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What was the Vancouver presale market like in 2023?

On the whole, 2023 was a very average year for presales in Vancouver. But it didn’t always feel like that, report Cameron McNeill and Ryan Lalonde, Executive Directors from MLA Canada.

The year started with a lot of cause for concern as interest rates continued to rise. That caused homebuilders to have to reevaluate when they could move into the market in order to meet presale tests and offset rising construction costs.

Despite those concerns, we still saw a strong number of projects come to market in 2023. Just over 13,000 units were released and about 6,000 of those were sold. So just over 46% of new presale inventory in Vancouver was transacted on in 2023. The expectation was that the final number would be a lot lower than that.

What are the predictions for the presale market in 2024?

McNeill and Lalonde believe 2024 will be similar to 2023. Where 13,000 new homes launched in 2023, they’re predicting 13,500 homes in 2024. They forecast the absorption rate will be a little less than last year’s 46%.

After a slowing Q1 and Q2, Lalonde and McNeill believe the presale marketplace in Vancouver will grow in Q3 and Q4 of 2024. They anticipate interest rates coming down, which will be a signal to the real estate community that our challenges are starting to be behind us.

What will 2024 Vancouver presale demand look like?

Lalonde and McNeill admit that there is a variation in opinions amongst the building community. But overall, the forecast is for solid demand in the Vancouver presale market.

If interest rates come down, which should trigger more demand, it would only be because our economy is slowing, which will moderate that demand. So McNeill and Lalonde caution that demand won’t roar back in 2024.

But housing is needed. That makes the building community optimistic, especially in the medium to long term.

After an uncomfortable 2023, developers are feeling more positive about 2024. But there’s a conservatism to that positivity.

While projects will be coming back to the market, there will be some self-regulation when it comes to when and how much inventory enters the market given the sophistication of developers in Vancouver.

What will drive demand for presales in Vancouver?

There are four main demand drivers for the presale market in Metro Vancouver in 2024 and beyond.

1. Immigration: There’s a global demand for Vancouver real estate in both the rental market and home ownership market.
2. Cash sitting on the sidelines: A lot of cash is sitting on the sidelines. If interest rates come down, people may flood the market looking for a return on that cash.
3. Optimism in the market: People have been waiting to enter the market for a long time. Once a bit of optimism is felt, that will shift consumer confidence and bring people back in.
4. Generational wealth transfer: With the incredible savings during the pandemic, there’s a lot of cash out there and a lot of it is being transferred from the older generations to the younger ones who are eager to enter or upgrade in the real estate market.

What is the biggest challenge for the development community in 2024?

Financing is the biggest challenge for Vancouver’s development community in 2024. Many lending avenues have tightened up and it’s difficult to make sense of projects.

The good news, McNeill and Lalonde point out, is that financing challenges  help to regulate supply, which avoids a flood of inventory hitting the market.

The industry can’t sell real estate any less expensive than it’s on the market right now. If prices don’t support the levels they’re at now, those projects just won’t come to market.

When is the best time to buy a presale home in Vancouver in 2024?

Because of the financing challenges facing the development community, McNeill and Lalonde expect potential home buyers will see strong buying incentives in the early part of 2024.

In order for developers to achieve their finance test and start construction, they need sales. So look for strong incentives in Q1 and Q2, particularly in tower projects with 30-70% of inventory still available.

In terms of timing, Lalonde and McNeill believe the bottom of the market may have been in November 2023. It feels like we’re now at the beginning of a proper spring launch. Some markets will be stronger than others over the next six months, but overall values are surprisingly resistant.

What is the difference between resale and presale pricing?

If you compare two pieces of real estate – one that is brand new and never lived in and one that is in great shape but five years old – the brand new one is always going to be worth more. Historically, the value differential is 7-10%.

But with presales, you also have to factor in the time it takes to deliver. The value differential increases about 2-4% per year. So if you have a tower project that’s four years out, the value difference is going to be 10% (the value of a new product) plus 8-16% (2-4% per year), for a total of 18-26%.

Presale homes are also more expensive because they reflect the latest evolutions in real estate. Units are more efficient, more thoughtfully laid out and address today’s market demands, such as adding in-home workstations.

So if a presale property is really close in price to a comparable resale property, you know that is going to be an exceptional value. In some markets, the gap in pricing between resale and presale has grown but across the board, it has tightened up.

Where to buy a presale home in Vancouver in 2024

Lalonde and McNeill share a few of their top neighbourhoods for buying a presale property in Metro Vancouver:

1. Cambie Corridor: an undersupplied market with good value
2. Oakridge: a world class commercial hub once construction is complete
3. Downtown Vancouver: phenomenal value, but beware of high end properties

Areas in the Lower Mainland that have seen momentum and will continue to see momentum are also a great place to look. These include North Road, Burnaby, Coquitlam and Surrey City Centre.

A lot of the communities that are thriving are in activated zones or energy centres, like Brentwood or Metrotown. Communities like Port Coquitlam or Port Moody where you are 5-10 minutes away from recreation, a grocery store, etc. are places to watch.

3 rules for buying a presale property in Vancouver

1) Do your homework

McNeill and Lalonde caution that first and foremost you want to avoid a desperate seller. Do your research, work with a realtor who knows the market and don’t get caught up in the hype of a presale project.

Look at all of your options and make sure you’re getting exceptional value.

2) Focus on location

Buy a presale in a neighbourhood that you believe in and that you would want to live in long term. Even if you’re buying the presale property as an investment, great locations are also great for investments. They’re great for tenants and for future demand.

Bottom line: Buy a quality asset in the area that you want to live in.

3) Invest in a reputable brand

Brand has mattered so much over the last 24 months, note McNeill and Lalonde. A great brand is thoughtful; they’ve sweated over the details and proved they can operate at scale.

Reputable brands are known for their value. They also come with solid guarantees and strong track records of success. When you put down your deposit for a presale with a reputable brand, you can trust they will deliver the home they’re promixing.

Timing is far less important than who you are buying from and ensuring you’re buying relative value.