Land Values: Vancouver condo developers draw up all sorts of perks nowadays—but are these deals actually a bargain?

A free business-class trip to Japan worth $20,888 with that condo! A year’s worth of beer with your future Surrey townhouse! A decorating budget of $38,000 for that Richmond apartment! A 3.88-percent mortgage rate for a suite in one of the region’s most expensive developments, Oakridge Park!

That’s the kind of advertising that has flooded my Facebook feed recently, thanks to me having whispered the words “pre-sale condo” within a kilometre of my open laptop (or at least I think this is how it worked), disrupting the otherwise steady flow of ice-skating and crochet-pattern videos, mixed in with updates from my actual friends occasionally.

Although I have no intention of buying a pre-sale condo, it’s been quite the expedition into a new world of a Black Friday-style “LIMITED TIME OFFER BUY NOW OR ELSE” kind of advertising normally reserved for electronics or purses, now applied to purchases of a million or more. And there have already been a lot of them this year. It was Polygon with the Japan trips, Concord Pacific with the decorating allowance, Century Group with the beer, not to mention a couple dozen others, too.

The industry always goes into high gear around Lunar New Year, which is seen as a prime time to market to visiting Asian tourists and the lead-in to one of the traditionally busiest house-buying periods of the year. But the sales pitches achieved a new critical mass this year as marketers struggle to move product at a time when potential buyers are facing the highest interest rates in two decades. “It’s a crazy business right now to be selling pre-sales,” says Ian Watt, a realtor who mostly specializes in re-sales.

Interestingly, these are not ads that you will ever see out in the general public. They don’t appear on development companies’ websites or official Facebook posts, for the most part. Certainly not on billboards. They’re targeted ads, designed to cast a net over potential new buyers without alerting old buyers that someone is about to get a better deal than they did when they put their deposits down some time over the last few years. (It’s a technique that apparently political parties also use to get out a message to a particular sub-group without alerting the entire traditional base about what’s up.)

But what do they mean, these offers that range from the beer (worth maybe $6,000 for the more dedicated drinkers?) to values of $100,000 and various points in between? Are they really a good deal? Or is this the equivalent of those fake sales when you discover that the original price under the sale sticker is the same as the allegedly discounted one?

People in the development industry, along with real estate agents, say it can go either way.

The offer may indeed be a real discount, as a developer is trying to push through to the number of units needed to reach a financing milestone. They’ll offer some kind of incentive for the last few to reach their magic 65 percent of units pre-sold or whatever level is needed to unlock the next round of loan money.

And, almost always, they’ll try to offer any incentive that doesn’t involve lowering the actual selling price. “There’s some sort of discount, but they need to maintain a premium product, so they’re never going to break their numbers,” says Navid Hakimi, a realtor with Re/Max Masters whose website promotes him as the “TOP 1% OF ALL REALTORS.”

Hakimi has seen every incentive in the book, from the builder offering to cover three years of maintenance fees or the GST to, as I noted earlier, beer and trips to Japan. But, in the end, most will come down to a monetary credit on what’s called the “statement of completion.” Someone who is offering to finance part of the mortgage at a rate that’s half of the going bank rate is likely not providing the actual mortgage itself or promising that every buyer will qualify. Instead, the company will provide a monetary credit on the original sales price that covers the difference between a mortgage at 7 percent and one at 3 percent, usually for only a limited number of years.

It’s not totally clear what’s going on with one of the more interesting propositions of the season, which is Oakridge Park’s offer to provide a 3.88-percent mortgage for 65 percent of the property value for three years. A media rep for owner QuadReal (B.C.’s pension fund investment arm) explained the process this way: “We have collaborated with a new partner—True North Mortgage (TNM). TNM is offering qualified purchasers the opportunity to enter into a mortgage at Oakridge Park with an annual interest rate of 3.88 percent (three-year term). Home buyers make their financing arrangements directly with TNM while the Oakridge Park team remains involved through the purchase/sale aspects of the transaction.” Okay.

It’s key, says Hakimi, to have someone do the math and figure out if the deal is really worth it. For example, paying the property-management fees on an investor condo for three years—“that’s $7,000—peanuts on a million-dollar purchase.”

It’s also key to know whether the discount/incentive is on an inflated cost per square foot. “Is it selling at a realistic price or is it hype?” he asks. And, he warns: “At the end of the day, a discount is most attractive to a non-savvy purchaser or someone who is emotional.”

But, like others, he doesn’t say that all the incentives are scams. New product is always more expensive than already completed, thanks to the magic of rising costs over time, but that doesn’t mean it’s all overpriced. And there can be genuine examples of good discounts if a developer is only selling off a few units to meet a financial target by a deadline.

There are some rare cases, as well, where there is an unusual arrangement going on behind the scenes that means a real and rare price reduction. Rick Ilich, the CEO of Vancouver-based Townline Developments, had a project like that six years ago. He was working with a Royal Canadian Legion site in Port Moody and the company worked out a deal with Canada Mortgage and Housing Corporation that allowed them to sell homes with only $2,500 down (try not to cry, people) and Townline also priced the units at 10 percent below market. That meant, say, $306,000 for a one-bedroom on a lower floor (again, no crying). People had to be income-tested to be eligible for the program—back then, that meant a household income of no more than $66,000 to buy a one-bedroom, $92,000 for a two—and legally commit to live there for two years without renting it out or re-selling. Popular? More than 2,000 people applied and 400 qualified for the 84 available apartments in the five-storey building.

“All 84 of those got a generational wealth moment,” he says now with satisfaction, pleased with how he helped people who did not have a Bank of Mom and Dad to backstop them. He acknowledges, though, that this kind of project only helps the first person in. (That $306,000 apartment is now assessed at $548,000 only five years later.)

He hasn’t had another project like that since, but his company has been offering some breaks recently, as have so many others. Townline has 1,100 units under construction and 975 sold so they’re offering to let people buy with less than the 20 percent usual deposit. It can do that because it has already met its bank-financing target: “In a market where you’re trying to kickstart sales, maybe you go to 10.”

It’s a far cry from a few years ago when the buyer pool was deep and wide. Now, he says, there are discounts everywhere. “We’re now seeing more incentives. And the incentives are, more often than not, real. Affordability is taking its toll.”