Another BC condo project stalls
Yet another BC condominium project has entered recievership, but this one isn’t in the lower mainland. The Willows in Lake Country, Okanagan has left about 78 pre-sales buyers waiting to find out what’s going to happen with this condo project thats currently near 75% complete. The developer in this case is Victoria based Divergent Environments and the receiver is BDO Dunwoody.
This year hasn’t started off with the greatest track record when it comes to pre-sales. Problems at the Willows makes at least five BC housing projects that have failed in the last few months. The Eden group canceled two projects in November and then saw the Sophia go into receivership last month. February also saw two Chandler Development projects, H+H Yaletown and Garden City in Richmond go into receivership and on Friday we got news that construction has been halted on the Abbotsford condo tower Brio.
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March 10th, 2008 at 12:35 pm
It used to be that presales gave you a DISCOUNT at current market prices, if anything today they are higher!
The presales have been mostly bought by speculators because they don’t have to qualify for mortgages, just drop down some money then sell it before it completes.
I know some good honest people are getting screwed but I don’t have a huge amount of sympathy.
March 10th, 2008 at 1:24 pm
I think that the fact that these developers are having banking problems is a signal that banks are starting to tighten up their lending.
Does that make sense?
March 10th, 2008 at 1:25 pm
“I’m a wealthy boomer who just doubled the money I sank into my North Van condo. I don’t understand the first thing about risk analysis or market forces, or contract law. I’m very upset because escalating construction prices (which have been diven up based on rempant speculation like mine, and by greedy homeowners like me) have finally caught up to this insane province. I am going to get my money back, plus some interest but I HAVE BEEN WRONGED HERE! I WANT SOME PROTECTION! I gambled and lost, compensate me for my losses!”
DaMan, I think I have less sympathy :).
March 10th, 2008 at 1:27 pm
Seriously? A realtor ‘looked into it’ and recommended that it was a wise purchase? I wonder what sort of research this realtor performed? The finger to the wind technique maybe…
March 10th, 2008 at 1:34 pm
With that perspective, what do you guys think???
March 10th, 2008 at 1:39 pm
Might it be more a matter of the banks having to rein it all in? They may be confident in 10% appreciation over 2 years, for instance. That wouldn’t help if they were facing a liquidity crisis *now*.
Remember a couple of months ago when CIBC dropped their share proces to raise capital? I’ve never heard of that before. Peraps it’s a related data point.
And if the banks are facing a liquidity crisis then that would mean they can’t lend money for mortgages either.
Hey… were the banks double dipping all these years? Have they been lending the developers money to finish projects, and lending home owners money to buy them? Wow, they much have been making an awful lot of money, and they must have been the lynchpin in the whole arrangement.
One scenario nobody ever really articulated was this: Perhaps the liquidity crisis will force developers to stop building and owners / speculators to stop buying in order to protect bank liquidity.
In that case, what would happen?
Thoughts? Miss your blog BTW dude.
March 10th, 2008 at 1:39 pm
Are you implying that because a 20% drop would be costly, therefore it won’t happen? That is wishful thinking.
I think you’re right that a 20% drop will have macro consequences. I also think there is nothing I can do about it. It doesn’t change my opinion about the likelihood of a 20% house price drop. So, bring it on–I’m ready.
March 10th, 2008 at 1:41 pm
March 10th, 2008 at 1:41 pm
Bingo. Most people ‘buying’ houses are using a lot of borrowed money. Two things can stop this from happening. 1) people get scared about the size of the debt they are taking on and decide not to buy even if the bank is willing to lend 2) banks get scared and stop lending even if the buyer is willing to buy.
Either one of these can stop the market cold. My sense is that 2) is going to happen before 1) this time around.
March 10th, 2008 at 1:46 pm
My response to that line was always, “Just because you’re not prepared for a recession doesn’t mean that I’m not.”
When the tide goes out we get to see who was swimming naked and who isn’t.
March 10th, 2008 at 1:52 pm
I’m pretty sure that realtor didn’t put hir or her finger in the wind….
