“Shadow inventory" held by developers and not listed on MLS is expected to grow in Metro Vancouver because of a slow market and scuppered sales, says one Realtor.
But the Liberals’ plan to eliminate GST for first-time homebuyers on homes at or under $1 million could help absorb some of these homes, said Hasan Juma, real estate advisor with Oakwyn Realty Ltd.
“With the GST relief, it gives an incentive to first-time homebuyers to purchase these units off the developers, these units that are ready to go and that first-time homebuyers can move right into,” he said.
Data from Rennie & Associates Realty Ltd. indicates shadow inventory represents about 84 per cent of completed and unsold units.
Juma expects this inventory to grow this year as the condo market struggles, more buildings are completed and some buyers walk away from contracts.
“I’m hearing lots of stories of these purchasers forfeiting their deposits and basically giving the units back to the developer to resell,” Juma said.
“So not only will there be the shadow inventory that the developers currently own, but buyers are unfortunately walking away from units as well, and that’s going to add to the inventory.”
But with forfeited deposits in hand, developers may have more wiggle room to lower their prices.
“They have some built-in margin there, so they can be more flexible with the sale price today,” Juma said.
Shadow inventory exists for several reasons, he said.
Developers don’t want to flood the market with tons of MLS listings in the same new building. Instead, they will only list a small selection of units with different floors, plan types, bedroom counts and views, giving an impression of scarcity and value. Holding back units also allows developers to bet on a rising market, Juma said.
It’s "very typical" for developers to hold shadow inventory, said Ryan Berlin, vice-president of intelligence and head economist with real estate marketer Rennie.
Berlin said there are currently between 15,000 and 16,000 homes available in presale in Metro Vancouver. Of those, about 2,500 are completed and unsold. But with only about 400 completed and unsold listings on MLS, this means shadow inventory accounts for around 84 per cent of completed and unsold inventory.
“That’s the norm,” Berlin said. “You find it closer to 100 per cent during periods where we don’t have as much completed and unsold inventory.”
The Rennie economist said the Liberals’ GST measure could help absorb shadow inventory “at the margin.”
“I don’t think it’s going to entice somebody who wasn’t going to buy to buy. But I do think that if you were on the fence, you had your down payment in tow and you know what kind of mortgage you qualify for, this could definitely tip the scales,” Berlin said.
