Some investors who purchased presale homes a few years ago are deciding to sell their units as the project completes. Interest rates have had a significant impact on determining whether it is beneficial to get a mortgage and if they will make a profit from these investments.
Denny and Monica discuss who could benefit from these sales and why you might want to buy a new construction project over resale or presale.
This episode will cover the price comparison of new construction and presale, which cities will see the most projects completed, how interest rates have impacted investors, the advantages of buying presale versus resale, and where you can find the best information about new construction in the lower mainland.
Read the Transcript Here
Hi everyone, I’m James Garbutt. And I’m Denny Dumas. And this is the Garbutt Dumas Real Estate Podcast.
Monica: If you’re one of those people that likes a shiny new house and you want it closer to Skytrain, new construction is usually you know, a hot item. And in the past new construction has been really hard to come by. Like, there’s been lineups. By the time you get to choose one, all the good ones are gone. But right now that’s not really the case. There’s a lot of projects completing in the next 12 months and there’s a lot of opportunity there.
Denny: One of the uncomfortable things for consumers, myself included, is when you see someone assigning or whether the building has just completed and they’re reselling units. This happens like a big percentage of new construction depending on location is purchased by people who don’t necessarily plan to live there. They are speculating on the market, 2-3-4 years out on these projects, or they’re thinking they will rent them out. But if they’ve had a big gain in that two or three years span and they’re waiting for the building to be complete, they’re likely just going to sell them.
The uncomfortable thing for consumers is looking at the contract price and seeing well this person paid $550,000 for this one bedroom. Why am I paying $700? And it’s difficult to get over that to be totally honest. Because this person is just writing a contract. They’re not paying a mortgage. They’re not, you know, paying any of the monthly fees on this. And now you’re giving them $150,000 gain, and it can feel uncomfortable. Right now that’s not the case.
Monica: No, I really like the opportunity with new construction right now because a lot of people committed to these contracts when interest rates were completely different. Some of them are panicking. They don’t want to complete. So they’re selling a lot lower than they expected. They’re selling sometimes lower than what they bought it for, depending on how quick the turnaround is for the new construction. There are some cases that I’ve seen all throughout the city where they’re selling for less. Not a lot less, like $20,000 less, $30,000 less, but, but they’re selling for less because people don’t want to complete on these projects. And, you know, there’s some people that make a business out of scooping up new construction. And if you have two or three projects completing in the same year and interest rates are really, really high, you have to dump some.
I’ve seen one in Port Moody at The Clyde off St. John’s. There was a sixth floor which is the top floor of this project . Sixth floor unit that sold for $1.1 in 2021, April of 2021. And their neighbor right now has been on the market for 80 days and they’re listed for $1,000,064. So that’s, that’s a pretty sizable difference. If you’re looking for a deal. It’s top floor, been on the market for 80 days, so there’s probably a little bit more cash that can be whittled down on that one. East Van has about 26 listings of projects that are completing in 2023 right now. 18 of them are under a million and they’re starting around $520. So for $520,000 you can scoop up somebody’s, you know, brand new condo that’s completing in just a little bit and that project specifically, they only started selling that was about 18 months ago. So people in the same situation where they bought when interest rates were really really low, but they’re about to complete and the interest rates have changed.
Denny: A lot of these people that buy in multiple projects are pretty savvy real estate investors, and they go in understanding that they may have to complete but if they do, they’ll rent it out for a few years, wait for the market to improve and try to make a profit. The difference this time around though and right now and why there’s a bit of opportunity for buyers looking at new construction, whether it’s like assignments really close to completion or a building that has just completed is because the interest rates have gone up. The investor, that investor type person is now looking at this rental and it not making very much sense because your monthly costs they’re in some cases significantly higher than what the rent is going to be in those neighborhoods.