March 10th, 2008 at 1:58 pm
March 10th, 2008 at 1:58 pm
What do you think of the possibility of 2) happening but *not* 1). Banks stop lending but people don’t get scared and start selling. People are overextended sure, but apparently people are getting by and making payments somehow now.
If we assume that’s a possibility how would it affect the market? By that I mean inventories and sales. Would inventories slowly climb and sales stagnate but fail to drop? Would proces just sort of plateau?
We’ve all assumed a paniced selloff would happen in Van but what if demand slowed but there were no rush for the exits….
March 10th, 2008 at 2:03 pm
March 10th, 2008 at 2:06 pm
It is possible that bank tightening is not responsible for the pre-sale meltdown (although I would love it to be the reason).
Take this scenerio: If a condo development is 100% sold out in pre-sales and the revenue brought in is not enough to finish the project (because of rising costs, lets say) then the best instersts of the developer is to walk way and screw over the buyers - leaving them to finance completion. The developer would not want to even try to get a loan because he has no revenue to pay it off if the building (or his other projects) is already 100% (or substantially) sold out.
Since pre-sale purchase contracts are drafted by the developer’s lawyer whith no negotiation you can bet your house that there is a clause saying something like, “The Developer has no obligation to obtain financing from sources other than presales to complete the project.”
This is all speculation. I have no way of knowing the details of the contracts drafted by the developers or whether or not they tried to get additional financing.
March 10th, 2008 at 3:10 pm
I think “Man am I ever glad I didn’t buy a condo in Whalley!”
March 10th, 2008 at 3:13 pm
March 10th, 2008 at 3:15 pm
You got it backwards.
The recession’s on the way regardless.
While our market would tank anyway, the recession will double the damage.
March 10th, 2008 at 3:19 pm
The H+H, and Garden City receivers are paying 27%APR to finish the projects. The lenders are a local private investment firm. 27% is the best deal the receiver could get, and 27% is the return this firm needs to justify the risk they see in not getting their $3.7million dollars back on-time.
Now big firms like Bosa, Holborn, etc I would think fund these projects internally, or through their own investment funds, but the small guys like Eden who must go outside for funds will continue to be in trouble.
They are the first cracks in the dam. Maybe the whole thing comes down or maybe it just spills water for the next couple of years. My bet is spills water, but I’m also glad I live upstream…sorry for all the bad analogies.
March 10th, 2008 at 3:33 pm
You’re forgetting that speculators will always run for the exit when they don’t get the returns they expect/need. However, even assuming they don’t run immediately, the result is the same: if banks stop lending, then sales volume drops dramatically. When sales stagnate, an economy built on continuing construction, appreciation, and consumer spending will go into recession. People will lose their jobs, and people out of work don’t make mortgage payments for long. The end result is the same.
March 10th, 2008 at 6:32 pm
When the market stalls and the layoffs begin — and they probably already have with the trickle of canceled projects — the economy will inevitably judder to a halt. When it does, we better hope that all those reports of Vancouver being the fraud, money laundering and growop capital of the world are very true because there won’t be much other economic activity going on.
March 10th, 2008 at 6:52 pm
With that perspective, what do you guys think???
It will affect the whole economy some day. It simply has to, because everthing is a house of cards. So with that perspective, would you rather see the pain now or later? There will be pain; it’s inevitable.
All that can be done is to invoke various government-funded schemes that delay and redistribute the pain … translate that into bailing out those who are heavily invested … at the expense of the average Joe.
March 10th, 2008 at 7:35 pm
and they would cull the marginal accounts first……
a “margin call” with extreme prejudice…..
March 10th, 2008 at 8:14 pm
Long time lurker at VHB and this site but have refrained from posting so far. I also hang around “The Best Real Estate Anywhere” which can only be found in “The Best Place On Earth” of course.
I haven’t seen this link posted here before and thought the readers may be interested in this article from Macleans titled Why we really hire real estate agents. Borrowed the link from a posting on Victoria Housing Blog so credit belongs there.
If the link does not come out right, here it is:
http://www.macleans.ca/canada/.....ticle.jsp?
content=20080305_95609_95609
Now I shall revert to the shadows again. Keep up the great discussions as the time draws closer.
