Vancouver mayor will try to limit condo pre-sales to local residents
Flipping condo assignments has become more popular as condo prices have skyrocketed.
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Vancouver Mayor Gregor Robertson will introduce a motion during the next council meeting to develop a city policy which “prioritizes” local residents for condo pre-sales purchases.
Robertson had previously told Metro he wanted the provincial government to introduce new regulations to reign in the pre-sale market, which has become increasingly speculative as condo prices have skyrocketed.
Developers have long used pre-sales to raise financing to build. The buyer purchases a contract to buy when the building is complete, usually at between five to 15 per cent of the price. But real estate watchers have recently raised concerns about pre-sale assignment flipping, sales to overseas buyers and to real estate insiders. They say those practices are preventing locals from buying and have pushed up prices.
According to a press release from city communications staff:
“The Mayor’s motion will direct staff to bring forward a policy framework as part of the City’s Housing Vancouver strategy, which is coming back to Council at the end of November. An example of one such program is in West Vancouver, where in 2016 the City Council negotiated an agreement with Westbank development for a new condo project that prioritized local residents. Stipulations included:
- Requiring the project to be only marketed to West Vancouver residents during the first 30 days, and then the next 60 days to residents of Metro Vancouver;
- Requiring purchasers to sign a statutory declaration to demonstrate their intention to live in the building and not flip their unit;
- Restricting bulk purchases of units.”
However, Mary Ann Booth, a West Vancouver city councillor, previously told Metro that those measures did not have the desired effect of keeping prices affordable for local incomes.
“We learned that until demand from offshore foreign investors is addressed by other levels of government, our efforts to add supply are not going to have a noticeable impact,” Booth said.
Municipalities also do not have the power to legally require developers to stick to such agreements. In the West Vancouver example, Westbank signed a memorandum of understanding with the district after councillors discovered the Horseshoe Bay project had been marketed overseas even before it had been approved by council.
Steve Saretsky, a Vancouver realtor who has become an outspoken critic of the industry, said he hoped Robertson’s motion is “not all talk.” Metro previously reported on Saretsky's concerns about a condo project in Vancouver’s working-class Joyce Collingwood that appeared to have been marketed overseas for a higher price. The developer, Westbank, said the marketing material was not correct.
“CRA has to take these developers to court just to see who bought, so they can see if they’re paying capital gains (tax) on these assignments,” Saretsky said, referring to a court case in which the Canada Revenue Agency sought to compel PCI Gateway to give CRA information on buyers who assigned their presale contracts for the Marine Gateway condo project before completion.
As an example of how much buyers can profit from flipping pre-sale contracts, Saretsky said one of his clients made $300,000 by selling a pre-sale contract for a project in the Cambie corridor, while another made $80,000 on a New Westminster pre-sale assignment flip. Those clients didn’t intend to flip when they bought but had personal reasons for wanting to get out of the contracts.
Flipping before a project completes allows buyers to avoid paying GST and B.C.’s property transfer tax, but Saretsky said he advises his clients to wait to sell after the project completes and buyers can walk through something real. “You’ll get more money on a completed unit,” he said.
Condo prices have risen by between 15 and 23 per cent in Vancouver year-over-year, and by nearly 30 per cent in some Metro Vancouver suburbs like Coquitlam.
There is now a very large discrepancy between the price of a pre-sale and a re-sale condo, Saretsy said: for instance, new projects in Mount Pleasant are asking $1,400 a square foot, while two to three year old buildings are going for $1,100 a square foot is a much better deal.
“Buying a pre-sale, you’re buying a futures contract – I think it should be regulated like any financial instrument,” Saretsky said.
“If things do go sideways in this market, I think that’ll probably be the biggest nightmare, that pre-sale assignment market, because of the amount of assignments we have right now. From a legal perspective, the original purchaser is still on the hook if that assignee walks away.”