Opinion:The Competition Bureau is right to open the MLS

Chris Seepe
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The Competition Bureau, an independent federal agency responsible for the administration and enforcement of the Competition Act, is at war with Canadian organized real estate.

The bureau claims, “The overwhelming majority of real estate transactions in Canada are brokered through the MLS system. Realtors must agree to comply with CREA’s restrictions on the service options they provide to Canadian consumers …(the bureau) wants these anti-competitive rules removed so that consumers can benefit from greater choice.”

The bureau is right to open the MLS, but for the wrong reasons.

Obtaining information about a property and a seller from the MLS doesn’t empower a person with the skill and knowledge needed to make an informed buy or sell decision. Just having a grasp of the 135 acts and codes that affect Canadian real estate is daunting.

If the MLS was opened up, the public would quickly learn the hard way about the true value of using a Realtor. It would also substantially raise the bar of skill, duty and professionalism of Realtors; not because most Realtors aren’t professional, but because a great many of them take only three two-week courses before they are licensed to trade in real estate. Six weeks’ training is likely not enough to properly prepare them to sell an oil refinery, farm, retail plaza or arguably the most litigious-prone property of all – cottages.

The Toronto Real Estate Board’s membership is currently about 38,000. Of these, almost 4,000 became Realtors and 1,320 left the profession between August 2012 and June 2013. This kind of turnover makes the odds high that many members of the public will meet a Realtor who, though licensed, is still not qualified to assist a family investing their life savings in what is likely to be the most important financial decision they’ll ever make; and that doesn’t include the exponential complexities of commercial real estate.

So what’s any of that got to do with opening up the MLS to the public?

Everything.

The book, music, television and movie industries (all intellectual properties like the MLS) are going through a world-wide sea change, with traditional ways of doing things being violently uprooted. This is primarily because technology has empowered end users to bypass traditional industry distribution channels, regulators and infrastructure. This is exactly what the bureau’s challenge is about – empowering the public to bypass the gatekeepers of privileged MLS data.

The bureau’s non-competition argument isn’t at odds with the best interests of the Canadian public as much as it is with the 100,000 Canadian Realtors. The public benefits from fierce competition among Realtors who often self-destruct by offering sub-one-per-cent commission rates, usually with accompanying sub-standard service, in order to win business. Price (but not value) aside, this isn’t in the best interest of the public.

Conversely, Canadian MLS systems are antiquated. Their functionality, presentation, technology and performance are akin to using a slide rule in a world of computers. But Realtors can’t switch to a better MLS and there is only one real estate board per geographic territory. While real estate boards are the essential infrastructure needed to build, represent and protect the industry’s profession values, ethics and business processes, they could do more to monetize opportunities, maximize return on Realtor’s fees and be more responsive to Realtor needs, all resulting in a superior service to the public.

Opening the MLS would mean organized real estate would have to re-invent itself but it should not give up ownership or control of the MLS. It should divest itself of delivering MLS technology and services and instead focus on licensing the MLS brand on a non-exclusive basis to qualified entities that can prove their ability to deliver world-class information technology solutions. Let the best data delivery provider win, so long as the Realtor only has to input the listing information once for all vendors.

These vendors would exponentially advance the ease of use, relevancy, quality, speed, functionality, interoperability with other devices, North American-wide (perhaps even world-wide) interconnectivity with other Realtors, investors, buyers and sellers, and a hundred other benefits.

For example, Coca Cola, one of the world’s most recognized brands, does not own any bottling companies. It owns hundreds of brands and trademarks, is responsible for consumer marketing and manufactures concentrates, beverage bases and syrups. The company then sells to about 250 bottling partners that manufacture, package, merchandise and distribute the final branded beverages to customers and vending partners, who in turn sell to the consuming masses worldwide.

CREA, in co-operation with member real estate boards, could do exactly the same thing. With multiple, open MLS systems competing against one another (all under the revenue-share license umbrella of CREA), tens of millions of eyeballs would see property listings, instead of just 100,000 Realtors with varying levels of marketing skills and resources. This would be serving the best interests of the public and it would address the bureau’s non-competition concern.

