A little more about that 'supply' argument...

As you will recall, in our last post we shared with you the above meme which we found in our in-box.

While it strikes a chord with your faithful scribes here at the Rainforest Roundtable, we do note a slight error in it.  The census data show 26K vacant housing units in Vancouver, not 26% of all housing.

But still... 26,000 is a lot.

The data comes from the 2016 Census which tells us that Vancouver saw a 15% increase in empty and non-resident units.

A "non resident" home is defined as either empty or occupied by a foreign or temporary resident. But most often, the units are empty. Of all the homes in the region that fall into the category, 87% are unoccupied, according to an Urban Futures report.

What agitates the locals is that a large part of the empty-home problem is speculative buying. Particularly speculative buying from foreign money - primarily Chinese money.

In Vancouver's downtown, the Coal Harbour neighbourhood is 22.2% empty or non-resident occupied, and the census tract east of it is 18.2%.

But other, less obvious Vancouver neighbourhoods also show signs of emptiness. Here is a chart showing the impact:

We have been bombarded in the last year with two major themes: the need to increase supply and increasing zoning density - particularly along transit routes.

Now if you know the Village on the Edge of the Rainforest, you are aware of Cambie Street.  Running north/south down the west side of the city, it is a very upper end part of the city.  Vancouver's latest subway, the Canada Line, was constructed underneath Cambie Street and links the Vancouver Airport with the downtown core.

Let's take a look at the south end of that area on this map, it is circled in blue here:

You will note that it has one of the highest percentage of unoccupied areas in the city, particularly the southernmost end.

Drive down Cambie Street today and you will notice oodles of for sale signs as sellers attempt to entice buyers looking to assemble parcels of land. Selling for $3-4 million per house, this is not a cheap prospect.  But once assembled, and rezoned, the financial jackpot is well worth the investment of buying up a block of houses.

Driving this, of course, is the off shore marketing of these properties to foreign speculative money (more on that in a future post).

And nothing epitomizes this speculative frenzy like the deepest red section at the bottom of the map:

This chunk of area is home to the Marine Gateway project constructed around the first Vancouver Canada Line Station as you enter coming from Richmond.  Marine Gateway was highly touted as a showcase solution to Vancouver's housing affordability crisis. Lower end units sold in the $350,000 range and were highly marketed as the new, urban solution for young buyers centred around the transit density development bandwagon.

Problem is that the 2016 Census shows that the Marine Gateway neighbourhood has a 24% non-resident rate (as does Joyce-Collingwood, another subway based urban-oriented transit hub). More significantly there are 609 empty or non-resident units in Marine Gateway Station development.

As noted in the Globe and Mail newspaper,

For many, empty or under-used homes are tangible proof of the commodification, or financialization, of housing. There are those who will argue that an increased supply is necessary to subdue the market, to remove the pressure of scarcity. However, housing markets in what Mr. Yan calls "hedge cities," such as Vancouver, are fuelled by an unprecedented wealth coming from outside. Without addressing the speculative nature of the market, how much effect will supply have?

Marine Gateway stands as a monument to... and proof that... creating extra supply will have no effect at all in dealing with scarcity.

Simply looking at the contrast pictures of downtown Vancouver at the top of this post is visual proof that increasing supply did nothing to resolve affordability by addressing scarcity.

The reality is that the 'supply' argument is a political wedge to leverage municipal politicians into rezoning neighbourhoods so developers can destroy single family homes in favour of condo stock to fuel and profit from the foreign speculative demand.

People are fed up with the pandering currently going on to an industry that only serves to destroy our community. The 'supply' argument is a red herring.  Following the money proves this point.

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Armchair Observations

You all remember the 'sell out' at Marine Gateway that we first talked about on March 22nd and again on March 26th.

The flagship launch of the development that would kick off the latest theme in real estate sales (transportation, transportation, transportation) was heralded as 'sell-out' just as sales had been sucking wind everywhere else.

Marine Gateway's 415 pre-sale units was big news back then.

At the time we couldn't help but notice that, despite the fact over 11,000 people had pre-registered for this development, by the morning of the big sale only about 100 - 150 people had actually lined up to buy condos that day.

(one commentator over at Vancouver Condo Info pegged the number at only 106)

So 106 people bought over 400 units?

It made us question how many of those units for sale that day went to real estate agents who had inside connections and how many were sold to actual buyers/speculators?

