The Calgary Real Estate Blog » Condos

Vacant Condos Create Unease in Calgary Market

Jared Chamberlain — Wed, 11 Feb 2009 15:55:42 +0000

The Altus Group Housing Report said most of the unsold units in Calgary are already completed or under construction and the expected decline in new condo apartment sales this year could lead to a “sizable” increase in the number of completed and vacant units.

“Many buildings in Calgary began construction with less than 50 per cent of the units pre-sold,” said the Altus Group Economic Consulting report.

There are indicators of a “much more serious problem for Calgary,” said the Altus Group. Those indicators include a high level of condominium starts in 2008 (5,335 units) and a high level of condos under construction. The pace of condo starts has also declined “dramatically” since the end of July, but “very few projects in Calgary have been formally cancelled so far.”

The biggest cancellation was the two-tower downtown project known as Gateway Midtown.

“Excessive investor activity has also been a concern in Calgary,” said the Altus Group report. “While the percentage of condominium apartment units offered for rent declined in Calgary between 2007 and 2008, the vacancy rate rose significantly from 0.7 per cent to 3.5 per cent.”

The report said there is “clearly a large oversupply of product” in Calgary and “more project cancellations would help move the market back into balance more quickly.”

One of the reasons overbuilding tends to happen in a number of markets is due to the difference in construction times between single-family homes and condos, said Robert Feldgaier, senior director with Altus Group.

“With ground-related housing, it’s a lot easier to adjust construction to changing market conditions, whereas with the lead time for apartment construction and the actual time to build a building, depending on the market, there’s a significantly longer lag in adjusting to the market conditions,” said Feldgaier.

In Calgary, most of the projects that have been on the market have proceeded to construction even if they haven’t achieved even half of the units being sold, he said, adding “there’s not likely to be too many new projects starting this year.”

The lower level of multi-family starts in Calgary has been a trend since the middle part of last year, said Lai Sing Louie, senior market analyst in Calgary for Canada Mortgage and Housing Corp. The number of condos under construction hit a peak, and record, of 10,746 units in Calgary in May 2008, he said. Last month, that number had dropped to 7,351 units.

Louie said the percentage of condos absorbed, or moved into, at completion in January was 82.5 per cent. In September, the percentage was 100 per cent.

Also, in the resale market the CMHC tracks new and vacant listings. In January, 8.1 per cent of condos on the resale market were new and vacant. In November, it was 9.5 per cent, said Louie.

He said there were only nine condominium starts in January and for the City of Calgary there were zero apartment building permit applications for the month.

The Altus Group report said that with mortgage rates already near historic lows, unlike the last recession, “developers need to ensure that their product is priced appropriately since affordability will be key to attracting buyers.”

“Developers should look for opportunities to target younger owner-occupant buyers seeking attractively priced product as well as empty nesters in neighbourhoods where there may still be relatively few projects from which to choose,” said the report.

Click on Image above to view original source from The Calgary Herald

Before You Sign!

Jared Chamberlain — Tue, 07 Oct 2008 13:11:28 +0000

I was reminded yesterday that when you are working with a builder or developer on a new property, or even any transaction for that matter, you really want to make sure to read everything! There are clauses that developers and builders will put into their contracts that really favor them. They are truly looking out for their own self, and you need to as well. I would suggest having a third party like a lawyer, real estate agent etc. look over the docs with/for you, if you are unsure of anything.

The situation that a client of ours is dealing with is that they purchased pre-built condo in Calgary, and are now wanting to list it as soon as they take possession. The developer had put a clause into the contract that stated that if a condo that was in possession of an owner was to go on sale, whilst the developer still had some units on the market, the developer is able to set the price and who the listing agent is for the owner. This is crazy… first off, the units in this building are now way overpriced that the developer has in their possession, and have told my clients that their unit is worth appx. $120,000+ what the market says it is worth. If this clause holds up, there condo will not sell, as there hasn’t been an MLS sale in this building yet.

Again I say, please make sure you read everything thoroughly, and have someone who knows what they are talking about look at the documentation.

Condominiums Achieve Unprecedented Favor

Jared Chamberlain — Wed, 14 Nov 2007 17:14:50 +0000

After more than three decades of slow but steady growth, the condominium concept has finally clicked with Canadian homeowners. The lifestyle has proven to be a solid investment in housing markets across the country, chalking up some of the most impressive gains in residential real estate in 2007, according to the RE/MAX Condominium Report.

