Condo Investing: Speculating on Presales

Frank O'Brien
November 16, 2015

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The new condominium market in Metro Vancouver is sizzling hot and prices of new concrete condos, the favourite type for investors, have reached record levels.

Yet, there remains room for a nimble investor to get in and get out of the new high-rise condominium market quickly and with a tidy profit. This strategy has been rare over the past few years because new condominium prices were fairly stable. That has changed in recent months, however, according to Urban Analytics, a Vancouver firm that consults with condominium developers.

During a presentation October 22 to the Urban Development Institute, Pacific Region, Urban Analytics analyst Michael Ferreira conceded that prices are changing so rapidly that it has become hard for developers to price future projects accurately.

The demand is so intense that prices for some new high-rise condominiums are changing even as the building is going up. Ferreira noted that there are now only 798 new and unsold concrete condominiums in Metro Vancouver, despite 12,581 starts this year alone. And, he added, 87 per cent of the 21,600 new concrete high-rise condominiums to be built by 2018 have already been presold.

There’s an opportunity here for investors: the buying and selling of presale condominiums, or assignments, while the tower is ascending.

The average new concrete condominium in downtown Vancouver is now selling for $1,100 per square foot. It is $825 per square foot along most of the Cambie Corridor, $620 to $650 per square foot in Burnaby, $600 per square foot in North Vancouver’s Lower Lonsdale area, and $500 per square foot in New Westminster, as some examples.

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Yet, these record-high prices are all expected to increase because of the rapidly accelerating cost of land zoned for condominium development. We won’t go into who is buying and where, but suffice to say that land costs are about double what they were two years ago when most of the current condominium towers were being planned.

So, how do you decide where to buy a presale high-rise condominium?

Look in neighbourhoods where the current resale condominiums have a higher price than the presale prices of new condominiums. This gives both an indication of potential price appreciation and market demand in that area.

As of September, Metro Vancouver condominium apartment prices were up nine per cent from a year earlier, to a benchmark of $419,000 and sales had soared 28.7 per cent, reports the Real Estate Board of Greater Vancouver.

Dig down, though, and you find sub-markets where resale condominium prices are rising faster than the average, and where older units are selling for more than new condominiums, based on per-square-foot values. In Burnaby’s Metrotown, for example, the average resale condominium sells for $705 per square foot, but the average new condominium tower is preselling for $650 per square foot. In Richmond, resale condominium prices average $614 per square foot, but new condominiums are selling for an average of $575 per square foot. Lower Lonsdale in North Vancouver is another example. Here, the average resale condominium sells for $744 per square foot, but new concrete condominiums are preselling for $600 per square foot.

Happy hunting, investors.

Frank O'Brien
Frank O'Brien is the editor of Western Canada's biggest commercial real estate newspaper, Western Investor, as well as a contributing editor at West Coast Condominium, real estate contributor to Business in Vancouverand a regular media commentator on real estate investment.