As the real estate market, and specifically the presale condo market in Vancouver, continues to struggle, developers big and small wanting to tough things out are turning to creative solutions to bring buyers and investors off of the sidelines.
As previously reported by STOREYS, many have introduced incentives for presale purchasers, like relaxed deposit structures and other financial discounts. More recently, some have also been highlighting the federal government's elimination of GST for first-time buyers on homes under $1 million and reduced GST on homes between $1 million and $1.5 million.
This market downturn — a market valley may be more accurate, considering its length — has lasted for close to two years and, thus, some are turning to increasingly daring and bold incentives in an attempt to cut through the noise, sell homes, and get their coffee (because coffee's for closers).
One example that has received attention recently is Square Nine Developments making 78 units at their 30-storey Belvedere tower in Surrey available at a 25% discount on May 31 in a one-day flash sale dubbed "Condo Day." Another developer, Allure Ventures, also began offering both a rental income guarantee and a buyback guarantee last month for its 32-storey SkyLiving tower, also in Surrey. The common denominator of both: real estate sales and marketing firm KEY Marketing.
In an interview with STOREYS on June 4, Cam Good, Partner at KEY Marketing who has been in the industry for over 20 years, discussed where the concept for Condo Day came from, the strategy behind it from both the buyer’s and developer’s perspectives, the psychology of the presale market, and future Condo Days.
Responses have been lightly edited for length and clarity.
To start off with, where the idea for Condo Day come from? Was it your idea or was it something the developer wanted to do?
I started it back in 2008. I was trying to figure out how to sell condos and it was not easy. As you might remember, it was a tough time. I found, on YouTube, a video of university students who approached the owner of a liquor store and said, "If we brought the whole campus here to buy out every bottle in your store, what kind of deal could you give us?" And the owner offered them a significant discount. They made up posters, hired a band, and brought the whole campus there. They took a video of this day at the liquor store, of people buying up all the booze, and I saw this video and thought that we could sell condos that way.
Based on that, I did a campaign in 2008-2009 called MAC Bulk in a 50/50 partnership with MAC Marketing [the company that merged with BLVD Marketing in 2017 to form MLA Canada]. We were hugely successful the first months of 2009. We sold 400 condos [across five projects for Onni Group] in this campaign.
Now, all these years later, we were wondering whether a similar strategy would work, because the trouble with a buyers' market is that it's too scary for buyers to buy, which makes it more of a buyers' market and a self-fulfilling prophecy. Condo Day, the strategy behind it, is it creates a safe buying environment where a lot of the fear is eliminated. The first fear buyers have is the fear of negotiating. They don't feel confident. What's the right price? What's a lowball? Should I lowball? All that stuff is out the window because the deal is the same for everyone, and that's nice for buyers.The second big fear buyers have in a market like this is, 'Am I making the wrong decision? Should I not be buying this? Is this not a good deal?' But when buyers are able to buy on one day, with dozens of other people buying at the same time, it feels good. They want to buy and that just helps them feel comfortable buying. That's the real strategy behind it. The weird thing is buyers actually prefer buying in a sellers' market. Isn't that strange?
Why do you think that is?
It's about safety. Buyers, they like being in a crowd. It's the most natural thing in the world, like back to when we were hunting and gathering 100,000 years ago when the saber-tooth tigers were after us. People feel safe in a crowd. They like lining up. They like being in a crowd. It just feels better. But it's ironic in that way. Buyers really should buy in a buyers' market, but they don't. They prefer to buy in a sellers' market. Condo Day kind of fixes that.
In terms of the results of Condo Day, I understand 63 of 78 available units were sold and that was split relatively evenly between investors and end users. I'm curious if that 50/50 split came as a surprise to you. Were you expecting more end users than investors, or perhaps the other way around?
I was expecting more end users, more first-time homebuyers, because in our presale presentation centre, 70% of buyers are first-time homebuyers right now. So I expected that to continue into Condo Day. We actually wrote on paper. We didn't use any software because the software costs $25,000 and we're trying to save as much money as we can, so that the deal for buyers can be better. So we saved the $25,000, we wrote on paper, old school, and we don't really have the data. All the deals are still in rescission, so we're not calling the buyers to question them and ask them to fill out a survey or things like that. So my estimation of the 50/50 split is anecdotal, based on the people I spoke to that day and what I saw happening.
What about just general interest, including people who didn't end up buying? Was it a similar split?
I was very surprised that there were as many investors as there were. A lot of the interest was first-time homebuyers and end-users. Those are the people that engaged, those are the people that registered, and I was surprised on the day that there as many investors buying rental properties as there were. That was a surprise.
How would you explain that? Is it just simply that it was a good deal? That the units are already completed? A mix?
