Should Buyers Beware?
Deciding whether to rent or buy should be based on a lot more than just asking the price
In mid-November, Vancouver`s condo king, Bob Rennie, will take a very public mulligan. That`s when he plans to relaunch sales at the troubled Millennium Water development, the site where Olympic athletes bunked during the Winter Games. For all the praise designers and visitors from around the globe have heaped on the project`s cutting-edge, ultra-green features, the $1-billion Millennium Water sorely lacks one crucial component—buyers. Two-thirds of the 740 units in the complex sit empty. Hence Rennie`s plan to jump-start sales by way of discounts, an HST tax holiday, and a break on property taxes and maintenance fees—initiatives that could knock 14 per cent off the initial price tag of some units.
Vancouver taxpayers, who are ultimately on the hook for any losses, aren`t the only ones eager to know if the gambit pays off. In the eyes of prospective buyers in the city, and across the country for that matter, the high-profile project has become a touchstone for whether the real estate market is about to tank. And for first-time buyers sitting on the fence, the prospect of a sharp correction on the horizon is just one of the factors they must consider before taking the plunge.
The debate over whether to rent or buy has become a permanent fixture of the real estate world. And with roughly 70 per cent of households now owning their own home—a rate even higher than in the U.S., where the cult of home ownership first took root—it`s clear the buy crowd is in the lead. But the economic upheaval of the past three years has brought the issue into focus. On the one hand, those who valued stocks and bonds as a better way to build wealth while renting have likely seen their portfolios decimated. Major indexes plunged to levels not seen in a decade, though they have staged a rebound since. At the same time, the carnage in the U.S. has exposed the risks inherent in bubbly housing markets. "Real estate has been seen as a very good place to put your money during the past decade, but I think sentiment is starting to change," says Benjamin Tal, an economist at CIBC World Markets. "After the subprime crash, people have realized prices can go down quite substantially, even in Canada." Not surprisingly, predictions of a crash abound. David Rosenberg, the chief economist at Gluskin Sheff + Associates and a noted bear, believes house prices in Canada are overvalued by 20 per cent.
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