Vancouver developers squeezed by pre-sales
February 25, 2018
While most condominium developers want the fastest and most pre-sales as possible, selling condos before they are built is causing problems for some Metro Vancouver developers.
In the past few months, at least two developers have stopped condo projects, despite high pre-sales.
The most recent was this month in New Westminster, where Jago Developments halted a 55-unit condo project and gave pre-sale buyers two options: either pay 15 per cent more for their units or have their deposits returned—plus a 50 per cent premium—and walk away.
In late 2018, a Vancouver developer stopped a sold-put condo tower after it realized it could make a bigger profit by selling the project for the land value rather than completing it. That decision has sparked a lawsuit from pre-sale buyers.
Other developers are not surprised by the turmoil, despite the high prices they are getting on pre-sale contracts.
Banks are so risk-averse today that they demand that any new condominium project has 50 per cent to 60 per cent of the units pre-sold before they will finance the project, according to Jason Turcotte, vice-president of development at Cressey Development Group, which will complete from 600 to 800 multi-family units this year in Metro Vancouver.
But developers continue to experience soaring construction and other costs, explained Bryon Chard, CFO of Chard Development, a large Vancouver condo and rental developer, because it may take two years or more to complete a pre-sold condo.
Chard is currently pre-selling a 58-unit condominium project on Main Street, Vancouver, where the last two pre-sale units are priced from $1.79 million.
Chard said developers are facing higher construction and land costs, plus municipal fees and delays that can layer costs on long after the pre-sales are finished.
“We have to make sure our [pre-sale] buyers close,” Chard said. “We have a lot of risk in this game.”