I think your first guess is right. I think it's just a good deal and investors know it. And they have a bit of a thicker skin. There were a lot of parents helping their kids buy. But investors, they know what they're doing, they've done it before, they know a good deal when they see it. I am rooting for the end users. Nothing makes me happier, personally, helping young people get onto the property ladder, so to speak. We have homes that are discounted $300,000. I just love that we're selling homes under appraisal and that there's equity on their first day of ownership.
From the perspective of the developer, I'm curious how they can make this work, financially. I understand, in typical scenarios, developers hit their presale targets to get construction financing, they'll construct it, and hold back some units to sell afterwards and make up some of the profit on the back-end. For this, the leftover units are being sold at a discount. Are they essentially being sold at a loss?
They're being sold at the developer's cost for sure, or maybe even below. That's the reality of where these prices are. But for the developer it is still a good deal. They way they look at it is their capital is tied up in this inventory. You're right, some of it they did hold back — the whole penthouse level, for example — to sell later. Some of it is made up of 20 or so units in the tower where the buyers didn't complete and left behind deposits that are essentially being passed along to the new buyers. But in this case, the whole podium the developer kept to rent out. It was a bit of a last-minute decision. It was not set up as a separate air parcel like a developer would normally do, in order to keep a rental asset and potentially set it to somebody. But the rental market is down for the first year in 20 and with all of the rental supply coming, the developer has become a little bearish on rental. Instead, they're happy to give these deals to buyers, take the capital, and use it to grow their project pipeline.
When it's a buyers' market for buyers of condos, it's also a buyers' market for developers, too. Back in 2009 when we did this for Onni, Onni took that $150 million or whatever it was that they made from those 400 units, leveraged it, and really launched that company. I don't know if you remember the size of the company back then, but it was nowhere near what it is today. But they had all the capital and all that leverage, they were able to buy at a time when nobody else was, and it really took that company to the next level, and I think this developer has that same kind of vision.
Was the decision to do that back then for Onni also the result of market conditions?
It was a different cause. Back then it was the global financial crisis creating a time of uncertainty. What's interesting about the presale market is that it's really sentiment-driven, more than fundamentals. I told Ravi Kahlon this recently: If you want to know where the mindset of the British Columbia real estate buying public is at, watch the presale market. When British Columbians believe the presale market is going up, they decide to buy presale and they'll line up around the block. And when they believe the market is flat or going down, that faucet turns off. Instantly. They just stop buying.
In 2008, they stopped buying because the Lehman Brothers had collapsed and the global financial crisis was happening, and buyers just stopped buying completely. What we're seeing in this market is much longer, actually. This market suffered, frankly, a systematic dismantling from all three levels of government. And the result of that is never overnight, like the global financial crisis or the pandemic, but it's been quite incremental, almost like death by a thousand cuts. The result is we've been in a downturn for a year and a half. The global financial crisis — as huge and impactful as it was — only lasted six months. It really started in the summer of 2008. In 2009, we sold 400 units in the first quarter. Even the pandemic, it started in mid-March 2020 and in September, KEY Marketing launched two projects — one in Vancouver, one in Coquitlam — and sold them out in very short order. It's amazing that those two global crises only lasted six months and this one has been over a year and a half.
You mentioned "death by a thousand cuts." What would you say are the bigger and more notable "cuts?"
Anything that creates a sentiment in real estate buyers that values aren't going up or are going down. That causes presale buyers to not buy. The biggest impact is what they read, what they hear about the market, and the media — what they're saying about it.
People have often asked, about our presale projects, is it investors buying or end users? And the truth is, of the presale world, that all buyers are investor-minded. Many times they might be a pure investor looking to flip or buy a rental property, but even in the end-user category, whether it's parents helping kids buy or a couple buying on their own, they're also investment-minded. The reality of presales for a very long time has been that if they really just needed a place to live, they could buy something built down the street for less. They're paying a premium for presale because it's easy and because they like the leverage that they get with time and are bullish in the market going up during the period of construction. End users and investors in presale — they have that in common.
You asked about the factors. Media and what's being said is the biggest one, and then it's government action. The causal stuff. Immigration is a big one, the cost of debt, anything related to extra taxes that sort of penalizes investors, whether it's the empty homes tax or the flipping tax. It's death by a thousand cuts. It's many, many little things that create a very cool climate for an investment-minded buyer. That's what affects presale the most.
You also mentioned completions and that some of the original presale buyers for Belvedere ended up not completing. How big of an issue is that in the market right now?
It's an issue and it's a bigger issue than it's ever been. There's more buyers not completing now than ever before — or at least in the 21 years I've been doing this. But it's not hugely significant. We've never had a project with significant non-completions. It's never say more than 10% of the homes — and usually less, frankly. We haven't had a situation where 20% of the buyers say they don't want it anymore. That hasn't happened. Developers have the right to not only keep a buyer's deposit, but they can also legally compel a buyer to buy. The developer of Belvedere did not do that. They chose Condo Day instead.
