With many builders in Toronto reportedly pulling out of pre-sale condo projects, some analysts are wondering if a similar trend will emerge in Vancouver due to skyrocketing pre-sale condo prices, as well as rising construction and land costs.
In the Greater Toronto Area, 17 projects with thousands of pre-sale units were awaiting construction until they were abruptly cancelled, according to real-estate-services firm Altus Group.
Generally, Toronto developers have been cancelling in greater numbers compared to past years because it’s harder to source funds now that construction costs have risen and every pre-sale launch is asking for higher prices.
In Vancouver, there are many prominent examples of aborted condo projects, with many hitting the chopping block after being pre-sold to buyers several years ago. Two high-profile examples are the axing of Vivagrand’s Langara West, a 72-unit development on Cambie Street, and Murrayville House, a 92-unit development in Langley.
Jago Development’s Westbourne Residences in New Westminster, which nearly got axed at one point, is proceeding, but only after most buyers reluctantly agreed to pay an additional 15% to keep alive their two-year-old pre-sale contracts. Jago said it wasn’t able to keep up with the extra costs due to labour shortages, soil conditions, and inclement weather.
Altus Group said construction costs in the GTA went up by 6-8% in 2017 instead of more typically rising 2% along with inflation. In Vancouver, Altus Group forecasts the escalation this year to be in the 5-7% range.
Some BC developers have been seeing even steeper climbs.
“Last year, [Metro Vancouver] construction prices were as much as 20 per cent higher,” said Ian Butterfield, of Butterfield Development Consultants, which provides cost management services to property developers across Metro Vancouver.
Butterfield added that larger developers were not as hard hit, but still saw price increases of between 10-12% in 2017.
“This is not [rising costs due to] buying land or getting permits, but the higher cost of labour due to shortages in trades, relative to the amount of work,” he said, adding that the majority of projects in Metro Vancouver are by reputable developers who have a continuous stream of projects they’re eager to push through.
“Their deep pockets mean they can absorb the increase, and it’s also likely they bought land a long time ago. Their profits will be reduced, but the project still makes sense,” he said.
Also read: Pre-sale home and condo buyers struggle to stay afloat