In the desperate days of the early eighties real estate crash, the developer of a luxury tower on New York’s Upper East Side offered buyers a free Rolls Royce with every condo.
Recounting this story to city insiders at the recent launch of Trump Tower Vancouver, one offered this deadpan reply: “Well, they could always sleep in it after losing their shirt on the real estate market.”
While the Vancouver equivalent of this might be sleeping in your Smart car, the sudden appearance of sales incentives to attract buyers in the city’s glutted condo market has been nothing short of enthusiastic.
In Vancouver’s once frenzied condo realm, the norm used to be waiting in line in the rain to register for a Bob Rennie project and getting in if you were lucky. Now, developers are lining up to attract purchasers.
In the current market, developers have been going to rather extraordinary lengths to attract condo customers. For example:
Rize Alliance Properties Ltd. is offering 5 per cent down and $1,000 off monthly mortgage payments for a year on its downtown Rolston project.
Millennium Group is dangling keys to a free Fiat 500 to entice buyers into its Bohème development.
At Wall Centre Central Park in Burnaby buyers are being offered a 3.2-per-cent credit off the purchase price.
One North Vancouver development, the Seylynn Village, is even raffling off a free unit.
And realtors, when not busy employing extra staging techniques to sell new and old properties, are inundated with offers of special $5,000 bonuses if they bring buyers to projects.
But are these hard sell techniques working? And will they help kick start a sagging industry?
“We have to be careful before saying ‘the sky is falling,’” says Diana McMeekin of real estate marketing firm Artemis. “What we’re seeing in the market today is a response to the shift from speculators to long-term investors. The kinds of people that are buying now are owner-occupiers as opposed to ‘flippers.’”
For that demographic, real estate is “less of a commodity and more of a home. Their decisions are often more measured,” she says, and they are more likely to be enticed by deals. “Their decisions are more emotional and less about dollars and cents.”
While Ms. McMeekin says our condo market is not as glutted as Toronto’s, she still advises clients that in a competitive market, especially in areas such as Metrotown and Richmond, “you need to have a promotion or special offer every day – just like in the retail business.”
But the key to sales success, she says, is targeting the right audience. “For first time buyers, the deciding factors are price, location and then design, but for more mature buyers it’s location, design and then price.”
George Wong, for one, believes there is no crisis – “just an explosion of supply in certain areas that has created a buyer’s market.”
Metro Vancouver’s real estate sales in 2012 were 34 per cent higher than in 2011, says Wong, whose company, Magnum Projects, is behind the Trump International Hotel and Tower.
While admitting that the market is competitive, he says, “My own approach to marketing is not so incentive heavy. We’re more about responsible marketing, not throwing fees and buyer incentives and creating an impression that the market is in trouble.”
A recent project he marketed for Nat Bosa at Homer and Pacific, for instance, sold 60 per cent of the units in two months, without incentives, he says, because of its “intrinsic attraction and allure.” But with 70 per cent of buyers owner-occupiers, his figures seem to jibe with Ms. McMeekin’s premise of a shift from speculative to long-term real estate investment.
While Mr. Wong acknowledges that incentives often appeal to first-time buyers who “need financial assistance,” they can be “all smoke and mirrors, raising prices and then offering big discounts.”
But for Geoff Duyker, head of marketing at Mosaic Homes, incentives are actually pragmatic “problem solvers” for many first-time buyers.
“We recognize it’s not easy to buy a first home – and we decided that we wanted to make it easier for first-time buyers.”
Mosaic’s current promotion – securing a home for less than $400,000 with a 5-per-cent down payment and a $10,000 rebate – is largely in reaction to the slowdown in sales it noticed after April 1 when the provincial government’s homeowner’s rebate ended.
It appears to be successful, he says. In the first two weeks of June, when the promotion began, relates Mr. Duyker, Mosaic sold 35 homes, with the majority of buyers coming to the table because of the 5-per-cent down payment and rebate scheme.
Free cars might lure buyers, he says, but they “don’t fix the problem of qualifying as a first-time buyer.”
Independent real estate analyst Michael Ferreira says agrees there are fewer buyers today than two years ago – “and a lot more supply.”
One of the main factors, he contends, is that many projects “froze” after the crash of 2008, picking up speed again in 2010 and 2011 and are only now coming to market.
Most of the competing condo projects he says, are targeting “entry level” buyers, as opposed to “wealthier downsizers,” who are “less swayed by promotions.”
According to Urban Analytics’ quarterly report for the end of 2012, there was a sharp increase in incentives offered by developers.
“I’ve been in the market since 1992,” says Mr. Ferreira, “and I don’t remember a time when it was as competitive as it is right now.” He adds that even during the leaky condo crisis in the late nineties, there was much less product on the market as many developers simply gave up and left town for other markets.
“There’s never been this much development,” he says, “but it’s relative to the tremendous population growth – so it’s not a question of oversupply.”
He contends that “the market is more in balance today than in the pre-2008 period. The advantage for buyers is that there’s more competition and more choice. They don’t have to worry about showing up at project launch and having 70 per cent of the units sold already. Now is the perfect time to make an educated decision.”