So, how to finance this radical change?

Google built a $10-billion company in just 10 years by providing free information. Ninety-nine per cent of that income came from advertising revenue. Tens of thousands of advertisers would pay to advertise their products and services on the MLS to local communities – the trades, medical, architects, home alarms, Realtors and so on. Thousands more advertisers would pay to reach national and international MLS users. It could  generate hundreds of millions in revenue for the real estate boards, which could apply that money to all kinds of Realtor-improvement programs. This too would serve the best interests of the public.

Best of all, everyone wins – a fantastic state-of-the-art delivery service providing relevant, timely and complete real estate information to a wide range of public and institutional users for a multiplicity of purposes, driven by the world’s best technologies.

Anyone raging about the collapse of the Canadian real estate industry need only look to the deregulation of Bell Canada, which remains as strong as ever. The phone system still works as intended, and also provides so much more than anyone could have imagined. Or look to the deregulation of electricity, or, perhaps more apropos, study the dismantling and re-invention of the travel industry. The first year in which more trips were booked online than offline was 2007 and it increased to 60 per cent in 2009, driven by a mixture of commissions paid by vendors and advertising revenues.

Opening the MLS to the public and adopting an appropriate, proven 21^st-century business model would not only benefit the public and Realtors directly, but also provide the financial means by which organized real estate could develop the expanded infrastructure and services needed to provide world-class MLS data delivery services and give the Canadian real estate industry the true professional standing it has always strived to achieve.

Michael Marckwort
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Peter Mitham and Frank O’Brien
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Notwithstanding an optimistic report from the Real Estate Board of Greater Vancouver touting a hot resale market this summer, activity has been light at Adera Development Corp.’s sales centres since spring.

The pace is “traditional” according to Adera president Norm Couttie, who dismisses talk of tough times for low-rise projects such as Breeze, adjacent to Morgan Crossing in South Surrey. While strict financing conditions have edged out some smaller builders, this has left larger, experienced developers able to pursue a relaxed pace.

“It just seems to be very stable,” he said, nonchalantly. “Sales are slow during the summer … we expect them to pick up again in the fall.”

Couttie’s calm demeanour belies the storm observers detect in market data, which suggest the low-rise market presents a significant hazard to the rest of Metro Vancouver’s housing sector.

The cautionary voices include that of veteran analyst Frank Schliewinsky of Vancouver real estate consulting firm G-Force Group, who notes that the start of the summer saw more than 7,000 high-rise condo units being marketed in Metro Vancouver, or the equivalent of more than a year’s supply based on recent absorption trends.

Meanwhile, there are 5,475 low-rise condos sitting unsold or yet to be released in current projects. And, with absorption of low-rise units averaging 200 units a month, Schliewinsky thinks that’s a problem.

“We’re looking at closer to 26 months of sales in terms of unsold low-rise inventory,” he said. “[And] sales are basically going soft, down a little bit from what they were, [and] inventory is shooting up.”

Combined with a lack of appetite among investors – especially foreign investors – for low-rise product in areas such as Surrey, Schliewinsky feels the volume of low-rise units coming to the market pose a significant risk to the market’s stability.

“The focus of the concerns of the Bank of Canada and some of the other economists has been the high-rise market,” he said. “In fact, [in Metro Vancouver] it could be the low-rise market that’s in much more danger of being over-supplied.”

Schliewinsky’s numbers come from market research firm MPC Intelligence Inc., which notes that up to 10,000 low-rise units could be offered to the market in the next 12 months. But he doesn’t expect everyone to take note. While established developers are savvy, there are plenty whose optimism trump sound business sense

“It’s a hard market to turn around. Even after there’s an evident downturn, the product will still be coming on the market for the next six, 12, 18 months,” Schliewinsky said. “Basically, developers are not in an analytical frame of mind, for the most part. They operate differently. … A lot of the time if [a number] doesn’t agree with their point of view or the vision that they have, they want to dismiss it.”

And that’s plain foolish, as any marketer will confirm.

