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No summer place in the cards for many

Derrick Penner,Vancouver Sun, March 31, 2009

Invermere realtor Wende Brash surmises that what’s happening on the streets of Calgary has a lot to do with the slow sales of vacation property on the East Kootenays’ lake fronts and mountainsides.

“What’s happening is that Calgary is starting to do major layoffs,” Brash said in an interview, “and though we do have people who are ready to buy, they’re waiting to see if they have a job.”

Whether it is the oilpatch elites hesitating over job insecurities, homeowners fretting over the evaporating equity in their principal homes or suffering losses in investment portfolios, the capital to invest in British Columbia’s resorts and ski areas is drying up.

Brash added that while interest has started increasing over the last 30 days, “there is no comparison” between the early months of 2009 and the equivalent months of the three or four preceding years, when recreational property markets boomed along with the rest of the province.

“Basically, nothing is happening,” Brash said, estimating that prices have declined some 20 per cent.

Sales in many of B.C.’s resort-oriented markets have slowed considerably from 2008, when transaction levels dropped considerably.

In the area around Kelowna, the local real estate board reports sales down 61 per cent over the first two months of 2009 vs. the same period in 2008.

For the region that includes Penticton and Osoyoos, sales were down 63 per cent for the same period. On Vancouver Island outside Victoria, now connected to Alberta by direct flights on both WestJet and Air Canada, sales were down 53 per cent through January and February.

“The second home and resort market has been a growing component of the Okanagan market over the last three, four years in particular,” Paul Fabri, a Canada Mortgage and Housing Corp. analyst in the agency’s Kelowna office, said in an interview.

Now it is slowing, Fabri said, but rather than being a phenomenon as recent as last fall’s collapse of world stock markets, it has evolved over the last 18 months or so, beginning with the start of deflation in many of Alberta’s previously white-hot real estate markets.

Alberta buyers, fueled by equity gains that they were able to extract from primary residences, were a big influence on the Okanagan’s resort boom, Fabri said.

“We saw prices flatten out in Alberta beginning in late 2006,” Fabri said, “so they weren’t seeing those massive equity gains they did in 2005 and 2006.”

The boom also sparked competition on the supply side, Fabri added.

“Speaking to people in the industry, they’re saying ‘people look at our [project], but they’ll also look at a project in Radium, or Invermere, or Kamloops,” Fabri said. “There are lots of resort areas now trying to tap the market.”

Rudy Nielsen, president of NIHO Land and Cattle Co., a firm that specializes in recreational real estate, said it is getting difficult to sell any recreational property.

“They are tough to move right now,” Nielsen said in an interview. “A lot of developers are in trouble, some have gone into bankruptcy, some are struggling.”

Nielsen said he has survived four significant real estate corrections over his 40-year career, but the current one is “the worst one I’ve seen. We’re selling land, but we’re working hard to do it.”

Nielsen pointed to the Wyndansea Oceanfront Golf Resort near Ucluelet, which recently lost a bid to reorganize its efforts to build a massive $650-million resort property on the west coast of Vancouver Island.

“In 2006 and 2007, it sounded like a hell of a deal,” Nielsen added, “but not now. Everything has come to a standstill.”

Brian Pawluck and Doug Purdie, a partner and associate partner respectively in the consulting firm PricewaterhouseCoopers who advise clients in the hospitality and leisure sector, said that is the situation throughout the industry.

Speaking to the market for condominium hotels — projects in which investors purchase suites in properties that pay them revenue from rentals, while retaining limited use for themselves — Pawluck said the market has “almost evaporated right now.”

“The only projects that are going are those so well advanced that it makes no sense to stop,” Pawluck said. “But new ones, it’s going to be a long time before you see new ones starting.”

Purdie added that besides the evaporation of capital to invest, both by developers and individual buyers who have lost significant sums in investment portfolios and in home equity, the general downturn in tourism makes projects in locations such as Whistler more difficult.

“If [people] are not buying, they’re not coming to ski as they once did,” Purdie said. “And consequently, that underlying investment doesn’t have the same attractiveness.”

Pawluck added that they have seen some stability in the market, based on a pick-up in sales that developers have experienced in the new-housing field, “but we’re going to need a longer period of stability before people jump back in [to invest].”

Nielsen said the types of buyers his firm is dealing with are those looking for safe havens they can escape to, or investors who are hedging that land values will recover faster than stock markets.

“And at least I can jump on it, touch it, clear it,” Nielsen said. “And I figure land is going to come back faster than mutual funds.”