SUNDAY, MAY 10, 2009
Great Article from Western Investor on the real estate market in Kelowna, when fundamentals disappear, you know things are going to go downwards.
http://www.westerninvestor.com/regional/regionalstories/story1.html
Kelowna and Vernon developers hope lower priceswill reboot a “paralyzed” market Renee Wasylyk, CEO of Troika Developments studiesplans for her 238-unit waterfront community in West Kelowna: “The fundamentals are all firing” The optimism is palpable when you talk to Central Okanagan developers, even in a market described by one industry professional as being in a state of “paralysis.” Despite the unnerving quiet, they say the market is fundamentally strong and headed for continued - if subdued - growth. Getting back to basics is a common theme and, they say, what the buyer wants. The Central Okanagan
resort market ground to a halt in the middle of 2008. Before then, the supply of wealthy retirees, home-equity leveragers, oilmen and stock-market millionaires, all seeking the valley’s famous sun-drenched, wine-infused lifestyle, seemed unending. Prices followed the demand skyward. Million-dollar lakefront teardowns were common. Robert Fine, manager of the Central Okanagan Regional District’s Economic Development Commission claims that the region witnessed an average annual growth rate of 9 per cent over the past five years. “It wasn’t sustainable,” he said “but we got used to it being the norm.” The change in
the residential sector is stunning. As of February, housing starts had plunged 94 per cent from a year earlier. Sales volumes plunged nearly 68 per cent in the Central Okanagan, which stretches from Peachland in the south to Lake Country north of Kelowna, in the same period, according to the Okanagan Mainline Real Estate Board. Median single-family residential sale prices for February
dropped 15.25 per cent from $471,950 in 2008 to $400,000 in 2009, while townhouse prices for the same period dropped 5.33 per cent from $356,500 to $337,500. Still, according to Grant Gaucher, a 30-year development industry veteran and principal of Kelowna-based G Group of Companies, there is little to panic about. “The market has now normalized,” he said. Gaucher’s optimism
lies in his belief that Canada’s growing global reputation and the Okanagan’s attractive lifestyle will ensure that the retirees and ifestyle-seeking relocaters will keep coming. “The baby-boom demographic still has money, and the first wave of boomers only reached 55 recently,” he said. “So far, we’ve only experienced the front edge of this wave.” Upbeat Renee Wasylyk, 30-something dynamo and CEO of Troika Developments, a Kelowna-based residential developer and builder, is also upbeat about the Okanagan’s long-term prospects. She frames her optimism a little differently. “This is a great place to live,” she said, “the economic drivers for the region are all in place, and the fundamentals are firing.” Wasylyk refers to the expansion of the Kelowna International Airport, the $300 million upgrade of the Kelowna General Hospital and ongoing expansion at the University of British Columbia Okanagan campus - which will introduce a medical school in 2011 - as key drivers for the region’s long-term prosperity. The public spending underlines the importance of government pay cheques in the Okanagan. According to a recent report compiled by British Columbia Statistics, public-sector jobs account for 16 per cent to 24 per cent of after-tax income in six Okanagan communities surveyed.
Government transfer payments, such as Canada Pension, and employment insurance make up 17 to 27 per cent and non-employment income - investments and private pensions – 18 to 24 per cent, the study found. Developers note that the fall out in the
stock market and the residential real estate markets curtailed the leveraging opportunities that drove a significant number of investor and second-home transactions. And this is why, they say, pure resort properties are facing greater challenges than conventional housing, which attract primary buyers. Although more cautious, they say, the primary buyer is still coming. Sales
centre traffic and website activity seems to have picked up a little in the last month or two and Gaucher is hopeful that sales could improve in the spring, albeit at a slower rate than in the previous few years. He suggests that normalization of the market may, in the next six months, mean 50-60 per cent of the volume seen in 2007 or 2008. Local buyers He cites his Southwind at Sarsons, a luxury condo and townhome project now under construction in Kelowna’s Lower Mission. “In Phase 1, which is complete, about 50 per cent of the buyers were from out of town, mostly Alberta,” he said. “And in Phase 2, now under construction, it’s more like 90 per cent of the buyers are local.” Both Gaucher and Wasylyk are clear that new product offerings need to reflect new economic realities. Wasylyk, who is developing West Harbour, a 238-unit single-family-oriented waterfront community in West Kelowna, claims that affordability, quality and a sense of community, which she says can coexist, are key to her project, which was originally planned to include upwards of 1,500 multi-family units. Neither have any illusions that price is now the trump issue. “It’s now a buyer’s market” Gaucher said. “And when the wave resumes it won’t be at the $800- to $1,000-per-square-foot values we’ve seen. It will be at the $500- to $600-per-square-foot price range.” Developers, he says, will have to find ways to build for less. Vernon Mirroring current trends, Vernon has also experienced a definitive downturn in real estate fortunes over the last year. “Smaller towns feel the impacts more acutely,” said Tony Zappone, development manager for Wesbild’s Turtle Mountain, a 112-acre residential project in Vernon. “A lot of realtors have changed careers,” he said, adding, “The middle and the high end of the market has disappeared.” City of Vernon
officials report that building permit values reached a record high in 2008 at nearly $170 million. Although things have tapered off considerably in the past few months, the City is still receiving applications and is looking forward to continued growth. But the new projects will likely be smaller, and less expensive. Kim Flick, Vernon’s manager of planning and building services, claims that much of the development that Vernon has experienced over the past few years has been aimed at a relatively well-off segment of the retirement community. “Projects like the [upscale] Outback, the Rise and Predator Ridge are beautiful developments but not attainable for most retired people,” she said. Providing more of what she calls “attainable housing” is Vernon’s answer to the future, Flick said. “Affordable housing has come to mean government subsidized, but what we’re talking about is putting in place mechanisms so the market can provide housing at a price that is within the reach of ordinary people” she said. Flick explains that Vernon has adopted a new official community plan and is considering changes to its development processes and development cost charge structures - such as moving from a per-door charge to an area-based charge - to encourage the development of smaller units and less costly housing. Meanwhile, Wesbild, which, along with Turtle Mountain, owns Predator Ridge Golf Resort near Vernon, is clearly focussed on the new reality. Howard Kruschke, Predator’s new senior director of real estate sales and marketing, acknowledges that the resort competes with traditional residential projects. Wesbild plans to reposition its product by appealing to a broader demographic, offering an expanded price range and adding amenities, including a small-scale village centre. At Turtle Mountain, Zappone, explains, “We built show homes for $600-$700 per square foot and higher … but we couldn’t sustain that.”
Now, Zappone says, they will build smaller, more manageable units but, he emphasizes, homes will still feature the quality finishing that buyers expect. Also, he added, “We’re only one minute from downtown Vernon.” Back to basics is the message from Central Okanagan developers. That, along with continued low interest rates and the traditional spring surge, could be enough, they say, to bring the buyers back.
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