step in making these types of investment decisions. It’s also a requirement for most lenders.
“From a financial planning perspective, getting an appraisal of the property is a good idea,” says Steve Blacklock, president of the Appraisal Institute of Canada — British Columbia (AIC-BC). “Real estate appraisers allow for a sober second thought and are independent of the sales process. Because we’re a fee-for-service, our fee is not contingent upon achieving a certain conclusion of value, or a percentage of the sale. We are essentially reporting on the market and providing an unbiased opinion of value.”
An appraiser’s job is to determine the fair market value of a property at a given point in time. This allows buyers and vendors to make decisions based on current conditions. Appraisers also valuate commercial machinery and equipment, consult on feasibility studies, do cash flow projections and technical analysis of real estate projects, and complete depreciation reports and replacement cost appraisals for strata corporations. AIC-designated appraisers are often retained in disputes, family court situations, partnership dissolutions, solicitation or legal issues, estate settlements for capital gains calculations and assessment appeals.
There are many factors that determine the value of a property. One that is gaining widespread recognition is sustainability, with one facet of this being the ability of a property to remain resource-efficient. A well-known exemplar is the award-winning community, UniverCity, which aspires to be what SFU Community Trust president and CEO Gordon Harris calls “a model of sustainable development.”
Sitting atop Burnaby Mountain, adjacent to the Simon Fraser University (SFU) campus, UniverCity has several neighbourhoods, shops, services, an elementary school and a daycare. And if you scratch beyond the surface, you’ll quickly find that every feature in this community has been designed to achieve the highest standard of sustainability.
For example, every building has been built to a performance standard that, for the past decade, exceeded the model national building code requirements by 30 per cent for energy efficiency, and 40 per cent for water efficiency. Furthermore, all new buildings are looped into a District Energy System that will soon be switched to a biomass plant fired by construction wood waste—waste that would otherwise be bound for regional landfills. “Should SFU link its system to the new power plant, we’ll be able to reduce associated greenhouse gas emissions by over 80 per cent,” Harris says.
But while proud of the sustainability agenda, Harris is also clear that this is a highly competitive market development. For example, the UniverCity Childcare Centre, described as “the greenest child-care centre on the planet,” was completed for 18 per cent less than conventional child-care centres built at the same time. For Harris, “It’s about creating a vibrant and thriving community that will remain so 50 years from now. But it’s also about making a profit for SFU in the meantime. Because if it isn’t economic, it isn’t sustainable.”
This creativity and innovation makes the future of the market in B.C. look as attractive as ever. Market talk will be on everyone’s lips come April 11, when the industry’s leaders gather at Informa’s Vancouver Real Estate Forum. “This is when we look at where we’re at,” says Hani Lammam, executive vice-president of Cressey Development Group and the chair of the Forum. “We debate the fundamentals of the market and prognosticate where it’s going,” especially in light of the unknown outcome in the upcoming May election.
The Vancouver Real Estate Forum is an annual conference that examines real estate investment and management issues
The Forum will look at the marketplace in general and at its various sectors.
“We’ll look at the economic growth forecast and job creation,” continues Lammam. “We’ll discuss the availability of capital and explore new opportunities. There are some entrepreneurial players in our field who are doing creative things, so we’ll explore those projects.”
The Forum also poses the questions: How competitive is our market on the national and international levels? How appealing is it to the investor or the lender? “The B.C. market is incredibly resilient,” says Lammam. “If you go back and look at the development statistics, they’re surprisingly consistent over the long-term.” And that’s what makes B.C. such an attractive place to invest.