Up until now, we’ve only looked at individual examples of properties selling for a loss. I’m sure many people question if these examples are cherry-picked exceptions, or whether these losses are common.
Today I thought we’d do something different and look at a hypothetical five year situation. What would be expected if someone bought a Vancouver condo five years ago and sold today?
The Real Estate Board of Greater Vancouver (REBGV) tracks the price of a “benchmark” condo. The benchmark is intended to measure the price change for comparable properties over time. Similar to the Teranet HPI, or the Case-Shiller Index in the US, it should provide a better estimate for a given property than the average or median price.
According to the REBGV website:
The HPI benchmarks represent the price of a typical property within each market. The HPI takes into consideration what averages and medians do not – items such as lot size, age, number of rooms, etc. These features become the composite of the ‘typical house’ in a given area.
Each month’s sales determine the current prices paid for bedrooms, bathrooms, fireplaces, etc. and apply those new values to the ‘typical’ house model.
Five years ago (July 2008) the benchmark condo price was $381,687. The latest figure is $368,300.
- July 2008 Benchmark: $381,687
- July 2013 Benchmark: $368,300
- Property Transfer Tax: $6,634
- Real Estate Commission: $16,391
- Loss: ($36,411)
The typical condo purchased five years ago and sold today would lose $36,411 – or 9.54%.
Vancouver Housing Blog 
Is this index net of improvements? A lot of the individual condos you have profiled have undergone extensive renovations to give them the price they are able to sell for. If the HPI doesn’t take that into account, the losses you described are underestimated, no?
Good point. As far as I can tell, the HPI doesn’t look at finishes.
Click to access HPI%20Methodology2012.pdf
Ten years ago very few condos had granite, stainless or hardwood. Today the majority of them do. Those upgrades would probably be necessary for a given property value to keep up with the benchmark. If so, you are probably right that these losses are conservative.
Therein lies the rub with comparing your property to the “benchmark property”. Land improvements (structures) are depreciating assets. It takes capital input to keep them from depreciating, in the forms of maintenance, repairs, renovations, upgrades, etc. Your 10 year old condo, which might have been “benchmark” when new 10 years ago, is now old and busted compared to today’s “benchmark” condo. This is especially pronounced in condos, where land value is a small fraction of overall value.
The increase in real estate value is almost solely due to land, which increases when higher density and utility are allowed on it or neighbouring parcels (or simple supply and demand in other words).
Completely agree. This is why when I see colleagues and friends knocking down old houses and building a 1 million dollar mansion (not including land value), I tell them they are putting money into a depreciating asset. They then look at me like I’m crazy–real estate only ever goes up. To which I just shake my head and tell them it’s the land that appreciates. The building depreciates, just like how a car would. And people tell me putting money into stocks is risky. Well how about building a house or laneway home and have that structure have a 100% risk of depreciating? Those bungalows built 40 years ago are worth next to nothing now, whereas had you invested the initial cost of the bungalow in an index fund you would be a multimillionaire ready to retire without worries.