Construction expenditures should increase at twice the rate of overall capital investment across the province in 2017, according to Statistics Canada’s annual forecast.
Capital investment across the province grew an estimated 4.8% in 2016 and will slow to 3.3% in 2017.
But after declining slightly in 2016, construction expenditures will rebound to achieve 7.7% in 2017. Central 1 Credit Union senior economist Brian Yu cautions that this is nominal growth, with real growth likely working out to just 1% to 2%, but it’s still twice that of capital spending as a whole.
This should be good news for builders, even if the construction sector itself isn’t likely to see spending increase more than 1.5%.
Transportation and warehousing companies – the tenants of major Lower Mainland industrial facilities – will see spending increase the most after public-sector entities (which will boost capital expenditures by an average of 30%).
Transportation and warehousing companies, by contrast, will increase investment in construction 22.4%, and overall expenditures 6.9%. Construction spending will total $2.1 billion, or more than 11% of total construction spending provincewide in 2017.
Real estate, rental and leasing companies are also major players, with plans to boost capital spending 16.4% in 2017.
Residential intentions
Altus Group reports that investment in Metro Vancouver residential development sites topped $6 billion in 2016, up 116% from a year earlier and accounting for half of overall real estate investment spending last year. Industrial, commercial and institutional (ICI) land sales lagged behind the residential tally, totalling just $2.2 billion despite impressive growth of 39%. Together, residential and ICI land sales accounted for two-thirds of the $12.4 billion in investment sales across Metro Vancouver in 2016.
The investment in residential development sites underpins Canada Mortgage and Housing Corp.’s forecast of between 21,500 and 23,500 housing starts in Metro Vancouver in 2017. This follows a record 27,914 housing starts in 2016. Data to date is consistent with that forecast.
However, not all sites will sprout homes in the immediate future.
One of the bugbears of developers in many municipalities is lengthy development times. Many other sites must also undergo rezoning, with sites serving as income-producing properties in the interim.
None of this helps to alleviate the crunch in inventories outlined in Surrey-based Fifth Avenue Real Estate Marketing Ltd.’s year-end report.
“Supply levels remain stressed,” the report states, noting that every municipality in Metro Vancouver is a “green light” for multi-family development.
The volume of land sales indicates that developers have their pistons primed, but market analyst Michael Ferreira, whose firm Urban Analytics Inc. supplies Fifth Avenue with its data, says approvals and financing have been slow to come.
“While there are a lot of projects going through the process that could get approved and come onto the market, we’ve seen fewer new projects get launched to date in [the first quarter] than we’d anticipated,” Ferreira said. “It just seems to be taking longer and longer to get projects to market for a variety of reasons.”
Buyer shifts
Sotheby’s International Realty Canada reported a significant shift last week in the kinds of queries Chinese real estate site Juwai.com received following a hike in the property transfer tax on foreign purchases of residential properties in Metro Vancouver.
Vancouver queries plummeted 80% in July and August 2016 as the tax kicked in, before settling at about 75% of the previous year’s queries in the final months of the year. (Sotheby’s didn’t release the actual volume of queries.)
Actual buyer activity reveals a parallel trend.
While it takes time for interest to translate into sales, foreign purchases following the tax hike reached their highest level in November, when interest in Vancouver on Juwai.com was most consistent with the previous year. Sales in other months similarly rose and fell with online interest.
