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3 Ways to Save Fixed-Term Leases

Landlords and property owners can take action to save fixed-term leases and stop changes to tenancy law in British Columbia.

As reported in the Globe and Mail this week, Minister Responsible for Housing Rich Coleman proposes to change the fixed-term tenancy laws for residential landlords in British Columbia. He claims that it’s a “loophole” allowing landlords to skirt rent control laws.
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4 Facts About the Foreign Buyers PTT Multifamily Landlords Should Know

The Foreign Buyers PTT could have a huge impact on the multifamily rental housing market in Vancouver.

Last month, provincial legislation introduced a foreign buyers PTT (Property Transfer Tax) in an attempt to slow overseas investment in Vancouver real estate. Foreign purchasers, particularly from China, have been blamed for fuelling rampant price growth in the Vancouver region.

Multifamily rental apartment buildings and mixed use rental buildings are included in the tax. As a result, this new tax could affect you – multifamily investors and landlords.

Here are 4 Facts About the Foreign Buyers PTT Multifamily Landlords Should Know:

1. Foreign Buyer’s PTT is Really Expensive!!

The new PTT adds an additional 15% to an asset sale purchase price for foreign buyers. That is a staggering price increase over market value on a resale apartment building.

Current PTT is charged at a rate of 1 per cent on the first $200,000; 2 per cent on the portion between $200,000 and $2,000,000; and 3 per cent on any amount over $2,000,000. The new foreign buyers portion would be added on top of current PTT.

Here’s an example:

A non-Canadian buyer of a $2.5 million apartment building would have to pay

1% on the first $200,000 = $2,000
2% on the portion between $200,000 and $2,000,000 = $36,000
3% on the portion between $2,000,000 and $2,500,000 = $15,000
15% foreign buyer PTT = $375,000

Total PTT: $428,000

Think about it. Would you pay $2,928,000 for a building that should cost $2,553,000?

And, how did these “foreign investors” became wealthy in the first place? It probably wasn’t by over-paying for investment deals.

2. Foreign Buyers’ PTT Covers a Huge Area

The Foreign Buyers PTT covers a massive area and most of the apartment buildings in British Columbia.

The tax applies to residential property buyers in Metro Vancouver communities including Anmore, Belcarra, Bowen Island, Burnaby, Coquitlam, Delta, Langley City and Township, Lion’s Bay, Maple Ridge, New Westminster, North Vancouver City and District, Pitt Meadows, Port Coquitlam, Port Moody, Richmond, Surrey, Vancouver, West Vancouver, and White Rock.

Residential property includes detached units, duplexes, multi-family units, apartment buildings, condominiums, mixed-use (residential portion only), manufactured homes, nursing homes, rest homes, bare, undeveloped land and farms.

Of the roughly 6,500 apartment buildings in BC ($1M+), just over 4,000 buildings are affected by this new tax, 3,650 apartment buildings in Metro Vancouver and 354 apartment buildings in Fraser Valley.

A total of 61.5% of the apartment building in British Columbia are affected by this tax.

Foreign-Buyers-PTT-Area-Affected

3. Foreign Buyers Purchased a Lot of Apartment Buildings in 2016

Foreign purchasers invested a lot of money in Vancouver apartment buildings over the past few years. Since the source of capital is difficult to track, nobody has released an exact number of buildings or dollars invested in real estate by non-Canadians. Estimates in the media have ranged from 5% to 30% of the market being “foreign.”

At Multifamily Real Estate Services, we estimate that 18% of buildings sold in Metro Vancouver and Fraser Valley between Jan-Aug, 2016 were purchased by Chinese buyers from outside Canada.

While this is a non-scientific estimate, we used a similar method to a MacDonald Realty study in 2015 and Provincial NDP study from early 2016.

