Photo: Guilhem Vellut/Flickr
The president and CEO of a major developer is warning homebuyers that more proposed condo projects may be cancelled as inexperienced builders struggle in a cooler market that is still finding bottom.
“Last year, we also saw a few smaller projects get into trouble where they were either cancelled, or, in one situation, buyers were asked to pay additional money to ensure completion of their project,” says Neil Chrystal, the top executive at Polygon Homes, at the Urban Development Institute’s recent 2019 forecast event.
“We may see more of this in 2019, as many inexperienced homebuilders struggle to find suitable financing and are faced with significantly higher construction costs,” he continues.
As a result of falling revenues and higher municipal fees, one Vancouver development was cancelled during the approvals process in the past year, according to industry researcher Urban Analytics. Two other projects were pulled from the market but may relaunch.
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“They haven’t necessarily been cancelled; rather the developers pulled them off the market and are re-evaluating the product and may make some changes prior to bringing them back on the market,” explains Michael Ferreira, managing principal of Urban Analytics, in an email. “So they may modify the unit mix and pricing,” he adds.
Polygon’s Chrystal has some advice for anyone who wants to buy a home in Vancouver this year at a time when condo projects aren’t guaranteed to move forward. He suggests sticking to developments from experienced builders with successful track records.
Despite — or perhaps, because of — the challenges some developers may face, Chrystal suggests 2019 is a good time to purchase a home in Vancouver.
After all, in order to receive financing to actually build a project, developers need to sell a certain number of units before breaking ground. “Builders are introducing incentives and are releasing product at prices well off the peaks of 2018,” says Chrystal.
And despite mortgage rates climbing in the past year, they are still historically low — for now. The Bank of Canada has made it clear that it intends to raise the overnight rate, which influences the lending market, though Chrystal doesn’t anticipate that will happen this year, despite some predictions to the contrary.
Chrystal also highlights job growth and low unemployment in the region. “It is very rare for a housing market to remain depressed when the local economy is doing so well,” he says, suggesting these builder incentives and price reductions won’t last long.