Yahoo Finance Condo sales pitch: We’ll pay your mortgage
Here’s a sales pitch that not too many homebuyers ever hear: purchase a pre-sale condo, and the developer will cover your mortgage payments for the first two years.
You read that right--principal, interest, and all.
That’s exactly what the Censorio Group is doing at its new project in New Westminster, B.C., called Elliot Street. The company will take care of buyers’ full mortgage payments for two years, regardless of the size or price of the unit.
It’s an uncommon strategy for selling real estate to be sure. According to analysts, it’s also the kind of innovative approach that’s needed in an inflated market.
So what’s the catch to this offer, which is seemingly too good to be true?
There is none, according to Bill Morrison, president of Pilothouse Marketing, which worked with Censorio to come up with the “mortgage incentive plan”.
Elliot Street is one of a few new residential high rises under construction in New West, as it’s known, which is situated 20 kilometres east of Vancouver on the banks of the Fraser River. In an area dominated by low-rise buildings, all of the new projects had seen their sales flat line in recent months, Morrison says. It’s been typical to make about one sale a month for this type of project in this particular location.
Since the mortgage campaign got under way in mid-May, however, sales at the Elliot have seen a dramatic turnaround, increasing by 150 per cent.
“It’s a tougher market out there, which means you have to be more creative” when it comes to reaching buyers, Morrison says. “A lot of incentives or price reductions don’t tend to have an impact, don’t resonate with the buyer. It’s a spectacular opportunity for people to get in the market, especially first-time buyers. Once you scrape and scrounge for a down payment, there’s just no money left. This is basically a two-year holiday to help people get back on track.”
Buyers need to come up with a down payment of 15 per cent. The 130 units in the 19-storey building, which is to be complete in December 2014 and is close to a SkyTrain station, range in price from $224,900 to $719,900.
Here’s an example of what two years’ worth of mortgage payments would look like. Say you get a $300,000 condo. With a $45,000 down payment, and a mortgage for $255,000 at a rate of three per cent for a five-year term with a 25-year amortization, monthly payments work out to be about $1,200. Over 24 months, that amounts to $28,800.
“That’s probably the most aggressive perk I’ve ever seen,” says Ben Rabidoux, an analyst and strategist with M Hanson Advisors, a market research firm. “That’s a big deal.
“That’s quite telling,” he adds. “That certainly doesn’t happen in a strong market.”
Developers tend to be extremely reluctant to drop prices, Rabidoux notes, especially if a number of units have already been sold; for one thing, doing so is a sure-fire way to infuriate people who’d already bought in at the regular price.
Could this type of incentive trigger a trend among developers who are anxious to sell? Might more Canadians be able to say they own a place but won’t have to make any mortgage payments for a while? Possibly, Rabidoux says.
“There can be a trickle-down effect,” he says. “If one person is offering it, by default they’re stealing sales from someone else.
“I can’t imagine you would have seen that a couple of years ago,” he adds.
Real-estate investor and advisor Ozzie Jurock says that the approach is just one of many innovative ways developers are using to woo buyers.
“It’s a marketing system that’s trying to get my [a buyer’s] attention, and it works,” Jurock says. “It’s a good marketing strategy in a market that’s not as hot as it once was.”
Jurock points to other examples of extreme incentives in B.C. Take the Boheme on East Hastings Street, where people buying one- or two-bedroom units got a new Fiat or $15,000 cash. Then there’s the Wall Centre Central Park in Burnaby that’s offering buyers a 3.2 per cent credit off the purchase price.
“For the buyer, this is a good market,” Jurock says, adding that people shouldn’t hesitate to negotiate with developers even on presale units. “I would make an offer to a developer: ‘Look, I’m not going to pay $400,000, but I will pay $365,000,’ for example.
“You should bargain hard with developers,” he adds, “because the market is soft.”