As we said in our March 22nd post, it's our understanding that most lenders will ask that 40 to 60% of the condominiums in a development have an option to purchase before the bank will fund the project.

It has been suggested that,  in order to guarantee this financing, some marketeers will strike a deal with real estate agents whereby in exchange for being able to exclusively market the condo units, they will pick up options on 5 to 10% of the condo's being sold themselves.

That's right, 5-10% of the pre-sale contracts in a development will be picked up an one of these exclusive real estate agents and that a large development might have 5 or 6 exclusive agents.

Doing the math, it is conceivable that half of a 400 unit offering could be spoken for by the very real estate agents exclusively contracted to sell the development.

This could account for why only 106 people could line up for a 400 unit launch and suddenly you have a sell-out - with the people at the head of the line lamenting that all the best units were already spoken for. Most of those units had conceivably been optioned to the real estate agents before the doors even opened.

Which brings us to MC2 and it's grand opening last weekend.

The 2nd phase of the Marine Gateway project was launched and profiled on Monday in the Vancouver Sun. 

When sales launched at 9 a.m. Saturday for the 443 homes in Intracorp’s MC2 project at Marine and Cambie, the development community throughout the Vancouver area was watching closely. 

Indeed. So how many sold this time around?

Marketer Bob Rennie, who has been spearheading the project’s sale campaign, believes that up to 60 per cent of the condos will be snapped up by the end of today, while his colleague — Rennie Marketing Systems president Tracie McTavish — thinks that up to 80 per cent will be gone within a week to 10 days. 

Only 60% snapped up by the end of the day on Monday?

That's a far cry from the sell-out of Marine Gateway last March.  It begs the question... if this project required that exclusive agents acquire the same ratio as has been suggested in the past, does that mean that less than 10% of the units for sale sold to actual buyers/speculators?

Ouch!

Of course there is an explanation for that:

“The hardest thing to do today is come out with a positive story on real estate because the armchair speculation is all the other way,” said Bob Rennie.

Ah yes, all those negative bloggers again.

Rennie says. “But the building [will be] already approaching 50 to 60 per cent sold out by the end of the day that first day. That’s our expectation ... This is one that the development industry is watching, based on design and [its] transit-oriented site and all of the [items on the] checklists. We’re not overly confident; we’re just really, really confident, based on fundamentals.”

Confidence based on fundamentals? What fundamentals? The requirement that exclusive agents purchase up to half the units themselves?

Ahhh... there we go again.  Being negative.

But you can't really blame us. We saw evidence of agents buying up units in the developments they were marketing with Cam Good back in April 2012.

And scepticism can only compound when the media portrays these agents as non-involved members of the public who have purchased as 'investors'.

It must be stressed, this practice isn't illegal.  But I suspect many in the general public would find it somewhat immoral.  The reality is we will probably never know how many of those units at MC2 were sold to individuals who were not real estate agents.

But considering that only 50-60% could be reported as 'sold' by the end of the weekend, I'm guessing that number sold to agents was probably very high and that - when it came to selling units to actual non-industry investors - MC2 was a disaster.

Of course it's all just armchair speculation. Something I understand is somewhat rampant these days.

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Mon Post #2: Remember that Telus Garden 'sell-out'?

Do we have another entry for the Liar, Liar contest?

Faithful readers will recall that back on April Fools Day (was it a hint?), the media trumpeted the news that the downtown Telus Garden development had sold out.

That was followed up with our favourite car-cam real estate agent, Ian Watt, telling everyone and all that the 'sell-out' was pure poppycock.

The issue of units in a condo offering going to real estate agents before they are made available to the general public is a topic we have discussed before, and the fact Watt insisted that Telus Garden had units for sale even after claiming a sell-out certainly adds fuel to this belief.

And when you see a Craigslist ad like this one, you certainly have to question the 'sell out' claims (click on image to enlarge):

FIVE Penthouse units available for sale?  FIVE???

Telus Gardens won't be completed until 2015 and a mere 7 months after the supposed sell-out five of the Penthouses appear for sale by one real estate agent.

Uh-huh.

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The smell of desperation?

Faithful readers will recall posts we made at the end of March about the Marine Gateway development in south Vancouver.

It garnered notoriety as the first pre-sale condo sellout in Vancouver in over six years... an odd occurrence considering the slowing market conditions.

Even stranger was the fact that media reports documented less than 150 people in line for the sellout of 415 units in four hours.