We looked at the names of multifamily purchasers in Metro Vancouver and Fraser Valley. At least 18% are individuals with ethnic Chinese names. Ownership of these properties is often held in a numbered company with an accountant or lawyer’s office the only mailing address. Excluded are all Chinese-Canadians who already own buildings in British Columbia or who we have personally spoken with.

On a personal note, I don’t like this method of analysis and use it only for lack of alternatives. While it’s one of the only ways to determine ownership, using people’s names seems prejudicial. As a method for tracking ownership, it lacks accuracy since we can’t tell who are new-Canadians and who are foreign nationals.

And, for the record, I fully support foreign investment in multifamily apartment buildings and developments. I also believe that all Canadians, regardless of ethnicity, deserve equal rights and opportunities to own property, free from prejudice or fear of recrimination.

Bottom line: 18% is a large number….gargantuan….mammoth!! If even half of those buyers look outside Vancouver, we’re all going to feel it.

4. New PTT Legislation Allows for Municipal Vacancy Taxes

Part of the new law allows municipalities, particularly City of Vancouver, to pass vacancy taxes. Cities can now

▪ enact a vacancy tax bylaw covering unoccupied residential properties; and
▪ impose an annual vacancy tax as part of the property tax payable by the registered property owner.

City of Vancouver staff are examining how they’ll move forward with the empty homes tax, according to Sara Couper, City of Vancouver Communications Manager. They plan to update council this fall.

This update will likely include details such as the tax rate, exemptions, methods to determine taxable properties, records of taxable properties, penalties, a process to hear and determine complaints, and the types of affordable housing initiatives that can be funded by tax revenue. The city will be conducting a public consultation this fall.

If passed, a vacancy tax may contribute to an increase in properties for rent.

Adding it All Up

In conclusion, the new Foreign Buyers PTT could have substantial impact on the Vancouver market.

By the numbers:

  • 15% over fair market value is what a foreign investor would have to pay

  • 60% of all existing apartment buildings in British Columbia are affected by this tax

  • 18% percent of properties sold Jan-Aug 2016 went to Chinese investors

  • 50-50 chance we end up with vacancy tax in Vancouver

 

And finally, two bonus questions for the owners and investors reading this:

  1. How will this new tax affect your current investments, sales and near-future decisions?
  2. What action can you take to benefit from this information?

 

Feel free to leave a comment or question below.

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7 Things to Remember About the Vancouver Real Estate Boom

The Vancouver real estate boom is no secret. Prices have exceeding 20 per cent year-over-year growth. Given already high prices the acceleration in prices prompts the obvious question: What happens next?

In this article, we look to past periods of accelerating prices for answers. While many like to think this market is unique, there have been 7 times in history that Vancouver has experienced similar growth. In fact, the title of this post, “7 Things to Remember” are actually 7 Times to Remember when real estate prices performed similar to 2016.

This analysis is not a crystal-ball forecast, but rather an examination of what happens to Vancouver real estate boom prices after periods of rapid acceleration.

Vancouver Real Estate Boom HistoryAnalysis:

Periods of Vancouver real estate boom, defined as 20 per cent or higher year-over-year growth, are far from unusual in Vancouver. In fact, since 1981, there have been 46 months in which prices rose by more than 20 per cent on a year-over-year basis and 38 of those months occurred prior to 2010.

To provide a benchmark for the aftermath of a period of rapid price acceleration, we estimated a statistical model that does a good job explaining this data. In particular, it demonstrates that price growth basically returns to the average.

After an acceleration of home prices, the percentage change in growth tends to trend back to its long-run average growth rate. These findings are further confirmed by a the historical average of price growth following periods of 20% y/y price increases.

While these summary measures provide us with a general idea of how prices typically evolve following a period of acceleration, it is also informative to examine each period of price acceleration individually.

Excluding the highly anomalous 1981 market, there were 7 Times to Remember of price acceleration in the REBGV area over the past 35 years:

1988 and 1989:

Growth in home prices breached 20 per cent or more on a year-over-year basis six times in 1988 and re-accelerated into 1989, peaking at 45 per cent year-over-year in February 1989. From 1989 to early 1990, price growth averaged 30 per cent before eventually turning negative in October 1990, following a sharp increase in interest rates and the onset of a severe Canadian recession.

