Canadian condominium-project lenders must relax presale requirements to help revive the sinking market, says a legendary architect and developer.

Michael Geller told Connect in an interview that the condo-development has become overly dependent on end users, namely residents who will occupy the units, rather than inventors looking to rent out suites. The presale market is “dead” because governments, through policy changes and other rules, have discouraged investors from investing and end users are reluctant to commit to purchases early due to potential future price drops, he contended.

“I say, let’s go back to the future and build projects with the expectation that you would start the marketing closer to the completion period, rather than wait till you got us 50%, 60%, 70% presales before you even start,” said Geller.

As Connect has reported previously, the investment-condo market has struggled because tenants prefer conventional purpose-built rental suites that are larger than investment-condo units and located in buildings that tend to have more amenities.

Previously, end users committed to condo presales in an effort to avoid future price increases, while developers offered fewer presales. But the percentage of presales has increased to 60% or 70% from, perhaps, 40% to 50%.

Banks have become “addicted” to presales to test the market rather than relying on reviews of other projects and developers’ financial stability to make decisions on loans. Consequently, only a fraction of condo developments are launching and some are pivoting to purpose-built rentals.

“This year, I think it’s going to be just like last year, but more so,” said Geller.

Geller said presales help developers cover taxes, borrowing costs, strata fees and other expenses if some units remain unsold after a project is completed. He called for the onus to be put on developers to demonstrate demand for their projects through feasibility studies and other research.

“They would review the performance of other projects,” he said. “They would look at what potential competing product there might be. And so, the proponent would still be primarily spending the money on preparing plans, preparing feasibility studies and so forth.

“But what they wouldn’t necessarily be doing is spending $1 million on setting up a presentation centre and hiring [legendary condo-marketing specialist] Bob Rennie to come in [as they did previously] and blow out [i.e. sell] as many units in the weekend [as possible] and pay a commission to Bob for the 35%of the units he presold and so forth.”

Such a model worked previously, but due to increased inherent risk, it’s not working anymore, Geller added.

Geller is an award-winning Vancouver-based retired architect, planner, real estate consultant and property developer. He has also served as a UBC and Simon Fraser University professor. Early in his career, he helped expand the Canadian Mortgage and Housing Corporation’s social-housing component across the country while working for the federal agency.