March 10th, 2008 at 8:38 pm
I’m not certain about the assumption that speculators will always rush for the exits. God knows, I’m a bear but what happens if they hang on as long as possible or simply refuse to see the writing on the wall and somehow continue to make payments.
What would happen in that scenario? We’ve all assumed the speculators would dump and run. What happens if they try to hang on till the Olympics?
March 10th, 2008 at 8:46 pm
I think we are confusing the issues here.
1. Brio went down simply because of lack of demand.
2. The others went down because they couldn’t manage their costs, and were unable to secure additional financing. The demand (presales) were still there. Big big difference.
I don’t think that banks are necessarily tightening presales per se, but note that the deposits are quite a bit larger than they used to be. What was W again? 10% down, and then 10% annually? Somebody is on the hook for a good wad of cash on this unproven project. Must be lots of nervous presale buyers. Anybody keeping track of W assignments like RESteven used to do? In any case, presales are no longer the free option they used to be for buyers. Rather, it looks as if the builder is playing the option angle.
VHB is right, #2 is much more likely to occur. If there was infinite money to lend, this party would NEVER stop. Over two years ago, I raised the point that banks must be getting very risk averse with regards to Vancouver prices. Well, it is now two years later, and the risks must be ginormous, even after the automatons at CHMC go on the hook for the first 20%. Don’t these people watch the news? How could you miss 20% decline and record foreclosures in many American cities.
March 10th, 2008 at 9:41 pm
March 10th, 2008 at 9:42 pm
That 27% interest rate thing you’re talking about, therefore, is the sign of tightening. Not the initial default by the developer.
March 10th, 2008 at 9:49 pm
True, some will. But there will be those who bought presales with no intention nor ability to make mortgage payments. There’ll be those whose income will fall (RE related) and can’t make payments. There’ll be those who simply panic when their ‘guaranteed’ double-digit profits go flat or turn into losses. And there’ll be those can’t help but see the writing on the wall when the US housing crash & recession so visibly precedes ours.
You’re right to question assumptions, but those who’ve studied past boom/busts invariably affirm that a large portion of speculators *always* run for the exit. They’re amateurs who jumped in on the way up and aren’t used to taking losses, nor have the resources to support those losses for long.
March 10th, 2008 at 11:07 pm
Local media reports are biased, in my humble opinion. This forum is not “news media”, its a blog, chalk full of everyone’s opinions and battles of wit. That’s why we keep coming back.
Yes, Vancouver RE keeps trucking along. However, a trend is forming. Trend being a potential indicator of the future direction of the market, FYI. If you’re bullish about RE in BC, I suggest you go out and buy (after you complete your DUE DILIGENCE ofcourse, assuming you would still remain bullish).
Regarding global economics, I can say with some certainty, the current situation we’re seeing is one of a kind, in my lifetime. Locally, Vancouver has a micro-economy fueled by construction/olympics. But don’t take my word for it, just ask Jack Poole. This micro-economy is masking some of the bad news happening just outside the lower mainland. Chip touched on it earlier and its true: when these projects complete(2009), the pendulum will swing the other way.
I’ve got my wetsuit on.
March 10th, 2008 at 11:34 pm
Vanhatten, I agree to a certain extent that us doom and gloomers might be a quick on the trigger finger when it comes to declaring media bias, but at the same time, the coverage has been disproportionately favourable to the RE industry. It’s not so much bias as it is business. With all the money they make off condo ads, the newspapers in this town have no interest in aggressive, investigative reporting. The coverage is soft.
March 11th, 2008 at 5:36 am
March 11th, 2008 at 7:48 am
i realize you are a realty insider but realistically there are NO great deals out there…. $700 sq/ft is insanity…..
March 11th, 2008 at 7:54 am
the owner/flipper is a Realtor, my favorite kind of RE roadkill.
the listing agent suggested that if it didn’t sell by June they would lower the price to $749K
this agent is new to the business and has never been through a downturn.
unit has been listed for 6 months and is vacant…..
my offer will be $300 sq/ft. after the fan/poop interface is underway
March 11th, 2008 at 7:56 am
As a realtor, you’d see the best deals in Vancouver before anyone in the general public, so please do tell - when was the last time you bought a condo in Vancouver as a personal investment and how do the numbers look?
