With jittery bankers bearing down and a glut fear forming, Surrey condominium developers are offering discount prices, paid-down mortgage deals and other lures to hook all-important pre-sale investors and first-time buyers.
“Banks are getting tougher on condo pre-sales in Surrey,” said Vancouver lawyer Mandeep Dhaliwal, a partner and financial lending specialist with Lawson Lundell LLP. Banks now want to see 30% to 40% of condo units sold in pre-sales before they will advance construction lending, he said, adding, “Lenders are also looking at the quality of the buyers.”
A big change is that many lenders will now only consider one unit sold if a single pre-sale investor buys multiple condos in the same project, explained Dhaliwal. Lenders are also digging down into pre-sale paperwork to be sure buyers have actually anted cash down payments of 15% to 30% of the purchase price and are qualified to make payments.
The reason for lender timidity is due to Surrey’s condominium sales and start statistics and media warnings of a bubble, according to Jeff Hancock, a senior manager with MPC Intelligence Inc. MPC is a Vancouver firm that tracks the new home market closely.
“Lenders are nervous,” Hancock said. “It’s like 2007 all over again.”
The typical resale condominium in Metro Vancouver sells for $375,000 on the multiple listing service and $205,800 in the Fraser Valley, according to local real estate boards. Meanwhile, sales of Surrey condos are down 12% for the first four months of this year, compared to the same time in 2011. Average condo prices in Surrey are now lower than five years ago, and some brand new Surrey condominiums are being pre-sold for less than $120,000. Yet more new condo and townhome units were started in Surrey in April – 282 – than in the city of Vancouver.
Hancock said Surrey developers are reducing the size of units and “going bare bones on amenities” to cut costs and keep pre-sales churning. They are also kicking out the creative stops to generate a pre-sale buzz. Perhaps the most over-the-top example is the two-tower, 500-unit Wave condo project by Rize Alliance Propertiesand Mason Link Developmentin Surrey City Centre.
Working with a $1 million promotional budget, Pilot House Real Estate Marketing Inc. built a full-size, glass-walled, two-bedroom condominium in a Surrey mall this spring and staffed it with three full-time actors and a rotating cast of minor celebrities for a six-week reality-TV theme show. The scripted action was streamed to the Internet and linked into social media sites. Low prices were also a lure, with two-bedroom apartments priced at $209,900, considered rock-bottom value for new concrete construction.
“It worked,” said marketer Bill Morrison, president of Pilot House, who dreamed up the promotion, the first of its kind in Canada. He said it resulted in 3,350 buyer registrations at the Wave, which he called “a tremendous response.” One-third of the registrants are investors, another 30% are parents buying for their children and the rest are first-time buyers, Morrison estimated.
Registrations are not sales but simply a list of buyers who have expressed interest in buying. Wave pre-sales officially start in early June.
A more concrete response is the May 19 promotion when Surrey’s Ascend project sold 96% of its 108 units in an hour.
“It was crazy,” said sales agent Vivian Xu, who estimated that at least half of the buyers were investors.
The Ascend, a low-rise project in Whalley by Premier International Developments Ltd., priced condos from $118,800, and Premier paid down the mortgage rate so buyers had to pay only $199 per month for the first three years on a typical bachelor suite.
“Investors know they can rent these units for $750 per month,” Morrison explained.
The incentives will not remain unique to Central Surrey, Hancock suggests. He estimates that South Surrey has an oversupply of new condominiums equal to a 22-month inventory in 16 separate new developments.
To help pre-sell these units, developers are trying to reduce strata fees that can easily top $400 a month in higher-end projects and are a typical irritant to buyers. The aim is get fees down to 20 cents to 25 cents per square foot, Hancock said. To meet the target, developers are reducing the size and quality of common areas and restricting access to such frills as fitness centres to only those who want to pay for it.
Still, there are concerns about Surrey’s overall condo inventory, said Surrey realtor Brent Roberts, especially in Central City and Whalley, where a rush of new construction followed plans for a new city hall, library and RCMP headquarters. “People thought they could buy pre-sales and then flip them for a profit,” Roberts said. “I know one investor sitting with 14 of them.” •