Two veteran Langley realtors say there has been a significant amount of speculator buying in the local condo and townhouse market – but it could grind to a halt soon.
Both Joel Schacter and Leo Ronse said investors have been buying pre-sale condos and townhomes and flipping them through assignment sales.
“That’s a result of what was going on for the past couple of years,” said Schacter.
What was going on was long lineups outside sales centres for pre-sales. In some cases in Willoughby, people were camping out for more than two weeks in order to be first in line when a new development came on the market.
“I believe there was a number of investors in those line ups,” said Schacter.
“You’re seeing a lot of assignments up in the Willoughby area,” he said.
Some condo developments in the Yorkson area could have been as much as 50 per cent assignment sales, Ronse believes, though the amount varies widely from development to development.
In an assignment sale of this type, an investor puts down the deposit for a condo or townhouse at the pre-sale stage.
The original buyer then assigns the sale to a new buyer before the deal is finalized – often just before the unit is completed and move-in ready.
Since condos and townhouses take from months to more than a year between pre-sale and the conclusion of construction, the original investor stands to benefit from the difference in market prices, which have been spiking over the last two years.
In Langley, the average price of a townhouse in May was up 12.9 per cent from the previous year, to $611,464. The benchmark price was up 19.5 per cent, to $529,100.
Condos had climbed even more rapidly. The average Langley condo sold for 25.9 per cent more in May than a year before, hitting $404,995. The benchmark price was $454,000, up 40.8 per cent from a year earlier.
By assigning the sale, the original buyer also doesn’t have to deal with any property transfer taxes or legal fees to close the sale. They can, theoretically, pocket the difference in market value.
There are a few roadblocks. First, some developers either ban assignment sales, or take a share of the profits if a sale is assigned to another buyer.
Schacter said some developers don’t like to deal with assignment sales. If sales are slow, they can wind up competing with assignment sellers as they market their own units.
This hasn’t been a problem of late, since over the last two years, condo and townhouse developments in Langley have been selling out in days.
Both Ronse and Schacter say the market for condos and townhouses is changing. They’re still selling, but not at the frantic pace that characterized 2017.
“I don’t think you will see as big a line up anymore,” said Schacter. The FOMO – fear of missing out – is dissipating, he suggested.
“It’s still a steady market,” said Ronse. “People can now do their due diligence.”
He said there was a big change in the multi-family housing market around the end of March, “like someone turned off a switch.”
The risk may now be for the speculators who bought on assignment. If they can’t find buyers, they’ll have to close the deals themselves and pay those taxes and legal fees. Then they’ll still have to sell or rent their investment properties.
“It happened in 2008,” Ronse said. “A lot of people, when the market shifted, they were left holding the bag.”
Schacter pointed to condo developers now offering incentives to buyers, such as a Langley City project in development that is offering to pay buyers’ strata fees for a year, as a sign of the shift in the market.