March 11th, 2008 at 8:31 am
You are what’s wrong with this market, you and every fool like you. You people can’t string a few words together to form a proper English sentence, yet you expect us to buy your bullshit.
Learn to write in fucking English, and then fuck off. God, I swear I can’t wait for the market to collapse right on top of you, everyone like you, and your families.
Seriously.
May your children go hungry and cold.
March 11th, 2008 at 8:37 am
reminiscent of surfer-x from patrick.net….
stream of conscious profanity laden monologue primal scream ….
March 11th, 2008 at 8:42 am
He’s clearly just as stupid.
March 11th, 2008 at 8:46 am
I can’t speak for Holborn but I know that Bosa finances their projects through bank financing.
March 11th, 2008 at 8:47 am
As for his comment, he’s just re-hashing the vague emotional arguments that all agents have been using because there really are no logical arguments.
“…people goes mad about not to miss the opportunity to buy one on presale…”
Yeah Jay, nice try, perhaps you and krrish could take remedial English together? This is what 13 years of Ontario education gets you?
March 11th, 2008 at 8:49 am
Wow, Vancouver Condo Info is part of the MSM now? What a moron.
March 11th, 2008 at 8:54 am
In the U.S., hacks like George Chamberlan are railing againts the media. He feels strongly that negative media bias is the only reason that housing is down. It seems as if the MSM is between a rock and a hard place. Damned if you do, damned if you don’t.
March 11th, 2008 at 9:01 am
March 11th, 2008 at 9:10 am
That may seem to be the case but that’s not the true role of the media. Media is used to shape society, politically and morally, always has, always will. You may not notice it while watching the 6 o’clock news but if you expose yourself to enough sources of news (and put on your critical thinking cap) you’ll start to notice a distinct political/moral tone in different publishers/broadcasters news stories.
March 11th, 2008 at 9:34 am
March 11th, 2008 at 9:37 am
some wag suggested it means putting a bandaid on a severed jugular vein….
March 11th, 2008 at 9:38 am
And I think you meant 200 Billion, not 2000…
http://globaleconomicanalysis.blogspot.com/
March 11th, 2008 at 9:43 am
It’s just a dodge, BushCo is hoping that if they throw enough money at the problem they can stave off the real collapse until after the election. Same thing is happening here, the Cons know they’re going to be in an election cycle soon so they’re working overtime to plug all the leaks and hope they can get re-elected before the dyke collapses.
March 11th, 2008 at 11:02 am
Heh, what can I say. I am so tired of sub-literate morons trying to browbeat me into taking out a 40 year mortgage just so I can squeeze myself into a 400 SF shoebox while trying to put food on the table, all so they can put their nasty, greedy little hands in my pocket to steal what little money I can save for myself.
I don’t know who is worse, greedy jerks like Jay Banks or self-congratulatory morons like Krrish who somehow stumbled into a home, watched the prices go sky high and now think they’re Donald fucking Trump because every six months some asshole calls them to blow smoke up their ass in an attempt to get them to put their crappy shoebox on the market just so they can fleece *another* buyer.
How has it come to this? How is it the middle class can no longer afford decent places to live? Is there even a middle class in Vancouver any more, or are we merely split into two classes, owners and renters?
For those of you who are waiting for a return to normality: Aren’t you sick of it all? Don’t you want to see the market collapse right on top of Jay Banks and Krrish? Aren’t you dying to see them crushed under the weight of their own ridiculous expectations?
Oh and strata, please don’t ever use the sentences “It is Krrish! He sucked you in Scullboy!” again. Ever.:)
March 11th, 2008 at 11:33 am
He’s a fool, he’s probably Krissh1
Krissh may or may not have held a mortgage on a tiny one bedroom, that doesn’t make him better than you scullboy.
He’s blue collar and uneducated and you’re not. There is an education class in Vancouver and you’re clearly not a high school dropout like jaybanks/krissh/dosh and all the other idiots who think that they’ll be sitting on $32 million dollar studio suites in a few years.
