In a stagnant housing market, developers in Canada are employing various techniques to keep buyers in the dark about actual sales and prices. Some tactics are seriously manipulative, according to industry analysts.
Fake Scarcity Claims
Marketing campaigns often boast that 80 per cent of homes are already sold, aiming to create a sense of scarcity. However, these claims are frequently impossible to verify. Ross McCredie, president of Sutton Realty, which has 6,000 realtors across Canada, says, 'There are a lot of developers who just come out and say their project is 80 per cent sold. But I would say, half the time, with half the developers, it's actually not true.'
High Inventory Levels
Metro Vancouver currently has roughly 2,500 to 3,500 newly completed condos sitting empty, the highest inventory in two decades, according to the Canada Mortgage and Housing Corp. Developers, stuck with an abundance of inventory, do not want would-be buyers to know they are desperate.
Distress Sales Reveal Price Drops
Distress sales sometimes come to light. Vancouver real estate analyst Steve Saretsky found that a two-bedroom condo in Westbank's luxury downtown tower, the Butterfly, was bought before construction for $2.6 million. Now complete, it sold this year for $1.51 million. A similar price drop showed up at Westbank's Kengo Kuma highrise, where a pre-construction unit originally sold for $2.03 million recently resold for $1.38 million.
Limited Listings on MLS
To avoid such losses, developers often restrict how many units are publicly listed. McCredie describes a common scenario: 'If you're looking at a building in which a developer has 100 units left, he's not going to put 100 empty units out there for sale. He's going to tell you there's just three or four for sale.' This practice, while prudent business, lacks transparency.
Despite a plethora of unsold condos, Saretsky notes a contradiction: fewer pre-sale units are being listed on the Multiple Listing Service (MLS), which provides open data on housing market trends. 'This is happening because developers are increasingly restricting pre-sale buyers from listing inventory on the MLS as they attempt to limit price discovery,' Saretsky said.
Private Sales Hide Inventory
Developers have the authority to ensure their project's pre-sale properties are sold privately, or directly between seller and buyer, without an agent. This makes it possible to hide how many units in a building are empty. Saretsky adds, 'I personally don't have any issue with developers selling predominately off-market. It's a free market after all, and is the case in any other major housing market.'
Overall, the lack of transparency in the pre-construction market raises concerns about fair price discovery, leaving buyers at a disadvantage in a slow market.
