Vancouver Real Estate Board's Poor Disclosure

For the second consecutive month, the Vancouver Real Estate Board released different sales figures locally, then it reported to the Canadian Real Estate Board.

In August 2008, the Vancouver Real Estate board reported locally that average prices in its market area were up only about 2% year-over-year.

However, the same board reported to the national association that prices were down 5% year-over-year to $557,114.

When reporting locally the Vancouver Board has been consistently over-reporting sales prices for going on six months. The over-reporting appears to be an attempt to make the collapse of the local market not appear as bad as it is. It is an effort to inflate prices and does not make for efficient markets. Proper reporting is necessary for sellers to correctly price product, for sellers to make informed offers and to assist other market participants such as banks.

The Vancouver real estate market is in a tailspin. It is not a correction nor a return to normal levels. It is a bear market with prices falling daily.

Collapse Deepens and Accelerates

The Real Estate Board of Greater Vancouver (REBGV) reported today that residential property sales in Greater Vancouver totalled 1,568 in August 2008, a decline of 53.7% from the 3,384 sales in August 2007, and a 47.7% reduction from the 2,998 sales recorded in August 2006.

REBGV uses so many different standards to measure average prices that, month-to-month and even year-to-year, comparisons are difficult. However for the past three to five months, prices in virtually ever category are down about 4-12%. For instance, a single-family, detached house selling for $921,000 some five months ago is now selling for $808,000, a drop of 12%. And, on a year-to-year basis, real prices are down about 1% overall, but some categories have fallen near 10%, particularly in suburban areas.

Once September's numbers are in, we are projecting the first year-over-year decline in nominal residential property prices in Vancouver since 2001.

With respect to sales levels, a year-over-year decline of 50% is even greater than what we projected. Sales are now so low that it would take almost a year to sell just the properties listed for sale in August.

Ominous News for Vancouver Real Estate

The Brilla is a strata development on West 4th Ave at Alma in Vancouver. The project was pre-sold in 2006 and was completed soon after. The project appears to have been planed as a 30-unit development, but was scaled back to 22 units.

The developer is the Toyu Group out of Richmond. Toyu is privately owned and does not appear to issue financial or other reports.

Brilla appears to have been placed in receivership, or the equivalent, with at least 6 units unsold. This development is in a prime location with excellent quality. For this type of development to fail to sell out is highly unusual, or it used to be, in Vancouver. Of the remaining units, 1-bedrooms are listing for $419,000 which, we understand, is about 10% less than what the developer was offering them for sale last fall. The developer prices were firm, the offer prices are soft.

We do not know if Brilla's status reflects any risk with the developer Toyu Group. Based on our experience, we recommend any buyers who have contracts with other Toyu under-construction projects to assume their contracts and any downpayments are at risk.

Toyu is not the only condo/strata project unable to sell units in Vancouver. In the same neighborhood, construction has stopped at the Viridian project under the direction of Larc Developments. Again, Larc is privately owned and public disclosure is non-existent. We believe that Viridian will be placed into receivership, or the equivalent, shortly. Contracts and downpayments for Viridian product is at risk.

There is yet another strata development that has been completed that may shortly be placed in receivership in the same neighborhood. Again, it is a small project with near 30% of its inventory unsold a year after completion.

There are three stages in a declining market, each one creating more risk and indicating a sharper downward trend than the previous. The first stage is a growing resale inventory with reduced sales & prices. Stage one started in Vancouver in early spring of this year. Recent buyers who lose the ability to make their mortgage payments and speculators start taking financial hits. The second stage of a declining market are developments being placed in receivership. That stage started in the past two weeks. Builders, contractors and late-to-the cycle or even medium term buyers start taking hits. Speculators cash out, some at a loss. The third stage are owners and buyers walking away from contracts and giving up downpayments/deposits/negative equity in order to protect their total financial wealth. Stage three becomes most public as a result of power-of-sale signs, and large holes in the ground with "To be Completed" signs with dates two years ago. Once the third stage commences, the bottom of the market can usually be predicted to level off with a trough of a 25-35% decline from the top. In stage three everyone takes a haircut, except the lawyers and the restructuring experts.

We recommend than buyers of not yet completed construction projects in Vancouver consider ways to protect their deposits and downpayments which may now be at risk.