Douglas Todd: Developers often disguise the true market value of a Canadian home

Metro Vancouver has roughly 2,500 to 3,500 newly completed, unsold condos, the highest in two decades. Developers have ways to hide their panic. "It's the Wild West,' says one analyst. Photo by Jason Payne /PNG

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“Eighty per cent of homes already sold!”

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How many times have Canadians seen that kind of marketing of a new residential project?

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The developers behind such campaigns aim to create a sense of scarcity. But their claims are often impossible to verify.

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“There are a lot of developers who just come out and say their project is 80 per cent sold. But I would say, half the time, with half the developers, it’s actually not true,” says Ross McCredie, president of Sutton Realty, which has 6,000 realtors across the country.

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The problem with disguising real sale volumes and prices is a special concern in the stagnating B.C. and Ontario markets. Some developers, stuck with an abundance of inventory, don’t want would-be buyers to know they are desperate.

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Metro Vancouver has roughly 2,500 to 3,500 newly completed condos sitting empty, the highest inventory in two decades, according to teh Canada Mortgage and Housing Corp.

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Distress sales sometimes come to light. Vancouver real estate analyst Steve Saretsky found that a two-bedroom condo in Westbank’s luxury downtown tower, the Butterfly, was bought before construction for $2.6 million. Now complete, it sold this year for $1.51 million. A similar price drop showed up at Westbank’s Kengo Kuma highrise. A pre-construction unit that originally went for $2.03 million recently resold for $1.38 million.

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To try to avoid such losses, McCredie describes what often happens when a project has excess inventory. “If you’re looking at a building in which a developer has 100 units left, he’s not going to put 100 empty units out there for sale. He’s going to tell you there’s just three or four for sale.”

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Like McCredie, Saretsky generally believes that’s prudent business, even while it lacks transparency.

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The question of so-called “price discovery,” determining the fair value of a product, is especially relevant in today’s vast pre-construction sale market. Even though the market is slow, many buyers are anxious to resell their completed units in transactions called “assignments.”

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Despite “a plethora” of such condos, Sarestky spotlights an apparent contradiction: Fewer pre-sale units are being listed on the Multiple Listing Services, which provides open data on trends in the housing market.

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“This is happening because developers are increasingly restricting pre-sale buyers from listing inventory on the MLS as they attempt to limit price discovery,” Saretsky said.

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Pre-sale listings (assignments) on the transparent MLS are down in the Greater Vancouver area. Many developers are making sure empty units are marketed privately. Photo by Steve Saretsky / REBGV

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Developers have the authority to make sure their project’s pre-sale properties are sold privately, or directly between the seller and buyer, without an agent. That makes it possible for them to hide how many units in a building are empty.

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“I personally don’t have any issue with developers selling predominately off-market. It’s a free market after all, and is the case in any other major housing market,” Saretsky said.