Woodbridge Homes is trying to entice millennial buyers with its West Coquitlam KIRA development
The market slowdown has left Metro Vancouver builders and land brokers in a vulnerable spot
As the Vancouver housing market grinds to a halt, property developers are pulling back. Under the provincial Real Estate Development and Marketing Act, builders must sell about 60 percent of a project within nine months to obtain construction financing. Good luck making those numbers in today’s market.
The presale absorption rate—essentially, how many condos sell in a given month—sank to just 20 percent in April, well below healthy levels. Nervous buyers have shifted to the sidelines, leaving developers in a cold sweat as marketing costs mount and profit margins shrink. There’s only so much avocado toast to give away, and right now, consumers are showing little appetite.
The result is a development industry in retreat. In Metro Vancouver, builders have abandoned one out of every five condo units they sought approval for in 2016, Toronto-headquartered real estate services firm Altus Group reports. That’s largely thanks to the uncertainty surrounding a market where making a buck seems increasingly unlikely or simply not enough to offset the risk. Abandoned projects will probably sit dormant for the foreseeable future.
The same sentiment is driving the commercial property market downward. Metro Vancouver land sales plunged 50 percent year-over-year in the first three months of 2019, the slowest first quarter in more than half a decade. The bottom line: land and construction costs remain inflated despite the weakness in residential sales. This erosion in profit margins and the obvious downside risk are prompting developers to think twice.
No one should underestimate the significance of these events for B.C., where real estate and construction account for nearly 25 percent of GDP. With 9 percent of the labour force employed in the building industry, according to StatCan, if you’re looking for a catalyst to slow the provincial economy, this is it. Workers are scrambling to finish the record number of units under way, but once the backlog starts to ease, the pipeline looks pretty thin. In other words, expect less work for people in construction, many of whom migrated here for jobs.
Then again, everything is cyclical. This slowdown will ease land, labour and construction costs, prepping the stage for the next upcycle.