Everyone has an opinion about where real estate in Vancouver is heading, but what does the guy advising some of the city’s largest developers think? This week, Executive Director and Founding Partner of MLA Canada, Cameron McNeill, joins Adam and Matt for a deep-dive on the current state of the market and what’s to come. Where were we before the COVID-19 lockdown? Will the presale market rebound? And why does Cameron think it’s inevitable that prices in our region will continue to rise? Trust us, he’s got some compelling data points! But, wait, there’s more: which areas are Cameron and his developer clients excited about? If you are an investor, realtor, or just an all-out real estate nerd, you won’t want to miss this info-packed episode. Level-up!
Vancouver Real Estate News, Market Updates, Insider Tips, Stats, & Analysis
Who is Cameron McNeill?
Cameron is the Executive Director and Founding Partner at MLA Canada. He grew up in Vancouver, attended UBC and has worked in Vancouver for his whole career. One of his first jobs was with the Aquilini Investment Group. This led to other opportunities in the real estate industry and he eventually started his own Company in 2001. After working for years in the industry, through the 2008 market crash, his Company, MAC Marketing Group, was eventually merged with another firm to form MLA Canada. MLA Canada is a firm that provides real estate marketing & services for real estate developers. They have 4 partners in Vancouver and another partner in the Fraser Valley.
Is our current moment in Vancouver real estate with COVID-19 (Coronavirus) similar to other markets in the past?
There are some parallels to the 2008 market crash in that it forced businesses to innovate to continue to survive. It is also similar because both the COVID-19 crisis and the 2008 market crash are both causing global economic problems and not just local market issues. That being said, COVID-19 is creating a very difficult time. People are scared and this is fundamentally changing people’s behaviour, maybe permanently. This crisis will cause people to adapt and change their lives and their business practices. It is also a time to appreciate and be close to loved ones.
What do the business changes stemming from COVID-19 look like for MLA Canada?
MLA Canada is involved in advisory and consulting work for the life cycle of a Vancouver development project. This is from the point of acquiring a piece of land until the completion, which includes design input, strategy, best use, and trying to optimize the opportunity for the stakeholders of this project. We are also involved in marketing, exposure, public education, leasing and sale work and customer service work. When transaction volume falls off, as it has due to COVID-19, the consulting business side of MLA has increased. Developers are concerned about how to plan for the future and tackle changes in the market. So, MLA Canada is still busy, but the day to day has shifted to accommodate this change.
What was happening in the presale market before COVID-19?
The presale market was red-hot all the way through 2017 and the first half of 2018. There was a lack of supply and insatiable demand. In 2018, the NDP government started to introduce policies to curb demand and slow down the market. This created a market slump for most of 2019. Vancouver is an amazing place to live and attracts people from all over the world, so this demand will continue to build, and the industry is not able to keep up with this demand by creating supply. So, it was inevitable that the market forces would start an upward trajectory again, which is what happened in late 2019, right up to the start of COVID-19. March 2020 was an interesting month when you look at the stats, because the first half of the month was way up, and the second half of the month was way down. The one market that might have been lagging was the luxury / high end condo market downtown. The rest of the market was very solid.
Since the middle of March through April the presale market has been slow. There have been low expectations by almost everyone in the industry that transactional volume is going to happen. There is also this feeling of long-term interest by buyers where people want to buy and their housing needs are still there, but they will not be making a decision in this uncertain environment. There is no urgency right now. There is a reasonable volume of enquiries, but people are not buying. Until the broader economy comes back and people start to feel some normalcy in their lives, we do not expect the transaction volume to come back.
Do you think that COVID-19 will be the catalyst for moving real estate online?
Yes. We were already envisioning a world where people could purchase real estate online before this crisis. Just like shopping online, people could visit a website and add a condo to their shopping cart. In the presale environment, we have a 7 day right of rescission. People could buy online and then visit a presentation centre to validate this decision. There is a trend moving in this direction and we want to be one of the leaders. Customers can go further in the buying process currently online than ever before. They can do a lot of the decision making before they must leave their house and see a realtor or visit a presentation centre.
What are your predictions for the Vancouver Real Estate market for the balance of 2020?
Vancouver is a city with a global spotlight on it, even if it is not a large city. Canadian immigration numbers are approx. 350,000 people per year. Canada has been built by generations of immigrants and our country has an aging population and we will rely on these new Canadians to help support our economy. People can choose where they want to live in Canada and a large number of these people will be attracted to Vancouver. Vancouver is an expensive place to live, but it has a stable political environment, great health care, fresh air, fresh water and warm weather. These underlying forces and always going to be pushing our market upwards. Combine this with the severe housing restrictions that we have on supply and rezoning and our environmental restrictions with the mountains and the ocean on city sprawl. These forces will continue to drive our real estate prices up.
When the NDP policy initiatives were introduced, they were geared towards reducing demand and therefore reducing supply, with less shovels going into the ground. Is COVID-19 causing developers to hold off on new development projects?
This is exactly what happens. Developers acquire a piece of land but spend a lot of time and effort developing and reviewing detailed financial pro-formas on what they think they can sell it for, what construction costs will be, what financing is available. These projects can be quick, but many take up to 5-6 years to develop. These very long timelines are predicated on construction costs and what the developers think they can sell it for. So, when the market doesn’t support the sale values in their projections, the developer is forced to hold off on offering these units until the market comes back. This is what happened in 2018 when the NDP introduced their new policies and this is what is going to happen with COVID-19. This will create supply constraints for the market, which should drive the values upwards in the long run.
How long does it take for these changes to filter through the market in the form of low inventory? Do you see the past 6 months of low inventory in the Vancouver real estate market before the COVID-19 crisis as caused by the NDP’s policy changes?
