Canada's Housing Bubble

Nov 26, 2010 Kent Spencer The Province

UBC real estate professor Tsur Somerville said Thursday the value of the land tends to be forgotten in relation to the city’s outstanding $740-million loan to developer Millenium.

“People forget about the land piece, but that was where the city was going to get its money,” said Somerville.

“If you don’t get $160 million for the land, that’s losing money.

“It’s the most likely outcome.”

The $160 million is what’s left over from Millenium’s $193-million purchase price, less the company’s down payment.

Millenium Water, a cluster of 1,108 environmentally friendly condos on False Creek, was placed into receivership Wednesday.

It means Vancouver must recoup as much as it can from sale of the luxury units, some 450 of which are still for sale.

Somerville said Vancouver and receiver Ernst and Young have some tough choices to make, likely involving three scenarios:

1. Cut prices and try to sell as quickly as possible. The condos are being offered for $600,000 and up.

“A receiver usually wants to get the money out because the market is uncertain for a ‘new’ condo which is three years old . . . In this case, Vancouver ends up with zero.”

2. Hold out with high prices for as long at it takes.

“It’s hard to find people willing to pay any price for sustainability.”

3. Try something in between.

“There are political and financial costs to each choice.”

Whatever happens, Somerville sees a tough road ahead for city bean counters.

“It’s an inherently bad situation. Hundreds of units are not selling and they’re really very expensive,” he said.

There is a fourth scenario, however implausible, with a happy ending.

Real estate prices could soon rise 40 per cent, condo prices could increase, and cost overruns would be covered.

“Everyone would go away happy,” said Somerville.

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