1993:

Home price growth tipped over 20 per cent for just one month in 1993 before trending to single digit growth within 12 months.

1995:

After a steady rise throughout 1994, home prices rose 23 per cent in February of 1995 but sharply corrected within six months, turning negative through the late 1990s as the lingering effects of the leaky condo crisis and significant net losses of interprovincial migrants dampened housing demand.

2006:

After a long period of relative calm in the Metro Vancouver housing market, prices accelerated through the early 2000s, eventually reaching growth of 20 per cent or higher in seven of 12 months of 2006. Strong price growth continued until the onset of the Global Financial Crisis in 2008 and ensuing recession which sent prices lower for several months in 2008 and early 2009.

2009:

The recovery from the financial crisis and subsequent recession saw prices rise as interest rates fell to historical lows and home sales surged from pent-up demand and rising affordability. By the end of 2009, home prices were back to their pre-recession level.

2011:

Strong growth in home prices was restricted to detached homes as a result of their relative scarcity. The federal government, through the Canada Mortgage and Housing Corporation, tightened mortgage insurance regulations. These tightening measures included requiring all insured borrowers to qualify at the five-year fixed rate and also a reduction of amortization periods on insured mortgages to 30 years in 2011, and eventually to 25 years in 2012. These changes had a strong impact on demand, and price growth turned negative in late 2011.

2016:

The year started with home prices posting 30 per cent year-over-year increases, which moderated to 16.5 per cent by May.

Vancouver Real Estate Boom TrendMost periods of price acceleration were followed by a moderation of price growth within 12 months. In two of the historical periods, price growth turned negative in the 12 months following a rapid acceleration. However, these periods coincided with an idiosyncratic or external shock, such as the leaky condo crisis of the mid to late 1990s, recessions or a tightening of monetary or macroprudential policy.

Using history as a guide to what comes next for the Vancouver housing market, one would expect that without a major economic shock or significant change in housing policy, that conventional market dynamics of supply and demand will take hold and growth in home prices will likely trend lower over the next 12 months.

 

The last question about the Vancouver real estate boom is one that only you can answer: How will you benefit?

(Parts of this article are copywrite BCREA. Reprinted with permission.)
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BC Rent Increases 3.7% in 2017

Allowable rent increases 3.7% for 2017. This is effective for all rent increases from January 1st 2017 through the end of the year.

For both residential tenancies and mobile home park tenancies, the allowable rate is 3.70%.  Allowable increase is just slightly above the 10-year average of 3.36%.  Graph above shows allowable increase over the past decade.

If you’d like to increase rent for your tenants, make sure you give the required three month notice. And, use the appropriate form from Residential Tenancy Branch HERE.

 

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3 Serious Property Tax Changes That Affect Your Next Purchase

The BC Government’s 2016/2017 budget contained several measures related to housing, including the most significant changes ever made to the Property Transfer Tax (PTT). The changes didn’t quite meet BC Real Estate Association’s expectations, but there’s some good news for real estate consumers—at least in the short term.  Here are the 3 Serious Property Tax Changes That Affect Your Next Purchase:

  • Third tier over $2 million – Effective February 17, 2016, the PTT rate increased to 3% (from 2%) on the portion of a property’s fair market value above $2 million. Rates of 1% on the first $200,000 of a property’s fair market value and 2% on the fair market value between $200,000 and $2 million continue to apply. More information: https://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax.
  • Data on citizenship – Effective in spring 2016, disclosure of citizenship will be required, on registration of a taxable transaction. This will apply to individuals and to corporations. The amendments will also require the disclosure of the names, addresses and citizenship information of settlors and beneficiaries of bare trusts.

(Source: BCREA Communications)