Getting the B.C. real estate markets moving again requires sellers to have realistic expectations about the value of their properties was the gist of several panelist comments at the Vancouver Real Estate Forum held Thursday. If vendors are willing to accept lower prices and more favorable terms for a sale then there are property investors ready to buy.
There is a new type of real estate investor in B.C according to those at the Forum. Private investors, typically a well-heeled family, are entering the real estate market for the first time where they have historically been forced to the sidelines. Small pension funds that have not been real estate investors are also looking for property to buy.
The recent retreat of the institutional investors from the real estate market is cited as the main reason for a new kind of investor emerging. The large pension funds, which have been active investors for about a decade, have offered such favorable terms to vendors that private individuals have been reluctant or unable to participate in the market.
Speaking on a panel at the Forum John Purcell, Senior Vice President and Portfolio Manager, Bentall LP said that the pensions funds are facing challenges, particularly the large mature funds. They are coping with losses associated with financial market turmoil and rebalancing their portfolios. Life insurance companies are waiting for high yields and strong tenant mandates which are not currently available.
The new type of purchasers are inclined to be tough negotiators, who are expecting higher cap rates and looking for terms such as significant vendor mortgages that institutional investors have not demanded.
Purcell said there are buyers who are ready to get into the market. Then he referenced a term coined earlier in the conference stating that ‘vendor capitulation’ is needed. “There is a lot of money but not at today’s prices. Not a 6’s but at 8’s and higher” he said referring to cap rates.
Jon Love, Managing Partner & CEO, KingSett Capital said, “we are at the price discovery stage where 8 is the new 6” indicating that cap rates have effectively reached the higher level.
Avtar Bains, Executive Vice President of Colliers International said that in Canada there isn’t a liquidity problem as there is in the U.S. It is the seller’s resistance to new market conditions that are holding back sales.
With reference to the apartment building market in B.C., Bains said it is the best of its class in Canada. Vancouver is recognized as having one of the highest qualities of life in the World in a beautiful natural setting. Bains said that buying apartment buildings in Vancouver is a once in a lifetime opportunity.
While Bains argued that vendors should be more reasonable, he also made a case for maintaining lower cap rates for apartment buildings in Vancouver as he views them as exceptional investments on a global scale.
Bains said Vancouver’s real estate market would continue to be attractive to foreign investors because it offers them reliable, recurring and stable cash flows. Liquidity is maintained in the B.C. real estate market, he said, by the continued interest of offshore purchasers.
While B.C. hasn’t been immune to consequences of the recession it was the last province to feel the effects of it and it is poised to recover possibly faster than any other province.
B.C’s natural beauty and high quality of life, a steady influx of immigrants – 60,000 in 2008 – its role as the Asian Pacific gateway and new development spurred by the Olympic Games are creating strong economic fundamentals. The Province is also providing over $14 billion in economic stimulus spending directed primarily at infrastructure renewal.
If the B.C. economy is to recover at the end of 2009, as predicted, then the end of the recession will coincide with the 2010 Olympics in February 2009.
Furthermore, as Premier of British Columbia, Gordon Campbell explained in his election style speech to the Forum, the Olympics is going to turn about 3 billion eyes toward British Columbia. On the strength of B.C.’s qualities, some of those people are going to decide to invest or live in the Vancouver or the Province.
With all the good news about B.C., and where it is headed, is it any wonder that real estate vendors are reluctant to comprise and that the purchasers are so eager to buy?