Jay banks is already desperate in a time when sales are really slow but just wait until the market tanks! He will be one of the first rookie realtors to drop!
Don’t be discouraged, there were people convinced they had to buy in the U.S. because if they didn’t they’d be priced out forever and if they’d waited they’d be able to enter the market now at a significant discount.
Chances are you’ll inherit property at some point in your life anyway so relax and enjoy yourself.
Idiots like Jaybanks/Krissh/Dosh are far and few and use blogs to vent their frustration at being social outcasts who never get laid,never been to post secondary, never traveled, don’t know anything and will have to learn the hard way.
If you want to have some fun call jaybanks and have him drive you around looking at condos for a few days. be sure to ask him why it’s a good idea to lose $2k a month on an “investment”.
March 11th, 2008 at 11:56 am
The market is turning. List your client’s asking price at a more reasonable figure or else you will waste your money listing on the MLS.
March 11th, 2008 at 12:10 pm
quick note - I get your frustration but blue collar does not mean uneducated,illiterate or stupid
March 11th, 2008 at 12:26 pm
Scullboy
I TOTALLY understand your frustration. All of a sudden everyone is a RE mogul. It’s infuriating. Their time will come and yes I will bask in a bit of shadenfreude. It will be bitter sweet though cause I own a place but I bought it in full knowledge ( 2005) that the sale price will be lower than that when it all comes crashing down. Wife and I are seriously debating selling. We didn’t buy for an investment, we have two kids, we just wanted a home. But even the modest place ( and I mean modest $270k at the time) we bought 3 years ago is stretching us to the point where we just can’t live ( we want Mom to continue to stay home with the kids but it’s HARD financially). We live to pay a mortgage. I have no god damn clue how people are doing it now. If it weren’t for the kids we would sell in a heart beat. We still may.
I have a friend who bought a second place and they 110% drank the god damn coolaid. They have changed. You should hear how they talk about their tenants. WTF happend to them I dunno but greed will wipe the damn smiles off their face soon enough. Sky high prices are killing this city, it used to be lovely, now it’s an overpriced, overhyped pretentious cash cow.
We are now looking to move to the island. Even with a crash, this city has changed beyond what we want out of it.
So sit tight, good things come to those who wait. You will pick up a place half price of today.
March 11th, 2008 at 12:29 pm
Thanks. Actually those were encouraging words. I sold my place a couple of years ago to be able to afford school, which I did in order to switch careers.
I think one of the most frustrating things about life in Vancouver. I worked hard and sacrificed a lot in order to educate myself, because that’s supposed to be the way to success… and yet I know a guy who is a part time waiter, part time realtor who pulls in money hand over fist.
I don’t really have a choice, my financial position dictates I must wait. Even if it didn’t I think the asking prices are insane, so I wouldn’t pay them.
As for inheriting property…. that would be great. My family own a couple of small oil companies ack east. However they’re splitting up and they’ve mistaken court for therapy. I’m kind of the forgotten kid anyway, and their broken promised cost me about 4 grand last year. I don’t even think they’ll respect the fact that they cost me money, much less pass anything along.
I’d take your advice on the jaybanks thing but honestly, just reading his crap makes me want to smack him. I don’t think I could control myself if I met him in person.
March 11th, 2008 at 1:10 pm
What I find frustrating is moderately (at best) intelligent people who bought one condo at the right time and now think they are smarter and superior to everyone.
The rant came from when Scullboy made a comment about renters and owners being two classes. In fact the applicants for rentals downtown is a very bright and generally high paid group whereas some of the owners are simply children (even adults) of upper middle class families from elsewhere (eg.Iran,Korea) who don’t seem to do anything productive and are just babysitting their parents’ “parked” money by living in their unit. These kind of “owners” are not a better class of people.
If you are respectful of your neighbours they should respect you back regardless of whether you own outright, owe 99% of the units value, rent, or live in a unit that your family bought for you. Sometimes it’s surprising who owns their unit and who doesn’t, never judge a book by it’s cover.
