The signs of distress are everywhere. Many of Vancouver’s priciest condos are being offered at big discounts.
One downtown condo that was bought for almost $3 million is now on the market for $2.3 million. At the elite, funky Alberni, designed by starchitect Kengo Kuma, an “extremely high” inventory of 26 condos is for sale, says realtor David Hutchinson. At the similarly over-the-top Hotel Georgia, 14 units are listed. The 48th-floor penthouse was once put on sale at $35.8 million, now it’s going for $20.8 million. In the neo-futurist Vancouver House, where Hutchinson says even storage lockers have sold for $150,000, more than 30 opulent apartments are up for grabs. There have only been three sales in six months, and those are smaller units going at about 10 per cent below list price.
This inflated inventory coincides with a residential highrise construction boom in Metro Vancouver, including glamorous Westbank condos about to be finished at Oakridge Park and in downtown’s sky-high Butterfly. This isn’t to mention thousands more coming on stream in new highrise clusters in Burnaby and beyond.
Many of these condos have been aimed at the international market. Analysts point to globalization, particularly the trans-national effects of China’s depressed housing sector. China’s massive housing market is bursting after an incredible bubble. As Vancouver’s Steve Saretsky says, there has been a drastic drop in what was once an “unprecedented Chinese appetite to take capital out of the reach of the Chinese government” — mostly by investing in Western real estate.
There is no doubt values in Vancouver and Toronto, which are among the world’s most unaffordable cities, were impacted dramatically by what economists dub “China shock.” The B.C. Business Council’s David Williams and former Simon Fraser University professor Josh Gordon showed how the volume of money pouring out of China into real estate into Australia and Canada jumped by up to six times between 2016 and 2019.
David Ley, University of B.C. geography professor emeritus, describes how a decade ago large Vancouver property developers opened scores of sales offices in East Asia to serve business-class immigrants and other affluent transnationals.
At the time, the director of marketing at Westbank, Michael Braun, said: “China is now a big part of this business … right now I have a rule when we talk about projects: If the Chinese market doesn’t want it, I have no interest in it.”
Even though developers of both high- and medium-end Vancouver condos continue to market in East Asia, distributing most of their advertising in both English and Chinese languages, there are strong signs “China shock” is easing, becoming unpredictable.
As Saretsky notes, the overall price of homes in Greater Vancouver is down by just 3.6 per cent compared with two years ago (and by 7.5 per cent less in Greater Toronto). Values would be lower if not for rapid population growth through international migration. Nevertheless, Saretsky says the pounding on luxury condos is intense.
“Globalization is now reversing,” says Saretsky. “What happens if further Chinese wealth destruction necessitates Chinese liquidation of foreign housing ownership?”
Michael Peregrine of Santiago Capital says that over the last 10 years China’s property market has “fallen precipitously.” And there is “more downside to come.”
The problem has been that many real estate companies in English-speaking countries integrated East Asia’s housing boom into their profit dreams.
“The higher Chinese property prices went (valued at US$50 trillion), the more wealth was generated that could then be invested in other property markets around the world,” Peregrine writes in a 50-page report.
“The Chinese property juggernaut (bought) massive foreign housing inventory at inflated prices,” says Peregrine. “It forced locals to pay up in their own markets to compete against Chinese investors.”
Now China’s boom, which was fueled by debt, is unwinding.
“Canada will be at the forefront of Chinese selling,” Peregrine says, particularly since both the federal and provincial governments have been instituting various forms of foreign buyer restrictions and vacancy taxes, albeit with loopholes.
“Toronto condo sales,” Peregrine says, “are already down 85 per cent from their peak volume in 2022.”
Analyst John Pasalis adds that this June a record number of Toronto condos are for sale.
All this financial destruction, however, doesn’t mean the river of money from China has dried up completely. China still has by far the world’s highest number of millionaires trying to get their wealth out, with Canada showing up as the fourth most desired country for international multimillionaires ready to pay for a so-called “golden passport.”
The Canadian condo scene now comes with trans-Pacific turbulence. Hutchinson says many of the scores of pricey condos now on the Vancouver market were originally “sold in presentation centres offshore.” Most were snapped up as pre-sales designed for flipping. Now many speculators are in a bind.
While their financial pain might end up going deep, there is a chance others could benefit, with a possible trickle-down effect on prices.
Still, in Metro Vancouver we’ve learned not to hold out too much hope for real affordability.