If you're considering a presale investment in Metro Vancouver, high-rise concrete options may be entering a new, recalibrated demand cycle.
Supported by recent changes to mortgages on new construction and homebuilders eager to bring new product to market after several years of muted demand, I believe the market is recalibrating to attract the next wave of investors.
Here are several reasons I believe concrete high-rise presales (in some Metro Vancouver markets) are about to make comeback:
1.) Several prominent Metro Vancouver developers have introduced 10% deposits for upcoming concrete presales—an anomaly or the start of a new trend?
2.) Government announces boldest mortgage reforms in decades to unlock presale development demand.
3.) Decreasing interest rates mean that mortgage payments (in some Metro Vancouver markets) are heading back to par with rental rates.
4.) Housing starts are slowing, which will lead to a continued supply/demand imbalance in Metro Vancouver.
Two of Metro Vancouver's leading developers announced 10% deposits for upcoming high-rise projects in Metrotown and Brentwood, which is unprecedented at launch
High-rise projects typically require deposits of 20% or more. However, in the past year, I've noticed developers becoming competitive with lowered 15% deposits staggered over 1-3 years.
With completion timelines extending to 2029, investors can secure their investments with less upfront capital while participating in the market over the next few years.
This may prompt other developers to follow suit for competitiveness, but only those in strong financial positions are likely to do so.
This may also push more investors from low-rise wood frame projects to high-rise, given the longer completion timelines.
Government announces boldest mortgage reforms in decades to unlock presale/new construction demand
Expanding eligibility for 30 year mortgage amortizations to all first-time homebuyers and to all buyers of new builds, effective December 15, 2024, to reduce the cost of monthly mortgage payments and help more Canadians buy a home.
Insured mortgages allow buyers to put less than 20% down on a purchase, while also offering the lowest mortgage interest rates in the market. This is a significant demand-side measure that I believe will drive more people to purchase new construction homes.
These new changes may be contributing to developers lowering deposit requirements, as a smaller down payment reduces the risk involved in qualifying and closing on the presale.
Decreasing interest rates mean that mortgage payments (in some Metro Vancouver markets) are heading closer to par with rental rates
It's well known that Metro Vancouver real estate is not a cash-flow investment. Investors in this region are motivated by long-term appreciation, market stability, and principal paydown.
Several presales in the Lower Mainland are guaranteeing interest rates of 2.99% (by way of credit to the buyer upon closing), indicating that industry professionals anticipate lower interest rates over the next 2-3 years.
With rents increasing significantly over the past few years and presale prices remaining constant during the same period, the gap between rent and mortgage carrying costs is becoming narrower.
This is enough motivation for presale investors and mom & pop landlords.
Housing starts are slowing, which will lead to a continued supply/demand imbalance in Metro Vancouver putting pressure on prices
Given the slower presale market over the past two years, this will ultimately lead to lower housing starts and completions in the near term.
Millennials and Gen Z are still prioritizing home ownership, and as they enter their prime household formation years, they will be major buyers of multi-family homes across Metro Vancouver.
Despite recent announcements regarding reduced temporary workers and students, the population of Metro Vancouver is still booming and will require a significant amount of new housing to keep up with demand.
The supply-demand imbalance will inevitably put pressure on pricing, increasing values across the region for years to come.
I believe this is one of the strongest arguments for why Metro Vancouver presales are a great long-term investment
