The Boom Reaches Middle Age
Amid rule changes and interest-rate rises, developers are working hard to address the residential supply problem. But there are still challenges few outside the industry know about
It doesn’t take long after the Christmas holidays to get British Columbians talking about real estate. For while lawyers, agents and municipal staff are all taking a much-needed break, the BC Assessment Authority is bracing for a media onslaught once its annual notices of assessment are sent out and posted online for all British Columbians to see.
It’s the one time each year when members of the Appraisal Institute of Canada – B.C., most specifically those who work for the BC Assessment office, are in the news. Notably, Lululemon founder Chip Wilson’s Point Grey Road mansion remains the province’s most highly assessed property—up $3 million from 2017 to $78.8 million.
There were surprises within this year’s data. Due to the lack of supply and the upcoming tightening of lending rules for first-time homebuyers, provincial assessments for condominiums rocketed through the roof—assisted by foreign buyers shifting their purchases from single-family homes to cheaper properties. While single-family homes crept up between 1.5 and 2.6 percent throughout the Lower Mainland, assessments for strata-title condominiums and townhomes rose from 15 to 30 percent, especially in the fast-growing Fraser Valley.
The untold story behind the current assessments has taken place on the commercial front, especially in the City of Vancouver, where many small businesses that happen to own their buildings were hammered with assessment increases of over 50 percent, on top of 20 to 30 percent the previous year.
Graham Held’s take: Don’t shoot the messenger. Held is president of the Appraisal Institute of Canada – BC and is a deputy assessor with BC Assessment in Kamloops. Established in 1973, AIC-BC represents approximately 1,000 members and delivers AIC’S member programs and services.
“What’s important to remember is that each assessment is taken from a snapshot in time; specifically, on July 1, 2017,” Held says. With over two million properties in the province to appraise annually, his office utilizes both technology and proven principles to ensure fairness and accuracy. And while the media usually publishes stories about rare anomalies where assessments have skyrocketed, perhaps unfairly, the truth is that in any given year less than two percent of property owners in the province will challenge their assessment.
While BC Assessment grabs the headlines, Held notes that “many of our members are employed as fee-appraisers, who are certified to appraise properties for a wide range of purposes, most commonly for mortgage approval from banks.”
These appraisers will likely be very busy in 2018, since the quantitative easing of money supply that has made borrowing easy for the past decade has come to an end with the first of two, and possibly three, interest rate hikes coming up. These interest rates affect both homeowners and private investors.
Arash Rezai is a commercial real estate broker with Lee and Associates (formerly DTZ Vancouver) focusing on investment properties. “Over the past 50 years our Vancouver office and its brokers have been very successful due to their relationships and partnerships within the industry,” he says.
Rezai observes that “there is a lot of active capital in Vancouver, and the market is healthy and competitive. We
expect to see more properties become available in 2018, so investors should have more opportunities.” He notes that some foreign investors have been shifting from residential to commercial investments due to the provincial government’s 15 percent foreign buyer’s tax.
“Investors are always chasing the next up-and-coming neighbourhood,” Rezai says. “Last year it was New Westminster and currently it’s Port Moody, due to new official community plans in each jurisdiction. The prime investment properties continue to be ones that offer future redevelopment potential near transit hubs or close to downtown.”
Political headwinds could buffet the commercial outlook as well. Provincial and federal budgets are soon due, and municipal elections will take place in the fall. All of these things can make investors jittery.
There is pain, meanwhile, for many small business owners. Many commercial and retail leases are “triple net,” meaning that an increase in assessments—and the concurrent rise in property taxes—is passed on directly to the lessee.
Warren Smithies, senior vice-president at Martello Property Services, believes that ill-conceived tax policies by municipal governments have unfairly driven up property taxes for main street retailers. He cautions that “for the long-term health of our local restaurants, shops and bars, municipalities like the City of Vancouver have to stop levying commercial property tax mill rates on undeveloped density that will one day be turned into towers of condos. They should be taxed at residential rates, which is their future use.”
Commercial mill rates are four times higher than residential, and those increases are directly passed on to the business owner. Smithies warns that “if this practice is not halted, it will inevitably result in further hollowing out of our main streets as the city continues to
densify these neighbourhoods.”
Matt Wansink is a lawyer with SHK Law Corporation whose practice includes commercial real estate. He concurs that “even with the price increases in these properties eroding the historical cap rate averages for commercial property, there is no shortage of buyers when they come on the market.”
Recent changes to B.C.’S Strata Property Act could turn into an opportunity for savvy developers—especially in figuring out the “sweet-spot formula” assembling or winding up a strata property. “With many companies priced out of buying Class A properties, being able to successfully identify viable second- or third-tier target properties and executing a hassle-free strata wind-up and assembly and subsequent rezoning could be a very good opportunity to deliver above-average returns,” Wansink says.
“Complexity” is the word Jennifer Podmore Russell uses to describe the challenges and opportunities that putting together a major project demands today. As the daughter of Concert Properties founder David Podmore, Podmore Russell was born into one of Canada’s great developer families. Today she serves as vice-president of portfolio services for the Rennie Group and chair of the Vancouver Real Estate Forum. “In the Lower Mainland, real estate developers have 20 municipalities to deal with, which means 20 different councils and many different regulations. And if you have a large project located close to transit, then larger bodies like Translink and Metro Vancouver planning departments need to supply their feedback.”
The focus of this year’s Vancouver Real Estate Forum, she says, is to “hear from other community leaders and their points of view, because we all have the same challenges.” All facets of the real-estate and construction industry
are dealing with finding and paying qualified staff at a time when housing affordability is sky-high. “Most of us who grew up in Vancouver would never be able to afford the houses that we grew up in if we were just starting out now,” Podmore says. “The Forum has traditionally been a business-to-business gathering, but it’s time to address the various complexities we have in the Vancouver market and advance the conversation so that the problems of today do not become more acute.”
Sustainably planned and muchneeded housing might just arise on the mountainous slopes of West Vancouver, of all places. Located along the road that leads to Cypress Mountain, Cypress Village is envisioned as a multi-faceted and ambitious mixed-use development that is currently wending its way through the District of West Vancouver’s approval process.
Cypress Village will occupy 150 acres with a majority of the surrounding mountainside conserved as protected environmental areas and public recreational features. The development is envisioned to include a housing mix of mid-rise condominiums, rental apartments, townhomes, single family homes, retail and professional work space.
Geoff Croll, president of proponent British Pacific Properties, calls Cypress Village “a transformational master plan that will be built on modern-day planning principles which put sustainability at the forefront. Cypress Village will be a complete community that will include a diversity of housing options, something which is currently lacking in West Vancouver.”
Croll notes that “British Pacific Properties first proposed a mixed-used village located just above the Upper Levels Highway in 2006. We are acutely aware of the urgency in the community when it comes to housing unaffordability and lack of housing options, and we are ready to launch this long-term project as soon as possible. If given the green light today, we could have residents living in Cypress Village within four years.”