The presale market is something that's inherently tied to the future. For buyers, what you're getting is not a home that you can move in to tomorrow, but rather the right to buy the home in several years. For developers, how they operate and navigate the market is oftentimes a reflection of how they see the future — the sentiment of the local market, the direction the overall economy is heading, the cities that are on the rise.
READ: BC Spring Market Forecast: Wave Of High-Profile Presale Launches Rising In Surrey City Centre
This year, perhaps more so than in previous years, the relationship between the presale market and the future has been put to the test. All signs are pointing to the Bank of Canada cutting interest rates, but when exactly the first cut will happen, and how deep it will be, remains unclear. Heading into 2024, some experts believed the cut would occur in April. These days, June is now the popular choice among prognosticators.
Some of that uncertainty seems to have been reflected in the presale market.
"It started out quite good, then it sort of petered out in March," says Mike Stewart, a realtor with Vancouver New Condos, about the the presale market so far this year. "It's been good, then bad, good, then bad, but it's sort of trending towards getting really good. And I think the thing that's going to cause it to get really good is going to be a potential interest rate cut in June or July."
That shift in sentiment can also result in developers being put in an awkward position.
"In terms of launching a presale project, there's usually a lead time from when somebody internally says 'go' to when sales actually start happening," Stewart says. "So what you may have is [a scenario where] in January, the market is really good, super busy, and there's lots of positivity, then a lot of development teams push the button on launching a project, and then sales start in April, but market conditions may have been better in January than in April."
READ: BC Spring Market Forecast: Amidst Uncertainty, Presale Purchase Incentives Are In Abundance
Stewart says these lead times can be anywhere from six weeks to three months and can vary from developer to developer. Some developers with more resources can begin preparations early and wait, while smaller developers may feel more pressure to launch whenever they can. Regardless of how big the operation is, such a scenario can result in a project launching and then quickly fizzling out.
"The way to look at presales is a consensus about what's going to happen in the future," Stewart says. "If the consensus is that things are going to get better because interest rates are going down, then more people will buy. If the expectation is that interest rates are going up, then people slow down. Right now, people are buying and things are happening, but it's not crazy hot, and I would characterize it as 'not bad.'"
That "not bad" is a bit different depending on where you are, however.
Despite Vancouver being the first market people think of, there have not been many high-profile presale launches — a high-rise tower by a big name developer — in the past few months, nor are there many set to launch in the coming months. Instead, much of the big launches, and successes, are happening in places like Burnaby and Surrey.
The former saw a big wave of launches by big developers all around the same time last fall, while the latter is set to experience a similar wave in the coming weeks.
While the presale market is currently "not bad," that level of activity may not be good enough for developers, who oftentimes have presale targets to hit. As a result, the market has seen a notable influx of presale purchase incentives in the past few months, such as traditional discounts, complimentary upgrades, or reduced deposit requirements.
"For presale purchase incentives, you see more of them when the market is soft, and you see less of them when the market is hot. Right now, the market isn't hot, but it's not soft, so you are seeing them," says Stewart.
This is to say that if we do indeed see rate cuts in June, market sentiment may improve, activity in the market may start to heat up, and developers may not need to incentivize buyers as much. If that day comes, then the developers who are currently waiting for the right moment to launch their projects — many of which are in registration or previewing periods today — could potentially all hit the market.
We'll never really know, however, until we know. Even rose-coloured glasses don't allow you to see into the future.
This article is Part 3 of our BC Spring Market Forecast, presented by Spark.
You can read Part 1, about the recent influx of presale incentives, here, and Part 2, about the wave of presale launches coming to Surrey, here.
