A wave of land speculators led by mainland Chinese buyers is snapping up old Burnaby rental apartment buildings, driving per door prices above $350,000 and razing the units for high-rise condominium construction.
The land rush is centred around four transit-linked Burnaby town centres where at least three dozen apartment buildings have been bought for demolition in the past year. Unlike Vancouver, Burnaby has no restrictions on tearing down low-cost rental apartments and building condominiums in their place. Last year, the suburban city issued 419 demolition permits and are averaging 34 per month so far in 2015.
“At least 95% of recent [new] condominium sales in Metrotown are by buyers of Chinese descent,” according to Ben Williams, a broker with Burnaby-based London Pacific Property Agents Inc., which specializes in assembling and selling multi-family sites. “While local developers still hold the lion’s share of development in Metrotown, more recent acquisitions by Chinese developers would suggest a growing trend”. Williams,working with Bill Goold, principal of Re/Max Bill Goold Realty, have sold the majority of Burnaby’s apartment buildings in the past few years.
The apartments are mostly in two and three storey wood-frame buildings that are 40 or 50 years old, with rents below the Metro Vancouver average.
According to Williams, all of the apartments deemed for development are being replaced by condominiums that will be sold to investors. “Most of these will be put back into the rental market, but they won’t rent for $850,” Williams said. Generally, tenants are given one-year notice and are offered an opportunity to buy or rent in the new condo tower, he said.
According to Canada Mortgage and Housing Corp., the average investor condominium in Metro Vancouver rents for $1,400 per month, and the vacancy rate for rented condominiums is 0.7%, or about half that of the conventional apartment market.
Old Burnaby apartment buildings outside of the top development zones sell for around $200,000 to $220,000 per suite.
Apartment blocks must fit a certain criteria to attract big-money real estate developers. First, it must be in one of the four areas designated as town centres under Burnaby’s official community plan. These are Brentwood, Metrotown, Edmonds and Lougheed, all with SkyTrain stations. The Patterson SkyTrain station area is not officially a town centre, but speculators are also bidding up multi-family sites in that area in anticipation of higher-density zoning.
The apartment site must also cover a minimum of 37,000 square feet of land to qualify for the maximum floor-space-ratio (FSR) zoning of five, or about 4.5 times the existing site coverage. Such a site could be potentially developed into 185,000 square feet of concrete strata space that could sell for $600 per square foot.
If a site is too small to qualify for maximum density, Williams and Goold will negotiate with adjacent building owners to assembly land into larger parcels.
Investors are attracted by the math. Even with per-buildable-foot prices of $120 to $140, money can be made if the condo and rental markets remain heated.
“I have 1,000 buyers looking for apartment sites,” said Goold, a specialist in multi-family sales. He said it is not uncommon to have 15 buyers lined up for an open house. “We are seeing multiple bids.”
Goold confirmed that nearly all his recent Burnaby land development sales are to investors from mainland China, which he visited last month on a successful sales trip. “One buyer from China flew over here and paid $40 million cash for a Metrotown site,” Goold said.