Is the PRESALE RUSH over?

Let’s rewind a few years back to when I launched and led my team in the sales of the largest presale development project Metro Vancouver had ever seen. The master-planned community’s first offering was 3 towers, averaging 60 stories each and offered over 1500 homes for purchase. The offering at the ‘Amazing Brentwood’ in North Burnaby, had would-be buyers camped out for nights on end for an opportunity to buy presale condos that would average out at approximately $600 per square foot. These campers weren’t glamping either; in fact, it was common to see people sleeping in folding chairs or curled up in sleeping bags on the sidewalk. These would be investors were spending an average of $400k for a one-bedroom home and upwards of $600k for a standard two-bedroom condo.

Since that grand project launch, few presale projects have witnessed such a buying frenzy again. So, what changed? Well, not much; except for perhaps a more structured and organized approach to launching and selling presale projects. These days, developers and marketing teams strongly discourage people from camping outdoors and this was the case well before Covid-19 too. As the industry has grown, it has also become more sophisticated and now prefers to use technology to book would-be buyers’ appointments to preview and purchase based on when they first registered their interest. The demand is still there but the access and marketing roll-out has evolved tremendously; project marketing today is less about creating a frenzy and more focused on providing a quality experience for buyers.  

What’s interesting about the ‘Amazing Brentwood’ project, is that the condo market in North Burnaby only jumped 2% the year following our first offering and it corrected downwards by -8% the year after that. So, why was everyone in such a mad frenzy to buy? Did they know something that others didn’t or were they just following the herd and hoping that these condo purchases would eventually prove profitable. Truth is, I can’t possibly speculate as to what motivated each individual into lining up for days to buy a condo. What I can say however is that upon completion of the building, each one of those buyers had made a very handsome profit.

How is that possible you might be asking yourself? I mean the market went up a mere 2% the year after they signed their contracts and as aforementioned, it in fact went down by -8% the following. Well, this project took 6 years to deliver and, in that time, the North Burnaby market ended up growing at an average of 5.2% per year during that period. It’s important to recognize that markets don’t always rise or fall at a steady pace, and that some years are more turbulent than others. What matters is how the market will perform over the long term - after all, Real Estate is meant to be a long-term investment.

If we look at the condo market in this specific region, it has risen at an average of 6.4% year-over-year for the last 15 years; and so not only is Real Estate a particularly safe investment, the returns are also quite generous; especially when you factor in that a presale requires a deposit of 10% the first year it’s under construction and another 10% for a total of 20% down about a year after that.

The important take away here is that Real Estate has historically gone up in value over the long term, and the likelihood is that it will forever continue to do so. The population is not seizing to grow, inflation is likely to become aggressive in the coming years and interest rates will continue to be low for the foreseeable future.

If we look at the data and we presume that the annual long term growth will continue at an average of 6.7% in Metro-Vancouver (although with soon to be sky-rocketing inflation – double digits are entirely plausible), and factor in that presales can be secured with 20% deposits over 2 years, and with no other expenditures until closing; it’s hard to argue that there’s plenty of reason to be investing into presale. Let’s not forget that upon closing, the remaining purchase price can be borrowed – current rates are as low as 1.64% for 4 years! This means that 80% is financed at ultra-low interest rates but your returns are based on the full value of the investment.

After nearly 25 years of helping clients grow their portfolio of presale condos, I have still yet come to know another investment that is as safe and profitable. I remain bullish on presale condos and continue to invest myself and to advise my clients on the right ones! 

Interested in learning more about presale? Want to learn our proven strategy in identifying neighborhoods that will offer the biggest returns and growth?  Let’s connect!

Reggie Tanzola
Senior Advisor