Some Whistler condos not such a great investment.

An anecdote posted in the comment section by Ham Solo:

Interesting anecdote from this weekend.

At a party with someone who owns one unit in a multi-unit Whistler condo.

The condo is ~30 years old, wood frame construction. Not good condition. About two years ago, the strata agreed upon a plan to renovate the property. Many of the people who owned units did not have much money. Therefore, there was a lot of debate over how much budget to authorize for the renovation and the owners voted to hire a fixed-price contractor with a set budget.

However, due to rising building costs, including wood, labour etc, the first contractor withdrew. So did a second. The strata council revised upwards the budget, and a third contractor was engaged. Because of the pending renovation, many of the unit owners served eviction notices on their tenants so that the building would be empty.
Of course the evicted tenants, who were probably service industry people in Whistler, weren’t thrilled and held an “eviction party” on their way out, thoroughly trashing the place.

Now the 3rd builder is considering walking away from the project due to concerns over profitability.

At the moment, the building is unliveable. Each owner’s share of the building budget for the renovation is now higher than the market value of similar available-for-sale condos in Whistler on the secondary market. Total mess, and yet owners are only just coming to terms with the fact that their investment is more or less worth zero at this point. They have about a 1/12th share of the rights to an as of yet unbuilt building, the cost of which would exceed the price of purchasing similar existing condo inventory in Whistler.

Lessons for “investors” – condos carry many hidden costs. You can’t control who lives in your buiding. You can’t make substantial repairs without the agreement of others. If you just owned a piece of land and a building, its value can decline, but it can’t go to zero. However a condo “investment” can go to zero. Good luck condo “vultures” snapping up heavily discounted older low rise investments.

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mac
Member
mac

If this were the ultimate truth about “condo” living… that a condo investment can go to zero… then (ergo) we’d see zero value condos in places like London, Paris, Amsterdam, Barcelona (yes, hard hit spain) and Stockholm. Is there? Not really. In large capitals people live in small shoeboxes without the controls one gets by owning one’s own property. And despite the rain, rats and crappy neighbours they still hold value. No?

Achilles HELOC
Guest
Achilles HELOC
Mac, That has to be the best example of trashing a “straw man” argument I have ever seen. I don’t think you need to see “zero value” condos in the middle of the world’s largest cities in order to believe that rundown housing in bust-cycle ski resorts has very little, if any, value. And the condo ownership structure, in this case, seems to have been one of the main reasons for the total loss. The greater the proportion of value of a property is the building, the more the condition of the building matters in determining its value. And if the building degrades, the value degrades. Remember the leaky condo’s of the 1990s … a lot of people lost their entire investment. If you see a building covered up with a bag located somewhere that land is not particularly scarce… Read more »
jesse
Member

Maybe strange, but this anecdote explains to me how many rely on serendipity to justify their investment returns. Take an example of 100 condo owners, say 5 of them get hit with huge special assessments. The rest carry on. Take the expected value and the return is not so good, especially in the past 5 years.

or put differently, the best scenario is to break even in nominal terms with 95% probability. The worst is to lose 25-75% but with 5% probability. Never mind the opportunity costs, this investment class smells.

good-format
Guest
good-format

Copied from previous thread posted by PaulB

New Listings 298
Price Changes 153
Sold Listings 128
TI:17255

P.S. If you are interested in following the sales of a particular city/neighbourhood please contact me. I send customized market data to a select few of my past and present clients each Friday. It’s a great way to get a better feel for a local market and to see what homes are selling for. pboenisch@sothebysrealty.ca

Randy Randerson
Guest
Randy Randerson

Condos can definitely go to zero. Imagine you’re an owner of a condo, and the whole building is condemned for some reason, you won’t get any value out of it. Whereas if you own a SFH with a piece of land, at least you can get some value out of the land alone.

Dave
Member

No question that there are all sorts of hidden costs to ownership and renters can be a nightmare.

Trust me on this.

Son of Ponzi
Guest
Son of Ponzi

Looks like most of the lower areas like Richmond, Delta and Downtown Vancouver won’t get flood insurance.
Go down to the bottom of the article.
“Banks will not issue mortgages to properties deemed to be in flood plains.t

http://www.theglobeandmail.com/report-on-business/no-flood-insurance-policies-in-canada-without-new-maps-poll-of-ceos/article14326730/

Barney
Guest
Barney

Hey Dave,
What is your prognosis for the period of 1-2 year? Price trade range +-5%?

Joe Mainlander
Guest
Joe Mainlander
@ Randy Randerson If building gets condemned the value won’t go to zero, as you’d still be a part owner of the land the building sat on. So, like the SF home, you still get the value of land. Need to rebuild of course, but same with a condemned house. I knew of a 4 story wood-frame development on Government Rd near Lougheed in Bby. Right by the freeway. Thing was condemned in early 00’s; leaky condo thing. The only way the strata got out of it was by getting a rezoning for higher density, to pay for the rebuild and make some profit on top. So, you can keep value and maybe even increase if you can rezone. Rezoning is not a certainty, but it would certainly be harder to get a rezoning for a SF home in the… Read more »
Son of Ponzi
Guest
Son of Ponzi
Bailing in BC
Member

I go to this site daily to look to see new listings that are court ordered.

http://www.ecorealtyinc.ca/search?q=court+ordered+sale

Usually there is a list of “new listings” on the side, so I can just look to see what has come on “today” and “this week”. Usually there is a new listing every day or so and there is always something “this week”. For the last couple of weeks nothing new has come up. I’m beggining to wonder if realtors have been banned from putting “court ordered” in their descriptions.