So instead of these investors, not making much profit, because they are, because the market hasn’t improved in those last two years. Instead of them renting them out. They’re just looking at dump them, get rid of them because the monthly cost don’t make sense. And so as a buyer, I mean if you’re an investor there’s opportunities to get in, at or around the pre sale price of two or three years ago. If you are a end user looking to live in these buildings, you’re getting brand new construction with 10 year warranties at the price that someone paid two and a half years ago.
Monica: Yeah, I like that. This is one of the only times I’ve seen in my career where you can actually win with presale, with new construction. Like you just mentioned. You can get some new construction right now for almost what they paid for so it doesn’t feel ouchy it doesn’t feel like uncomfortable buying from somebody who got to buy it at a better rate like you’re getting it pretty close to what they purchased for.
One area to kind of caution and keep in mind is, there are projects that completed a year ago that are only about a year old. Up to two, three years old, I’d say where people are, are dealing with the same thing investors, bought it at a certain rate. They have a tenant in there, they can’t get the tenant out, they can’t raise the rent, so they’re putting them on the market. So there are some good opportunities and very new already done properties. I definitely see you know, properties that complete right next to another property you can get significantly less. You know who the tenant, if you plan to move in and I think that that’s a really good opportunity to because a lot of investors bought when the market was when the interest rates are low and they’re high now and they can’t afford it anymore. So buying from investors right now is a pretty good opportunity.
Denny: We’ve had a few of these conversations recently where investor clients are looking to pick up a pre sale because or a new construction as it finishes because they believe that prices are lower or whatever that may be. When you look at when you compare to resale. There still is a premium for new construction. It’s probably in the neighborhood of five to 10% depending on neighborhood. But if you, couple of advantages to buying a year old building that has been tenanted, because you’re not going to pay GST and you are going to save a little bit on that, on that purchase price. Might be, might be minimal, it might be $25 to $50,000 but when you look at a year or two old building next to a brand new building that is just completed that no one’s lived in the rent, if you are thinking of being a landlord, the rent is going to be really similar.
So, I think the point of this podcast is to just note that there is a lot of opportunity with new construction right now. And if you are looking to invest there are, there’s a few different options to kind of take into consideration based on your priority list. If that’s new construction, a full warranty great, there’s opportunity there. If that is just to get cash flow as close to neutral as you can consider re-sale, consider like one to two year old buildings that are still have a lot of that warranty, still in great condition and shiny and fairly new. But you avoid the taxes.
Monica: Yeah, I’ve just think historically, right now is the best time to swoop new construction or something that’s been recently completed. So you can kind of have a little win and high five yourself. You didn’t have to stand in line. Yeah, some of the perks of buying new construction are that you get to choose everything you get to choose your finishes. You get to choose what side of the building it’s on, if you’re lucky enough to get in there early. But yeah, there’s a lot of opportunity, if you there’s a certain area that you like, keep your eyes on those buildings because as soon as they do complete we usually see quite a few pop up. And those are good times to scoop them up too when there’s a lot of listings completing at the same time. What happens is a lot of listings get activated at the same time so you can kind of use those against each other to get a really good deal. So I think in terms of trying to find, you know, a good deal, like I said, with warranty and all those things, keeping our eye on things that complete this year is a pretty good idea.
Denny: Monica if someone was looking for new construction or buildings that are coming up, that are completing in the next few months, where would they go?
Monica: You guys should call us. We have a really good finger to the pulse of all the new construction that’s happening in our areas, and it’s really hard to find them online. A lot of developers have hilarious websites that get shut down the second they’re sold out. So they’re really hard to find if you guys want a list of them you should contact a Realtor.
Denny: It’s true. I was doing a search this morning of exactly what we’re talking about new construction in Surrey. Next to SkyTrain, it’s completing in this spring, late spring summer. Website is shut down. It is almost impossible to find information. So you kind of have to be pretty bullish with tracking down the developer, getting through to the sales staff and it is, it is challenging. If you’re considering investing in this year, if you just want to chat more about opportunity in the market, we would love to chat with you.