The Vancouver Sun wrote an interesting article today regarding the different perspective of landowners and developers' expectations.
Most landowners have not accepted the fact that the market is changing rapidly, due to price resistance from the consumer, increased in construction cost, fear of recession in the US and increased expectations from municipalities on their levies on development. Landowners are still thinking of the rapid escalating prices of their land following the pattern in the last 4 years and projected that their land will be worth a certain value, as if the trend of price increase will still continue on the same pace.
During the last few years, developers were able to pay the premium future price of the site because they too, feel optimistic on future price increases on their end product and in most cases, they were proven right. But times have changed and most developers are more cautious due to the above factors and are more selective on their site acquisition, seeking longer option period to watch the changing market and keeping away from overpriced land.
This is resulting in a "price-gap" which makes it tough for those in the business of land assembly.
Unless the developers become more optimistic and are willing to pay a higher price or the landowners become more realistic and accept the new reality of the market place, we are in a middle of this dry spell, when deals are difficult to put together.
The failure of a few developers who were caught with unexpected construction cost increases have send shock waves in the marketplace. We will need a few more of these failures to change the expectations of the landowners.
Until then, it is a tough go if you are in the land assembly business.
Lawrence Lim, Mayfair Commercial Real Estate Advisors