Special Report - Speculating on Speculative Sales - Feb. 10, 2020

It seems that every time the Vancouver market has a correction after a period of intensive sales, developers start to worry about the effect of speculators dumping product onto the market. It's great when buyers snap up two or three units at a time but happens after the feeding frenzy stops and there's no one there to pay more than the last buyer?

It's difficult to say how many new apartment condominium units were bought by speculators hoping to do a quick flip at the height of the last market cycle. Sales of new apartment condos in 2006 and 2007 certainly exceeded any estimates of demand based on the historical relation between population and new condominium absorptions. This special section looks at the speculative sales that have come back onto the market.

There is nothing in the MLS data base that stands up and says "I'm a unit being dumped by a speculator", but there some clues as to which MLS listings and sales are likely to have been speculative purchases. Age of building is a definite clue so this analysis looks at sales and listings of units in buildings one year old or less.

The other clue is whether the unit is owner occupied or not. It is likely that most new and vacant, tenant-occupied or under construction units listed on MLS are being sold because they have not met the buyer's expectations. And being able to flip at a higher price was likely an expectation of many of these buyers. Some units under construction will be listed by the developers but judging by how few are still owing GST, it is only a small portion.



At the end of January 2010, approximately 5,400 apartment condominiums were listed on MLS in Greater Vancouver. Of these, 1,300 were new apartment units that were either vacant, tenant-occupied or under construction. If 2009 is any indication, sales of these new, vacant, tenant-occupied and under construction units or "speculative" units in 2010, should be close to 2,500 sales. Putting this into perspective, CMHC figures show 9,114 absorptions of new apartment condos in 2009. So "speculative" resales are probably capturing 20% or so of the new apartment condominium market in Greater Vancouver.

High rise listings made up about 55% of the "speculative" listings at the end of January 2010. Over half of these high rise listings are in just three markets - Downtown Vancouver, Coquitlam-Port Moody-PoCo and Richmond. Low rise listings made up another 42%. The balance being made up of loft-style units and unclassifiable apartment types. "Speculative" low rise listings at the end of January were concentrated in North Surrey, Coquitlam-Port Moody-PoCo and Maple Ridge-Pitt Meadows.



An analysis of the average list price of "speculative" apartment units suggests that buyers were hoping to score big on the next sale. Unfortunately for them, it didn't happen. The average list price of "speculative" high rise units ranges from $977,000 in Downtown Vancouver to $209,000 in Langley. "Speculative" low rise unit list prices range from an average of $1,533,000 in Downtown Vancouver to $255,000 in Langley.

The overall average list price for "speculative" high rise apartments is $640,000 but the average selling price since January 2009 has been just $520,000. It's evident that buyers trying to rid themselves of high priced units are having a hard time. Even those who did manage to sell their unit had to take an haircut of about $23,000 to make a sale.

The story is not so bad for low rise units, perhaps because of the limited supply of new low rise condos. Average MLS list price at the end of January for "speculative" low rise condos was $355,000. Average MLS selling price for "speculative" low rise units since January 2009 was $343,000. Average difference between list and sales price is -$6,000.

So what are the implications of this analysis of "speculative" resales? For one, the luxury condominium market is a "no-go" in 2010 and probably 2011. With most of the "speculative" listings at the top end of the market, it would take a very gutsy developer with a very stupid lender to start development of another luxury high rise project.

For another, if interest rates increase after mid-2010 and demand for remains languid for the more expensive "speculative" resales, pressure will increase to make a sale. Up to now, "speculative" high rise units have had to shave 5% off their list price to make a sale. Further price reductions will likely be needed to move the more expensive "speculative" resales. If these price reductions exceed the equity in a unit, then it can become a question of eating the loss or walking away.

For more information about "speculative" resales or other apartment condo information, contact Strategics.