It prompted us to wonder aloud if the Marine Gateway development hadn't fallen prey to the common industry practice whereby the marketer responsible for hawking the development strikes a deal with realtors who want to be exclusive agents to sell in the complex.  These realtors often have to pick up 5 to 10% of those options each. Once the complex is finished and all the developers suites are sold, then these realtors can sell theirs.

It means that these exclusive agents could actually be responsible for buying up to half of the pre-sales condos made available to the general public.

Did this occur at Marine Gateway? 

Is this how an estimated 130 people in line triggered a sell out of 415 units in a record four hours? Was it because these exclusive real estate agents secured half of the units (and the best ones at that... those which came with some of the limited parking spots and are the best candidates for future resale)?

Is this why, as noted on Global TV, those buyers who did actually line up early were disappointed they could only secure 1 bedroom condo units, units that were part of the contingent that came without an available parking spot?

The Marine Gateway sellout generated much needed R/E hype for the 'developments on rapid transit line' theme.

As we noted, Rennie Marketing Systems was launching a whole new theme which shifted the mantra of "location, location, location" to one of "transportation, transportation, transportation."

We observed that in the months ahead, Rennie would be expanding on this theme as he went to market with 3 more developments along the rapid transit system:

• A pre-sale of 300 units he will launched next month at another Canada Line Station - Brighouse Station in Richmond,
• a pre-sale of 230 units he will launch in September at Coquitlam Centre on the new Evergreen Line line .
• And a month after that 1,100 units, two towers, will go to market along the original Skytrain line in Vancouver at Joyce Road.

Well fast forward over a month.  

The first of those upcoming developments, the pre-sale of 300 units at another Canada Line Station - a development known as Mandarin Residences, has come and gone... with little fanfare.

According to the title page on their website (click on image to enlarge) only 203 of the 300 units pre-sold on opening weekend... a far cry from the instant sellout at Marine Gateway:

I wonder how many of those 203 'sold' units were assigned to the exclusive realtors at Mandarin Residences?

If half of the 300 units went to realtors (150 units), could it be that less than 50 units actually sold to buyer's/investors?

Is this why Global TV wasn't invited to cover that pre-sale?

I raise this question because if as few as only 50/300 units actually sold, then it would be desperation time with those 'exclusive realtors'.

And just how desperate might they be?

Would they be so desperate to as to beat the bushes of the internet to shill their condo in the comments section of a bear blog such as this one?

May I draw you attention to a comment made today as part of a recent Richmond post on this blog (click on image to enlarge):

The comment links to the website of the Mandarin Residences.

Normally I delete shill comments which link to this product or that one. But this one I'll leave up.

Take a wiff of it and remember the smell.

I'm pretty sure THAT's what desperation smells like.

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Marine Gateway Sign Watch - Day 13

So it's been almost two weeks since the supposed complete sell out of pre-sales of all 415 condos at the Marine Gateway development.

Since our original post and then second post on the topic, we have eagerly awaited some notice being put up which announces the success of the endeavour.

But as we enter Day 13 of the "MG Sold-Out Sign Watch", we can't tell you that we have seen anything yet.

As you can see by the picture above which was taken this morning (click on image to enlarge), not only are these still no 'Sold-Out' signs, the billboards promoting the development are being dismantled completely.

Now unless the Stonehedge-style collection of posts which remain are some sort of clever abstract sign, it looks like there is still no evidence on site that the historic sell out took place.

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Poster Child - Updated 2

Last Saturday I posted aboutt the tsunami of condo pre-sales that are due to come onto the Greater Vancouver Real Estate market in the coming months.

Ozzie Jurock made reference to it on his Face Book page and described the spring/summer condo market as:

"a market that will have a lot of units for sale and more coming on stream."

In an OpEd piece in the Vancouver Sun, Jurock noted:

As of Feb. 29, 2012, there were 6,000-plus condos for sale through the Vancouver Real Estate Board - up 15% compared to the previous year.

At the same time, sales of used condos were down by 18%.

Add to this the fact that - according to MPC Intelligence - there are some 8,000 pre-sale condos being launched in the first six months of this year.

The battle for condo market sales is about to become very intense. And with 8,000 pre-sales coming on the market, a battle within a battle is sure to emerge.

Clearly the first shot was fired by condo king Bob Rennie with the launch of Marine Gateway last Saturday.

As we noted in Thursday's post, Rennie marketed the development around a whole new theme shifting the mantra of "location, location, location" to one of "transportation, transportation, transportation".