I recently came across a guy who was renting a small house in Dunbar who owned at least two apartment blocks.
I think the real class system in Vancouver is in education and has nothing to do with assets, especially a small crappy condo that no one will want once the next batch of 10,000 units flood the market.
March 11th, 2008 at 1:34 pm
Bloody hell BDK. Spot on. The friends I refered to in the above post buying second places fall into the Iran/ Korea category. You said it so well.
They have a nose in the air attitude now. They talk about their tenants like they’re scum. What makes me laugh is one of them only just arrived in 2001 and bought 2002 and have never ever known anything but up up up. Yet they precieve themselves as brilliant rather than it being dumb luck and probably some family cash.
It pisses me off to no end. What’s worse is when I express my views using educated economic fundamentals that there will be a crash they laugh and call me a crack pot. What made it even more comedic gold was he was laughing at the firesale of houses down south and attributed it soley to Bush and co and nothing to do with fundamentals. When I flat out asked how he could possibly think that won’t affect us he answered with a straight face that it wasn’t possible here cause we aren’t the USA. The stupidity is stunning.
March 11th, 2008 at 1:53 pm
March 11th, 2008 at 1:57 pm
At this moment I know the rent I pay him is fair, and to buy this place would cost me twice as much a month. P/E out of whack…nothing else matters.
And for what it’s worth, I work with blue-collar types that make >$100k with overtime, and I have friends with PhDs who make less than 30k a year, and doctor friends who are renters.
In Vancouver, what’s more important is when you bought, not how much you make, nor your level of education.
In an rapidly appreciating market everyone is a genius, and in a depreciating market as someone else said before we’ll see who is swimming naked.
March 11th, 2008 at 2:01 pm
What gets me is how these new “real estate moguls” do the following:
1) Never account for mortgage or interest payments when reporting their profit (it’s simply “I paid X and sold for X+Y) never seem to mention the time between purchase and sale where interst payments would have depleted their overall net gain, not to mention their property taxes, maintenance/strata fees and insurance premiums;
2) They never mention capital gains tax, obviously not on principle residences, see #4;
3) They don’t seem to understand realized gain vs. unrealized gain, they just assume the money is theirs without a sale;
4) And last but certainly not least - those that sell their principle residences with profits only to realize that they need to live somewhere and guess what? All other properties have also gone up, the same as yours. So, what’s the net gain? Square footage and more debt? Brilliant! What happened to sell high and buy low? Doesn’t work so well with your home, does it?;
March 11th, 2008 at 2:32 pm
I think there is some hidden truth in the last few posts. In Vancouver, there is no lower, middle or upper class. There are no blue or whete collar workers. There are no levels of education.
There are only renters and owners. Whether we like it or not, that is the line that divides us.
My ex from Toronto is Colombian. He and his family worked like hell to make it in Canada. They purchased a small business and worked VERY hard to make it float. They weren’t too proud to work at jobs you or I might not want. I was really impressed with their desire to make it in Canada.
I compare that with a lot of the people in Vancouver who landed here at the right time, lucked into a property and now think they’re Donald Trump.
It certainly explains people like Krrish. I refuse to believe the man was born here, or grew up here. His English is simply too bad. He strikes me as one of these newcomers who managed to scrape up enough money in 2000 - 2001 to manage a downpayment. He can probably barely afford the payments on his place but that’s ok because on paper, he’s made 200,000 dollars.
I expect he parades around like he’s Bob Rennie’s younger brother. He completely buys into the whole “best place on earth” horse shit because he landed here, and now he’s “rich”.
That also explains why people like him flip out when you say “real estate is overvalued”. What they hear is “I’m jealous of your success and I hate this city” when what you’re really saying is “prices are on an unsustainable tragectory and it’ll all come back to earth sooner or later”.
The funny thing is when it all comes back to earth these new “real estate moguls” will expect the rest of us to feel sorry for them… and you KNOW they’ll have their greedy little hands out looking for a bail out. When the market’s up they are believers in the values of capitalism, but when it’s down they are suddenly socalist.
Anyway I had a 10 minute nap which seems to have worked miracles on my mood.