Can you tell me about the strategy and thought process for Allure Ventures' project?
The project is called SkyLiving and it's a presale tower in Surrey. The problems we're facing there is again around fear from investors. The main fear investors have is around appreciation and will there be any. If I pay $1,100 a sq. ft on a presale condo right now, what's it gonna be worth in four years? So to overcome that, we are offering buyers an unprecedented rental guarantee where they get 20% of the purchase price back over the two years following completion. And those numbers are phenomenal. Investors that are more focused on cash flow are attracted to that because they're cash-flow positive for two years. The other thing that does is it pushes their timeline horizon out two years, so they have three to four years of construction, plus two years. They're thinking five or six years out, what's Surrey going to be like? What's the market going to be like? Six years is a very long time. It feels more like 10. Everybody is bullish on real estate in the long-term. It's really the short-term that causes a lot of fear. So that helps people think more long-term.
But that's only half the story. The other thing all the buyers are being offered that is also unprecedented is a buyback agreement with the developer. We're going to sell 40 or 50 homes at SkyLiving this week, which is a huge number for presale right now. When they come into the sales centre at SkyLiving, instead of just leaving with an ordinary presale purchase agreement, buyers leave with three agreements: they have the ordinary presale purchase agreement, an ordinary lease agreement, and the third agreement is a conditional purchase agreement where the developer is willing to buy it back from them at the price they paid if they change their mind. It's a condition that favours the buyer, where they can remove it and tell the developer to buy it back from them. Again, very easy for them and their realtor to understand. It feels very safe. That's why I expect 40 to 50 people to buy within a week, which for presale is amazing and will finance construction, cause we're that close.
[Editor's Note: Both incentives are not unprecedented on their own. Bosa Properties has offered a similar rental incentive and a buyback guarantee has been offered for CURV, for example, but what is unique is offering both simultaneously.]
Big picture, what do you think needs to happen for the presale market to turn around a bit?
Well the main thing that needs to happen is deal flow — liquidity. There's a logjam in the market. Nobody's buying. Good news like Condo Day, good news about the sales. We're gonna have more Condo Days with different developers. The standing inventory needs to be dealt with. Very few people are gonna pay $1,100 a foot for presale if the completed version of that is $800 a foot. What a bad idea that would be. So we need to work through the standing inventory, the buyers are gonna get great deals, and once there's deal flow happening we should get back to a balanced market, which I think is what everybody wants.
The market is just frozen. If sellers are delusional about what their real estate is worth and buyers are delusional about what they think they can get it for, then no deals are gonna get done. The closer those two groups get together is where the market becomes balanced — when they agree on what the current market value is.
You mentioned there will be future Condo Days. Can you share more about that? Which developers or projects?
I can share that top-tier developers have reached out and have asked for meetings to discuss it. I think they're attracted to the sales philosophy and it also protects the developer's brand. If you are buying anything and you gathered up 60 of your friends and you all bought together at the same time, no matter what it is, everyone knows you're gonna get a deal for that. It's an effective way for a developer to give a deal without having to worry about looking bad or depreciating their project
Also, I find developers I'm speaking to as recently as this morning understand that if they, let's say, have 100 units left in their building and now everybody's completed and moved in and they have these 100 units to sell, there's really a kindness to the existing buyers that are already in there to sell the 100 all at once and get it over with, so that the investors or really anybody in the building that now wants to sell on their own can do so. All 100 are sold on Condo Day, now the only ones for sale are from people in the building trying to sell and they're looking for fair market price on that. That's a kindness. What's unkind is a developer that's got 100 units to sell in a building and then for the next three years is just selling at a lower cost base and undercutting every other person who's trying to sell their home in the building. How horrible would that be? You're in the building, you want to move, or you want to sell for whatever reason, and you're trying to compete with the developer who's literally in at a lower cost base than you and you can never beat them on price. That's horrible. It's much kinder to tear the band-aid off rather than deal with it all slowly.
With the developers showing interest in doing their own Condo Day, are they all similar situations where they're dealing with standing inventory?
You're right actually. They're not about-to-complete; they're all standing inventory. For a developer with completions coming up, they don't want to discount their inventory because that would potentially depreciate and make it harder for the buyers to close. So they'll let the buyers complete and then they'll do it after. The developers of presale projects, they're constrained by the appraisals upon which their construction loan was granted — the appraisal of the value of all the condos in the building. If they accept as a condition of their loan that they sell at those appraised prices, when they sell for more than 5% below those prices, the lender will not count those deals as qualified towards the construction loan requirement, which is usually 65% or 70% of all the homes being sold. After they finance the construction, it's more possible, but it's still not a perfect fit because they don't want to jeopardize the 70% that they've already presold. So it's standing inventory. That's really the point of Condo Day: to help the market heal, to get through a lot of the standing inventory, to get some great deals to buyers, and get us back to a balanced market, which is better for everyone.
