Christie's Real Estate Team

Everyone in Vancouver, it seems, is talking about the city’s real-estate market. And the hotter the market becomes, the more pervasive a topic of conversation it becomes: the size of the price tags (big, and getting bigger), the size of the suites (small, and getting smaller), the height and density of projects under construction (really tall, and lots of ’em). While some U.S. markets are experiencing a condo crash (a Sept. 3 Orlando Sentinel story reports that sales in August were down 64 per cent from 2006), Vancouver just keeps on booming. According to the Real Estate Board of Greater Vancouver (REBGV), approximately $770 million was exchanged on sales of residential properties in July.

But it’s not just the developers who are cashing in on the boom. Savvy buyers and sellers are snapping up properties before a single brick has been laid — and potentially picking up some hefty profits along the way.

It might sound like a risky proposition to purchase a condo without having seen the finished product, or before there’s so much as a hole in the ground, but for those whose nerves can stand it, playing the property market can prove lucrative for even a low-level buyer.

The world of ‘assignments’ — in which properties that are years from completion are sold from one buyer to another — has grown in popularity in recent years.

“I think the assignments market in Vancouver is an anomaly compared to other cities in the world, where they are not so common; I probably deal with about 150 of them each year,” says realtor Eric Grant, who specializes in pre-sales and assignments for property sales firm MAC Marketing Solutions. “And people are making profits [that are usually] a minimum of double their deposit; if they put down $25,000, they’ll walk away with $25-40,000 [profit] in a worst-case scenario.”

The current market conditions and ongoing demand for homes in Vancouver mean condos are continuing to sell fast; the REBGV reports that July 2007 home sales were up 41.8 per cent from the same month last year.

“If someone’s comfortable with the market as it is, then they should buy like crazy; it’s a matter of how much risk they’re willing to take on,” adds Grant.

Condo developers are often required to sell a certain percentage of units before a lender will commit to financing the construction of the project: these are called pre-sales or ‘off-plan’ sales, and, in times of high demand, it may often be the only way for people to get their hands on a hot property in a sought-after area.

Think of the upcoming opening of Vancouver’s soon-to-be tallest building, the 61-floor Shangri-La Hotel and Residences, at 1128 West Georgia. Tipped to also be the most luxurious building in the city, with a 119-room hotel, there are just five estate suites and the penthouse left in the tower, each priced at more than $3.2 million. Although it’s still under construction and won’t be opening until fall 2008, all 227 of the condos on floors 16-42 sold out in just six weeks after going on sale in 2004.

“People often like the fact [they can move into] a brand-new building, because they want something that’s already beautiful; people are busy and don’t have time to deal with contractors and doing renovations,” says Thomas Park, a real estate agent with Century 21.

The advantages of buying off-plan include simply being able to acquire the property you want, as most developers aim to sell all their condos before the building is finished.Other benefits include the fact that the price will be lower than in a few years’ time when the condo is done, as square-footage rates are rising rapidly in the city.

Buyers also get several years between paying their deposit and paying off the rest of the purchase price, as the balance is not due until the condo is finished. But, by far, one of the biggest plus points to buying off-plan is the possibility of selling at a profit, or ‘lift’, before the condo is even completed — the assignment.

The way it works is that a purchaser will buy off-plan and put down a deposit of, say, $100,000 (25 per cent of a $400,000 condo). He can then decide to ‘assign’ his sales contract to someone else who wants the property (called the assignee), as long as the condo has not yet been completed.

At this stage, the first buyer can set the sum for which he’s willing to sell, so that when the new buyer pays, he’ll get his deposit back plus a profit (lift). For example, he might want an extra $25,000, so the new buyer will pay a total of $125,000 to the first buyer. Then the assignee, the new buyer, will owe the developer the balance of the condo price ($300,000) when it is completed.

It may sound simple enough, but there are numerous legal and tax implications that can make the transaction a minefield.

Les Twarog, of RE/MAX Realty, believes that unless someone is willing and able to go through with the contract themselves if anything goes wrong, they shouldn’t even begin to think about selling an assignment.

“The people selling are sophisticated, but only about one in 100 buyers will actually go through with buying an assignment,” says Twarog. “I’ve taken on about 100 assignments and only 15 sold; the other 85 people had to complete.”

And Twarog agrees that while the Vancouver market is hot right now, dips in the U.S. property industry could point to a similar downturn occurring here. “The U.S. has sneezed and we’re going to catch a cold soon,” he warns. “It just can’t keep going. Sooner or later the bubble will burst.”

There are currently at least 200 assignment properties up for grabs in Vancouver, including at the Woodward’s site, on Cordova; L’Hermitage, on Richards; and even at Shangri-La.

Assignments can prove to be a good deal if the original buyer needs to sell fast because of changes in his or her financial situation. But assignments are not to be undertaken lightly, warns Dave Watt, vice president of the REBGV, an association of more than 8,000 realtors. “People need to have advice from professionals; there are tax implications because of the profit,” he says. “I would ask them to get a lawyer to take care of the contract.

“A piece of real estate is probably the most expensive item most of us will buy. People in Vancouver love to talk about real-estate investment, but most of us actually just buy a house to live in.”

Developers have gotten smart to the assignments market, and most will allow people to assign their contract to another person for a fee, which could vary from a few hundred dollars to a percentage of the original or resale purchase price.

Even the B.C. government has recognized the rising popularity of assignments, by introducing rules that apply a property-transfer tax to the price paid for the assignment, rather than the original contract price. So the new buyer ends up paying a tax on the total amount he has paid — currently one per cent of the first $200,000 and two per cent of the amount above that.

Richard Bell, co-founder of Bell Alliance, a law firm specializing in real estate, says the government rules introduced in 2001 are fair to both someone who buys a pre-sale and someone buying an assignment.

If the original pre-sale buyer goes ahead with the contract, then they will pay tax when the property is built and registered with the Land Title Office, which could be some two or three years later. “The tax (PTT) is really based on the fair market value at the time of transfer, so what the government has done is give a benefit to the original contracting party,” says Bell. “They accept tax on the original value even if it is below the current value, which is an exception to the normal rule.”

In the same way, if the first buyer then ‘assigns’ his contract to someone else, the new buyer will pay the tax on the total price he paid, including the extra cost that becomes the first buyer’s profit.

“All segments of the market in Vancouver remain very busy, whether it’s investors, folks re-financing their homes to buy investment property, or Mom and Dad helping out a first-time buyer,” says Bell.

Vancouver’s draw isn’t hard to see: its waterfront location, booming jobs sector, and fantastic recreation opportunities, all contribute to its reputation as one of the world’s most livable cities. And all that brings in more people, especially from abroad. Indeed, figures from Statistics Canada show that around 25,000 immigrants came to Vancouver each year between 2001 and 2006.

Kris Rennie, a specialist in assignments at leading property firm Rennie Marketing Systems, sells around five to 10 assignments each month, and says international buyers are keeping the market strong.

“There are so few development sites downtown, and the City’s direction is to maintain large sites for future office [use],” explains Rennie. “That, combined with the pressure of the Olympic spotlight on our city, maintains extreme confidence in the market.

“Vancouver is more accustomed to the pre-sale environment in general, and typically we have a highly educated buyer, so the added complexity to the assignment contract doesn’t scare them off.”

The word from the experts seems to be that there is still money to be made in property for regular Vancouver residents. But buyers, as well as sellers, should beware of getting in too deep without proper advice.

“We don’t have any ability to predict the future market,” says Dave Watt, “and it’ll always be subject to highs and lows. But information shows the property market is still extremely good at the moment.”