Their universal appeal is substantiated, with every market reporting increased momentum in condominium sales volume over 2006 levels. In fact, 80 per cent of markets surveyed reported double-digit gains in sales year-over-year, with 53 per cent reporting increases over 20 per cent. The greatest growth was experienced in Canada’s small to mid-sized markets. Leading the country, in terms of percentage increase in sales so far this year, are Kitchener-Waterloo (+59%), Regina (+57%), St. John’s (+54%), and Saskatoon (+33%).

The white picket fence, sprawling green lawn and tidy urban bungalow has become an unattainable ideal for many first-time buyers—especially in the West. By necessity, condominiums have become the only practical means to homeownership for a growing segment of the population. Today’s entry-level purchasers aspire to manageable mortgage payments, sunset city views, and the non-stop action and amenities of central core living, all packed into 600 to 800 sq. ft. The momentum of the market in recent decades has redefined the home buying process.

While price appreciation on freehold properties, in particular, was the primary factor in the upswing, the strong desire among baby boomers to lead an active, carefree lifestyle has also driven the concept to unprecedented popularity. The RE/MAX Condominium Report identified Greater Vancouver as the strongest market in the country – where close to 60 per cent of all residential sales now involve a condominium. Condominium presence is also on the rise in centres such as Toronto, Edmonton, Calgary, Regina, Ottawa, and Hamilton-Burlington, where condos now represent 20 to 30 per cent of all MLS sales.

Deteriorating affordability levels in major Canadian centres have lead to the resurrection of the condominium lifestyle in recent years. Condominiums are clearly the answer to the skyrocketing cost of land and shelter that has all but eradicated the dream of homeownership for many first-time buyers.

Condominium values were also up from coast-to-coast in 2007, with all major markets reporting an increase in average price. Thirty-three per cent of cities surveyed reported double-digit price appreciation. The most dramatic hikes were seen in Western Canada’s red-hot housing markets, led by Saskatoon (+24%), Calgary (+22%), Edmonton (+19%), Kelowna (+16 % for town homes, +12% for apartments), Vancouver (+14 % for town homes, +11% for apartments), and Victoria (+9% for town homes, +12% for apartments).

At the top end of the market, condominium ownership has been equated with lifestyle. Throughout 2007, aging baby boomers fuelled demand for luxury condominium units. Upper-end activity was reported to be on the rise in all markets examined, with the greatest appreciation occurring in Edmonton (+154 %), Greater Toronto (+98 %), Victoria (+85 %), Winnipeg (+58%), Vancouver (+49%) and Kitchener-Waterloo (+39%). The maintenance-free factor, the ability to travel and to enjoy the best the city has to offer—from restaurants to recreation—were citied in overall condominium appeal.

In years past, there seemed to be a ceiling in terms of what buyers were willing to pay for this type of product. Widespread acceptance has seen that philosophy tossed out the window. In the upper-end especially, buyers have demonstrated a willingness to set new benchmarks, and in some cases, are spending more than what a detached home might cost. Multiple offers, once unheard of, have become a reality in some centres.

New benchmarks for the most expensive apartment-style condominium units ever sold through MLS have been reported in several cities in 2007, including Vancouver ($18 million), Calgary ($3.7 million), Edmonton ($2.3 million), Winnipeg ($1.25 million), and Kitchener-Waterloo ($670,000).

Given solid demand through all price ranges, it comes as no surprise that investors have been very active in the majority of markets surveyed, hoping to snap up a piece of the pie while demand remains at peak levels. Yet, with a growing number looking for a quick return on investment, swelling inventory levels have become a serious concern in several markets, most notably in Calgary and Edmonton, and to a much lesser extent, Kelowna.

The impact of speculation, especially in Canada’s largest condominium markets, have yet to be determined, but concerns for the future are relevant. In downtown Vancouver, an estimated 50 per cent of sales activity is attributed to investors, whereas as much as 60-85 per cent of new condominiums sales in Toronto’s downtown core reportedly involved investors in 2007. This is a major factor that could influence prices in years to come.

For now, a number of market fundamentals point to increased growth in sales, prices and demand well into 2008. These include vibrant economies, Canada’s aging population, rising prices, and higher levels of immigration, to name a few.

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RE/MAX of Western Canada (1998) Inc. Condominium Report issued November 14th, 2007.