snake
Guest
snake

) When a real estate deal collapses, the stakes can be high: deposits can be large and there can be additional damages

http://www.courts.gov.bc.ca/jdb-txt/SC/13/10/2013BCSC1056.htm

2) Vancouver Luxury Detached Sales Up, Condos Down

http://www.bcbusiness.ca/real-estate/vancouver-luxury-detached-sales-up-condos-down?utm_source=MagMail&utm_medium=BCBusiness+Newsletter&utm_campaign=BCBusiness+enewsletter+16Sept2013

3) A Deal’s a Deal, Until it Collapses

http://www.bcbusiness.ca/real-estate/a-deals-a-deal-until-it-collapses

snake
Guest
snake

Can anyone explain why this condo price by City Assessment jump close to 200,000 in one year ?

http://www.ecorealtyinc.ca/listing?id=260529034

patriotz
Member

“Rezoning is not a certainty”

I would say it’s a near certainty you’re not going to get rezoning just because the structure no longer has any value. The property you’re describing was built decades ago and is now walking distance from the Lougheed Mall Skytrain.

George
Guest
George
Foreign investors may be driving up real estate prices in Vancouver, but Vancouver-based real estate speculators are also driving up prices in other places, like Northern BC. It’s like a chain reaction of real estate speculation. From the Vancouver Sun: “Real estate investors spark northern boom”: “Don’t care for the dilapidated hovel your $250,000 might buy you in Vancouver? Well then, look up, look way up.” —Can you even find a dilapidated hovel in Vancouver for $250k? “Boser now owns 20 residential units within nine homes, duplexes and four-plexes, in Fort St. John and Dawson Creek, all rented. On some of the properties, he has teamed up with “money partners,” providing his investor with an eight- to 10-per-cent return. Boser charges between $1,300 and $5,500 monthly rent, depending on the unit — sufficient to generate cash flow after deducting per-unit… Read more »
George
Guest
George
@Joe Mainlander “I knew of a 4 story wood-frame development on Government Rd near Lougheed in Bby. Right by the freeway. Thing was condemned in early 00′s; leaky condo thing. The only way the strata got out of it was by getting a rezoning for higher density, to pay for the rebuild and make some profit on top.” The situation you are describing is not what condo owners in a massive towers are going to face 20-50 years from now when those buildings start falling apart. Many condo towers are already over 30 storeys tall. How are they going to rezone something like that for more density! Do we really envision a future of endless increases in density and endless opportunity for rezoning for higher density. I would say a property with a 30 storey condo tower is probably already… Read more »
George
Guest
George

Too funny. Right below Barbare Yaffe’s article in the Vancouver Sun in which she mentions dilapidated hovels in Vancouver can be bought for $250k is one of those Vancouver Sun photo essays showing the 10 cheapest properties for sale in Vancouver. The cheapest “dilapidated hovel” in Vancouver is $519k!!! I guess Barbara Yaffe meant you could buy a dilapidated hovel in Vancouver for $250k AS A DOWNPAYMENT and you would still need a mortgage!

http://www.vancouversun.com/business/affordability/Photos+Vancouver+homes+rock+bottom+prices+starting/8919348/story.html

jesse
Member

“Property values can’t go up when properties are cash flow negative unless you are in a massive bubble and people are speculating out of emotion, not logic”

There are a few reasons why “The North” should have higher yields, most notably that land is not scarce there and its economies can be heavily cyclical. Investors need to charge a higher yield to compensate for a variable cash flow and low capital appreciation.

Lower density properties in larger cities can have negative carry. You can call it speculation if you like but it doesn’t make their prices in a bubble or irrational. The land becomes more valuable over time, but it’s no free lunch for the investor: he forgoes cash flow today for capital gains later.

Dave
Member
Hey Barney. Ya, I think plus or minus 5% for the next year or two. I think the broader market stays flat for at least a few more years. There really isn’t much left to drive prices higher. The interest rate cycled bottomed and we are headed up, which will make housing less affordable. I think this will be off-set by inflation (growth in wages) and increases in population density. I also believe that affordability will slowly get worse over time as a natural evolution in this market. There also isn’t much that will drive prices lower. The NDP lost and the economy will move along just fine. I do think that some niche markets will do better than the average (e.g. Main Street corridor). I also think there will be months of weakness and months of strength. If you… Read more »
Son of Ponzi
Guest
Son of Ponzi

Today’s G&M,
“Surprise sales gain likely just boom’s swan song”
May I add “boom’s black swan song”.

Barney
Guest
Barney

Thanks Dave.
That is good to hear. I will sell my residence in Vancouver in the next year due to relocation . I am just not ready to buy new place since i don’t know the area where i would like to be living. so it is good not be in the rush. that is the reason i asked you for next year forcast.

What is your take for the rest of Canada.? I am here in Regina the last 6 months and things look pretty good. I have not seen that much upbeat enthusiasm for long time. Things are booming and not just in oil field. But farmers are doing well, grain prices are up, canola is up. Potash is still in demand. Even government is hiring and that is well paid positions.

Softy
Guest
Softy

This blog reminds me of the Iraqi minister of information during Gulf War II. You are anti-reality.

Melba
Guest
Melba

….Banks will not issue mortgages to properties deemed to be in flood plains….

Not sure why’d they care since they don’t carry any of the risk (if the mortgage is backed by CMHC).

registered
Member
registered

@10 Dave: “… I think this will be off-set by inflation (growth in wages) ”

Still claiming inflation is equivalent to wage growth?

Softy
Guest
Softy

I might add, that this September is better than 2010, 2011 and 2012. Maybe the market will crash next decade.

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