BURST
A developer of a Surrey highrise is introducing a buy back offer in hopes of attracting buyers in the tough condo presale market.
Allure Ventures, which says it has already sold enough units to begin construction on its SkyLiving tower, will offer a new set of buyers two options that don’t involve an outright discount or an incentive such as a decorating allowance.
Instead, it’s giving them the option to sign a secondary agreement in which the developer agrees to repurchase the unit at the original contract price or to lease the unit back from the buyer as long as it can be rented for a rate equivalent to 20 per cent of the original purchase price in a 24-month period.
It would mean, for example, that the buyer of a two-bedroom presale unit for $750,000 today could sell it back to Allure for that price after the unit and the sale are completed in a few years, even if the market value of the unit drops by then.
The rental option would allow the buyer to get $6,250 a month in cash flow from the unit for two years and Allure would manage tenants and maintenance.
“When we sat down and really canvassed our past buyers and the realtors who work in the market, and potential future buyers, they feel like the risk of presales is all one-sided right now. They’re expected to take the leap and carry all the uncertainty,” said Mohamed Mansour, vice-president of sales at Allure Ventures.
There have been reports of buyers having to refinance purchases or put up additional cash because the assessed value of their unit is now lower than what they promised to pay in their presale contract several years ago.
The company’s offer, which will begin on May 31, is an experiment designed to show buyers that Allure has confidence in the current price and future value of the units, said Mansour.
It highlights how some developers are trying to entice buyers even as the overall picture has been blanketed with uncertainty.
The market that has been dominated by investors now faces rising interest rates and dropping values because of economic uncertainty linked to the trade war. The chill has some developers halting presales and returning deposits because they have not been able to sell enough units to qualify for construction financing.
Prominent real estate company Rennie Marketing, which specializes in presale condos, recently said it is laying off 25 per cent of its staff as the number of completed and completing presale units that remain unsold is increasing.
As of April, there are 2,503 condo units that are complete and unsold, and another 2,337 units in projects nearing completion that are unsold for a total of 4,480 units in Metro Vancouver, according to research by Rennie Intelligence.
Mansour described SkyLiving as a 32-storey project that will be within walking distance of the University of B.C. and Simon Fraser University campuses in Surrey.
He declined to say how many units will be offered with this program. He said every project and developer has a different set of circumstances — including location, initial cost of land, timing, competition from other projects — that may make it challenging to try what Allure is offering to the next set of buyers at SkyLiving.
“We’re not blindly doing this. We’re doing it because we’ve done our research and we believe that our risk is mitigated and so we’re willing to share that risk with the buyers.”
He said that developers that have the same confidence in the product they are building or in the price or location of that project, in its ability to be rented and demand for it will be better positioned to try this approach.