In the months ahead, he will be expanding on this theme as he goes to market with 3 more developments along the rapid transit system:

• A pre-sale of 300 units he will launch next month at another Canada Line Station - Brighouse Station in Richmond,
• a pre-sale of 230 units he will launch in September at Coquitlam Centre on the new Evergreen Line line .
• And a month after that 1,100 units, two towers, will go to market along the original Skytrain line in Vancouver at Joyce Road.

The transportation theme is going to be part of a major marketing strategy weaved among a number of initiatives which attempt to put Rennie's clients at the forefront of the coming tsunami wave of product.

It's going to be a very,very tough market.

Compounding the challenge is all the negativity that has been prominent in the mainstream press recently.

• There have been countless 'housing bubble' stories in the press.
• Both the Bank of Canada and the Finance Minster continue to make bearish statements on debt, the real estate bubble and interest rates.
• The nation's biggest banks are openly calling on the Federal Government for tighter mortgage regulations.

And all this has contributed to several months of rapidly declining real estate sales.  Let's face it, who wants to catch a falling knife?  Especially when everyone seems to be saying that very sharp knife is going to fall.

That's why we cast a suspicious eye on the sell out of Marine Gateway in four hours on Saturday.

Witness who were there have commented on other blogs that there were only about 110-130 people lined up for pre-sales (Global TV covered the sale saying it was less than 150). Yet all 415 units sold out?

Given the shenanigans we have seen from the real estate industry over the past year, things like:

• realtors snapping up pre-sales to market later,
• development marketers hiring people to stand in line, creating a 'buzz' for a pre-sale,
• staged helicopter tours supposedly flying wealthy Asian buyers around new projects,
• and realtors bringing in 'surprise' competing parties just before a couple is about to make an offer on a house (thereby pressuring them to act right away) - just to name a few.

... it makes you wonder about the legitimacy of the supposed 'sell out' of pre-sale contracts at Marine Gateway.

Not to suggest there's anything illegal happening here.  No doubt all the units are contractually spoken for.  

But how many went to realtors whom had inside connections and how many were sold to actual buyers/speculators? How many units were going to go unsold on Saturday but were suddenly "spoken" for?

Perhaps those 415 presales (options to purchase) weren't all actually available for sale.

It's my understanding that most lenders will ask that 40 to 60% of the condominiums in a development have an option to purchase before the bank will fund the project. I am told it is common practice to strike a deal with realtors that, if they want to be an exclusive agent to sell in the complex, they have to pick up 5 to 10% of those options each. Once the complex is finished and all the developers suites are sold, then you can sell yours. It means that these  exclusive agents could buy half of the pre-sales at an offering themselves.

In this way if 130 people show up to buy, you could have a sell out because half of the pre-sales are sold to the exclusive agents. It's a sell out, but it's just pure theatre.

The stakes here were simply too high for anything but a sell out.

The huge marketing effect to be leveraged on the Rennie developments coming up later this year that would be bolstered by a record breaking sellout at Marine Gateway cannot be underestimated.

There hasn't been a sell-out of pre-sale condo unit offerings in Vancouver in over six years. You have to go back to the Woodward's presale in 2006 - before the collapse of the world financial markets - to match an opening day pre-sale sellout of a condo development.

With a 'the sell-out is back' tagline, what an opportunity to market the next three projects.

Marine Gateway can be held up to potential buyers of the next three rapid transit line projects and they can be told 'buy now before you are priced out forever'.

When you consider this, how many of you out there (if you have your own real estate development company) wouldn't snap up all 415 pre-sale contracts (and sell them over the next 3 years as Marine Gateway is constructed) as a spring board to launch 3 other developments in this type of intense competitive market?

Personally I think the events at Marine Gateway were just that... pure theatre.

Either way, one thing is certain.

Those speculators (and exclusive realtor agents) who snapped up these units will either profit immensely or founder badly on this effort. A huge gamble is being taken here.

As Ozzie Jurock noted on the weekend in the Vancouver Sun,

"many made a lot of money by 'flipping' pre-sale contracts in the past, but the rules and risks are much different now."

Ozzie's right.  The rules and risks have indeed changed. And if the restrictive mortgage regulations proposed by the OSFI are implimented, the game will change even more dramatically.

If that happens Marine Gateway could well become the Lower Mainland's speculative Waterloo.

Time will tell.

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