“You can’t just go blindly into [the low-rise] marketplace and think you’re going to win, because it’s not going to happen that easily,” said Mark Belling, principal of Fifth Avenue Real Estate Ltd.

The past five years have seen a sea change in the market, especially south of the Fraser River. Buyers have become more technologically savvy, arriving at sales centres armed with enough information that sales staff serve largely to confirm the hunches of prospective purchasers.

More important, the potential buyers – who are mostly purchasing as owner-occupiers, not investors – have plenty of choice.

South of the Fraser, Belling said developers continue to move product stalled or otherwise delayed in the wake of the 2008 financial crisis. The completion of the Golden Ears Bridge has also opened up neighbourhoods north of the Fraser to potential residents who were previously limited to areas south of the Fraser.

Meanwhile, the emphasis on more walkable communities and greater densities – even in suburban neighbourhoods – have seen more townhomes than ever introduced by smaller, less-experienced developers.

“[It] allows more developers to play in the townhouse sector, which pulls the price point down in order to compete, which then, as a net effect … is competing head-on with a condo,” Belling said. “A consumer can buy a townhouse of about 1,200 square feet with a ground orientation, which is desirable, for the price of a typical condo around 1,000 square feet.”

It’s no surprise that buyers are consequently gravitating to townhomes, putting pressure on low-rise condo developers that haven’t adjusted their expectations to the market. While both segments of the market are over-supplied, townhomes are doing better at holding their own because a significant differential still exists between them and single-detached properties.

“Condos face two forces in the new-build sector: their own class plus the townhouse sector,” Belling said.

While this may not be good news for developers, many of whom are attempting to sell units either at break-even pricing or below cost, he sees it as good news for buyers – especially when combined with interest rates that remain the lowest they’ve been in a lifetime.

“It’s nothing but win [for buyers],” he said.

Buyer incentives

In Metro Vancouver’s competitive new-condominium market, developers have rolled out a lot of buyer incentives this year. And they’ve worked. An example was the Elliott in New Westminster, aimed at investors, with 130 strata units priced from sub-$200,000 up to $450,000. Censorio Group offered to guarantee rental income for the next seven years at an average of $1,500 per month. The project sold right out.

The Hudson Lofts in Abbotsford offered to accept monthly payments until the project completes, at $200 per month, until buyers had paid the 5 per cent down payment. This project, part of the Central Park Village development, also sold out.

Millennium Group offered buyers of its lowrise Bohème condo development in East Vancouver a free Fiat 500 – 15 cars were awarded as the project sold out – but most incentives are wrinkles to lower the cost of admission for first-time buyers.

The real deals, according to marketer Vince Taylor, president of Pilot House Marketing Ltd., are the ones that prove that a developer “has skin in the game” and is going to be there for the long haul with buyers.

In all cases, developers also want to retain the value of the condos. The idea is to keep prices at the same level but to use creative ways to help more buyers in. For example, a number of developers are offering to waive the sales tax on new townhomes and low-rise condo projects and others are offering free upgrades for the first buyers.

Highrise developers are also offering some generous perks.

Developer Rize Alliance Properties Ltd. has one of the most aggressive of these incentives: $36,000 in cash or in direct monthly payments of $1,000 per month for 36 months to those who buy the last condos in the Rolston in downtown Vancouver, which is about 90 per cent sold out. Prices start at $389,000 for a one-bedroom unit in the tower, with two bedrooms in the $600,000 range.

Another innovative incentive is a chance to win a two-bedroom condominium at Denna Homes’ Seylynn Village project in North Vancouver.

The developer is giving out 5,000 “golden keys” to visitors, one of which will win the home in the first tower of the three-tower project. The gimmick may not be needed however: the project, launched in June, drew long lineups of buyers on opening day and is already 65 per cent sold out.

from Western Investor September 2013

Frank O;Brien
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REBGV Stats Report

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August 2013 Stats Report From REBGV

Augsut activity in the Greater Vancouver housing market finished well above last year’s pace and slightly below the 10 year average for the month………

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