A lot of consumers in the resale market have a perception of what the value of their property is. If the current market value does not meet these expectations, they are more likely to hold their property and list it sometime in the future after those values are back to where they wanted them to be. This creates supply constraints in markets. There are also ‘thin’ markets, where there are low transactions, but the values are still held high. This suggests low supply and low transactional volume. A ‘robust’ market is characterized by high transaction volume and high supply, but if you have a market where there is no supply and the demand roars back, this is where you will see the values really spike. Markets with limited supply and high values are not necessarily healthy markets. A market needs to be deep with lots of supply and lots of demand and a healthy volume of transactions to show us where the market is sitting at a given point in time.
A thin market with a small number of transactions doesn’t really tell us what we need to know about the market. Until we start to see the supply numbers really come back, we can’t easily evaluate where the market really sits. If the supply comes back, the demand should match it. I don’t see a situation where supply outstrips demand that will supress prices. I feel that prices will remain flat throughout this COVID-19 crisis for the next 6 to 12 months. They will not come up very much during this time.
Prices were increasing in the resale markets the first part of 2020 in many of the submarkets that we operate, most likely due to lack of inventory. If inventory comes back, with the buyers be there?
Yes, they will be. On both sides we won’t see anything major. We won’t see a flood of demand coming to the market and we will not see a flood of supply coming to the market. People will ease back into the market when they are ready to come back after we are through COVID-19.
The international community is looking at Canada as handling the COVID-19 crisis quite well. This should put additional pressure on Canada for immigration as a place that is politically sound and a good place to live. We simply don’t have the housing in Vancouver to support the demand that is coming. We need to create 30,000 plus housing units a year. We need hundreds of new towers to be built in the next 5 years, not ten. Unless we can meet this demand for new housing, prices in Vancouver are going to pressure upwards.
Is there a neighbourhood in Vancouver you are most excited about right now?
There is a lot of discussion in my line of work about transit-oriented development or secondary urban nodes, like Surrey Central, Brentwood, Metrotown, Richmond No 3 Road. These communities are not really bedroom communities to downtown Vancouver anymore and people are residing there and working near there. The City in evolving quickly to accommodate these new urban nodes that don’t require proximity to downtown Vancouver.
Different neighbourhoods mean different things to different people. Some people want to be right in the action of downtown Vancouver and others like to have a bit more space and enjoy their own neighbourhood with access to Vancouver when needed. We used to have models that would forecast what a consumer was looking for in a neighbourhood or condo offering based on their age or stage of life, but these models are changing now. We are seeing people in later stages of life that want to be in the downtown neighbourhoods, where in the past they would have wanted to be in a quieter environment. The art of it is understanding the desires of people and creating housing to meet those desires.
Is there a neighbourhood in Vancouver you are most excited about for small time investors?
Real estate is a long-term game. When you think of real estate this way, you have to be optimistic about Vancouver. Three to ten years should be what you are thinking about when investing in real estate. You should be thinking about yield and appreciation. How important is cash flow? How important is appreciation? These two things are not usually correlated. You will pay a premium for hot locations over the yield they will deliver. You will get a lower rent for potential appreciation or you will get less appreciation, but a higher yield.
It is hard to say there is an undiscovered area in Vancouver right now. We are seeing people buying much further out today than they were ten years ago. Some markets that people should look at are what is considered a secondary market, like Squamish. Try to think a couple of years out when people may be working from home more than they are today. Think about ride sharing and commuting being less important in the future than it is today. Other areas include Steveston in Richmond or Port Moody. Areas with great grass roots communities and are less obvious than Metrotown or Brentwood. That being said, Metrotown and Brentwood are blue chip locations and they will always be in demand. They may also be commoditized, meaning there are many locations and areas that are similar. If you go to secondary markets, you might find real estate that is more unique and less replaceable.
Investing in Vancouver will always be a good investment long-term. Investors are very important to supply in Vancouver and helping to get projects built. Large real estate projects require a large number of units to be presold before a bank will provide financing. Normally, real estate investors are some of the first purchasers in a project and these units go on to house tenants or are sold at a later date to end users. Without the initial investments, the project may never have been given the green light by the banks. In this way, real estate investment is a necessary part of the real estate system to finance and build new supply for Vancouver.
Is there industry advice that you hear all the time that you really don’t agree with?
One of my key frustrations in this industry is the incredible resistance that greater metro Vancouver has, in almost every municipality, towards new density. The governments of these municipalities may only be thinking of their term or their re-election and not focusing enough on the long-term plan of the city. There is a lot of tension between planning departments and the politicians that are in the spotlight and we really don’t see this plan to bring density to the city happening. Part of the problem is that there are a large number of municipalities and none of them are interested in shouldering the burden of bringing in more density. This is one of my biggest frustrations because the more density is resisted, the more prices are going to go up. We simply can’t keep Vancouver an incredible place to live by curtailing demand. We need 10’s of thousands of new units in the next 5 years, just to keep up with demand. If we want the city to be more affordable than it is now, we need more housing to exceed the demand, which will be very difficult to do. I don’t think this problem will be solved in the next 5-10 years. These are deeply rooted issues that need to be addressed, but it might be over the long term. This suggest there will be increased pricing pressure on Vancouver real estate over the long term.
Favourite neighbourhood: Kerrisdale
Favourite bar or restaurant: Homer Street Café
Book you would recommend everyone read: Pillars of the Earth by Ken Follett
A piece of advice you would give your 18-year-old self: Slow down and appreciate family
Something you have purchased for under $1,000 that has changed your life: Since the age of 18 I have always had a journal in my pocket. I have been journaling everything in my life since then and keeping all of them.
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