Even as Penticton sees record levels of building permits issued and record real estate sales, there is caution among some developers to avoid getting burned by another economic downturn.
Nine years after the world saw the greatest economic meltdown since the Great Depression, Bruce Schoenne of Schoenne Homes says he’s playing it safe with his developments, expecting another downturn within the next few years.
In particular, Schoenne talked about a project he has coming up on Front Street — a stack of over a dozen rental units that were approved by council earlier this year.
“If that was not for rental purposes … I’d suggest to you that it’s highly unlikely that we would move forward, thinking that we could sell that thing off,” he said, noting that because of the low vacancy rate renting an apartment won’t come with challenges.
“If you look at the past three investment cycles, go back to a peak in 1981, the next peak at 1994, and the next peak in 2006 … you’re 10 to 14 years-ish,” he said. “If history repeats itself, and I think it will, give or take a couple years, I think what you’re going to start finding is that I think we’re coming — I hate to put it this way, because it might be a little bit pessimistic, but I think we’re going to be coming to the end of this peak, soon.”
However, the market does keep expanding in the city. Last year was a record year for both real estate sales in the South Okanagan and building permits issued by Penticton City Hall. This year is well on track to beat last year’s building permits record, and has already defeated the real estate sales record, with a month of sales still left in the year.
November’s real estate figures, published recently by the South Okanagan Real Estate Board, show a total of $1.14 billion change hands in the region, compared to last year’s record-setting $1.12 billion. That record of sales came even as fewer properties were sold — over 2,700, compared to 2,900 last year.
Jobs in the construction industry are above — even if slightly — the number of construction jobs in 2006. According to data released last week by Statistics Canada, there were 1,455 construction jobs, compared to 1,405 in 2006.
“When you actually look back at 2006, the data from back then, it was actually a significant amount of construction happening in the community,” said Anthony Haddad, development services director with the City of Penticton.
“Things slowed down, like it did in many other communities, with the economic downturn in 2008, 2009, so when we look back historically at some of our records, we see some comparisons with that 2006 period.”
Haddad said he does expect the construction boom in the city to continue over the next couple of years. But with the scorn of the economy after the last economic downturn, he said he’s seeing less ambitious projects coming across his desk than the city saw in 2006.
“The proposals that are coming forward to us for our approval processes are a little more modest than they were a few years back. We had a few significant proposals brought before council (in) 2004 to 2006 which actually never got built,” Haddad said.
“What we’re seeing this time around is the development community responding with more modest and more realistic types of development, which is a good thing for the community as well. And we’re seeing different forms of density spread throughout the city.”
Schoenne said he thinks developers are seeing the pattern, particularly among developers who have been around for the last few cycles, and trying to make sure they don’t get caught up building items that they can’t sell off.
“The market’s still strong. We have our townhouse development on Eckhardt Avenue, and last week or the week before sold three units in a day,” he said. “Those type of things which can be phased, like Eckhardt Avenue, as a developer I’m not so exposed because I can stop every four units. I don’t have to build the full 24 units and then get stuck with them.
“I can do four units; if they sell, I move on to the next four. So I limit my exposure, and certainly my perspective over the last six to eight months has been how I can limit my exposure, because based on my knowledge of past history, there could be a turnaround.”
Schoenne specifically pointed to new mortgage rules coming out in January, which he said could slow down the market as well.
The changes are expected to set the bar higher for those looking to borrow to buy property. That is intended to keep people from borrowing what they might not be able to give back — especially if the Bank of Canada brings a more substantial increase to the interest rates than seen earlier this year.
“They’re putting that policy in place to have an impact on the market, or to slow it down, and I think that that’s what’s going to happen when they go ahead and put that in. So as a developer, yeah, you want to be a little bit more cautious right now, because for those who have been through the last two, you know that it’s got to come to an end,” he said.
“And when something lasts too long, you just feel it’s too long, you go ‘oh, I better watch what I’m doing.’”