BCBusiness

The real estate fever doesn't get to those Hot Ones temperatures on its own. There are endless seminars, workshops, conventions and investment clubs (not to mention emailed newsletters, online blogs and a steady stream of promotional news articles) enticing even more people to plug into the dream. 28 B C B U S I N E S S . C A J A N U A R Y/ F E B R U A R Y 2 0 2 5 REAL ESTATE bells among many because big operators targeted particular types of neighbour- hoods and particular types of housing: lower-cost single-family houses that they could buy up en masse. That kind of buy- ing is widely viewed as enough to distort a market, as it removes hundreds of homes in a specific catchment for first-time, lower- income buyers. But Canada hasn't seen that kind of buy- ing. It hasn't had the wild housing crashes that some U.S. cities have experienced as they've gone through big bubbles and col- lapses, nor does it have a lot of companies big enough or experienced enough to start buying hundreds of millions of dollars' worth of residential real estate at once. Dugan and those in the housing indus- try have doubts—or at least more context to offer—about some of those claims. REITs appear to pay more for apartment units than the median price because they are deliberately choosing to buy buildings in better locations or in better shape. And they don't control enough of the market to be able to set their own prices. They've got a lot of competition. "It's hard to charge a premium if you have an identical prod- uct," says Dugan. "When people take aim at REITs, they forget that the ability of landlords to raise rents is a symptom of low supply." Not, he says, some inherent evilness about a new generation of apart- ment owners. But there are still many gaps in every- one's understanding of how investors, especially the very large cohort of small- time investors, behave as they put money into REITs or individual units. Housing- investment critics say that investors pay more for homes (data not always provided), shutting out potential real users. There's mixed anecdotal evidence about that. Some say people who are purchasing a place to live in will often be driven by a lot of emotion—desperation to get into the market, a conviction that a given neigh- bourhood is the only one in which they can function as a human being, a sense of panic. But investors will theoretically be looking at cash flow projections and are unlikely to pay exorbitant amounts and face having to subsidize their investment for months or years. "My perception, though anecdotal, is that end users are willing to pay more," says Ryan Berlin, head economist and vice-pres- ident of intelligence at Vancouver's promi- nent Rennie marketing group. "Some of it may relate to 'bank of mom and dad' fund- ing—possibly a lesser source of 'financing' for investors—but investors right now are poking around to see which sellers are will- ing to give up the most, price-wise, in an effort to establish a return/cash flow situa- tion that's amenable enough, especially in the short run with high rates and with the investor not able to fully benefit from ten- ant turnover." Their behaviour is of keen interest these days to everyone in the development busi- ness because they have... not quite disap- peared, but certainly receded. At Rennie, investors accounted for 46 to 51 percent of all pre-sales in the four years leading up to 2024. Now they've dropped to a 26-percent share of all sales. Since you were already wondering, the Rennie stats show that 87 percent of investors were from Metro Vancouver, 3 percent from else- where in B.C., 5 percent from elsewhere in Canada and 2 percent from outside Canada. They're not rich, either. Almost 60 percent had household incomes between $100,000 and $200,000. Only 10 percent had house- hold incomes of more than $250,000. The ghosting investors are a problem, especially in B.C., where the real estate ecosystem depends on them to get proj- ects airborne. Condo developments usu- ally can't get approval for financing from banks unless they have 60 to 70 percent of the units sold through pre-sales. Investors like pre-sales, because the early payments are low and manageable and those buyers aren't panting to find a place to live. "If investors aren't participating, devel- opers can't progress their projects or they just don't launch," says Berlin. The way the math works, if there aren't enough end users to replace the missing investors, one of the projects can't move ahead. But the pool of end users is restricted. It's not the entire universe of people out looking for a S h u t t e r s t o c k

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