Industry faces "cost-of-delivery crisis" amid rising rates, stalled presales, and investor retreat
Vancouver’s once-red-hot condo development sector is now following the same path as Ontario’s as major developers and marketing firms cut staff and offload assets amid what industry leaders are calling a “cost-of-delivery crisis," according to a report in The Globe and Mail.
The latest to announce cutbacks is Wesgroup Properties, the developer behind the River District master-planned community, which revealed last week it would lay off 12% of its workforce. This came shortly after the condo marketing giant Rennie Group let go of 25% of its staff.
A cooldown in Vancouver's condo market is sparking fears that the space could see a similar crisis to Toronto, where sales have plunged and prices are sliding with a flood of new inventory scheduled to come onstream in the months ahead.
That contraction is seeing developers tap the brakes on plans for the months ahead, with uncertainty continuing to surround the economic outlook and little clarity on whether buyers will gradually return to condo purchasing.
Wesgroup president and chief executive officer Beau Jarvis told The Globe and Mail the layoffs were a "direct result" of having to delay future projects, with developers facing "unprecedented pressure" to see out the current storm.
Jarvis noted that despite the restructuring, Wesgroup remains “fiscally sound.”
Also speaking with the Globe, Magnum Properties chief executive officer George Wong said he had reduced staff and described the required pace of presales to achieve financing as "not currently achievable."
Ontario’s homebuilding sector has warned of widespread layoffs and stalled housing delivery if construction costs remain steep.
It remains unclear when or whether the tide will turn for Toronto and Vancouver's beleaguered condo markets. Canada Mortgage and Housing Corporation (CMHC) sounded the alarm in recent weeks about a further possible sharp contraction, although Vancouver mortgage broker Anthony Zhang still expects his city's market to fare better than Toronto's in the short term.
"I think it's a bit more difficult in Toronto than here," Zhang told Canadian Mortgage Professional. He described challenges on the supply side and homeowners struggling to sell their properties, but said Vancouver was less dependent on so-called "dog crate condos," the tiny studio apartments whose popularity skyrocketed in Toronto over the past decade.
Last week, the Building Industry and Land Development Association (BILD) reported that construction of new homes could bottom out at just 4,000 single-family homes and 10,000 apartments per year if market conditions don’t improve.
Read next: Could Toronto's condo crisis spread to other Canadian markets?
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