The B.C. government is raising the price ceiling for new home rebates under the harmonized sales tax (HST) and has announced that the controversial tax will officially end on April 1, 2013.

Finance Minister Kevin Falcon told home builders at a Victoria meeting February 17 that the new housing rebate ceiling will be raised to $850,000, effective April 1, 2012, from $525,000. According to Falcon, the new limit will cover more than 90 per cent of new homes built in B.C. The rebate will be for a maximum of $42,500, he said. Also, for the first time, the HST rebate has been extended to secondary vacation or recreational homes, which will qualify for the same price threshold and rebate as new principal residences. The HST, a 12 per cent sales tax,  has always applied only to newly built homes, not resale housing

"B.C. will return to the PST [7 per cent provincial sales tax] on April 1, 2013," Falcon said.

The HST  was voted out during a province-wide referendum in August  2011, and home builders had complained that the lack of clear transition rules was slowing sales of new homes. Peter Simpson, executive president of the Greater Vancouver Home Builders' Association, said home builders are generally happy "that we finally have some clarity."  Simpson called Falcon's announcement "a good step forward."

At least 80 foreclosed homes have been shoved onto the slow Kelowna real estate market since January 1, according to local real estate agents, who say the trend reflects a four-year downturn in the once white-hot Okanagan market. There are now more than 170 foreclosed homes listed for sale across the Central Okanagan, 10 times higher than a year ago. 

"I was shocked myself," said Justin Neumann of Century 21Kelowna, who said residential foreclosures are normally quite rare in the Okanagan. But he expects them to increase. "Looking at trends in this market, I think we are cruising to 200 foreclosures being listed this year," he said.

While most agents point to the overbuilt condominium market for the spike in bank-ordered sales, Neumann said about half the foreclosures this year are single-family detached houses. "These are local families," he said, "not speculators."

Most banks are protected from defaults because many homes have mortgage insurance, usually through Canada Mortgage and Housing Corporation, Neumann noted."Don't expect to see screaming deals on these foreclosures," Neumann said, "the homes are being listed at market value."

However, today's market value can be 15 per cent to 25 per cent lower than when homes were purchased four years ago, according to figures from the Okanagan Mainline Real Estate Board. 

While Saskatchewan rural residents continue to decamp for the city, according to the latest Census numbers, the value of their farms is increasing faster than anywhere else in the country.The rural exodus has been ongoing for years in the province, but according to Farm Credit Canada, Saskatchewan farmland values increased an average of 11.6 per cent during the first half of 2011, the highest average increase across Canada. This followed gains of 2.7 per cent and 2.9 per cent in the two previous reporting periods.

Values increased by an average of nearly 2 per cent per month between January 1 and June 30, 2011, the Farm Credit survey found.

"Demand significantly exceeded supply, as land in Saskatchewan is considered a safe investment and is currently providing a solid return," the report states, adding that low interest rates have also helped boost sales.

The largest price increases occurred in the northwest and southeast areas of the province, which experienced good crops and strong commodity prices in the fall of 2010. Factors impacting this increase included out-of-province farmers relocating to Saskatchewan to purchase competitively priced farmland, larger local producers expanding their land base, the oil and gas influence (especially in the Bakken oilfield), and continued demand for heavy clay soils.

Saskatchewan saw record-setting growth over the past five years, according to the Cenus, with the increase in population of 65,224 the highest since Statistics Canada began tracking population trends in 1956. The province's population was 1,063, 535 as of October of last year, the first time it has broken the one million barrier since 1986.

All the growth is in the urban areas. Rural municipalities saw an overall population drop of .9 per cent, while villages fell 9 per cent. According to the Census, Saskatoon grew 9.8 per cent, increasing to 222,189; Regina was up 7.7 per cent to 193,100; Prince Albert grew by 1,002 to 35,129; and Moose Jaw's population increased by 1,142 to 33,274.

Cash-heavy Cold Lake, considered the number two oil sands community in Alberta, is poised to become a white-hot market for residential landlords this year. Pub and restaurant owners should also feel the heat.

The reason: Imperial Oil will not built the customary on-site accomodation for workers as it expands its giant Nabiye oil sands project. Nabiye, already the largest extraction facility in the province, will boost production by 40,000 barrels of oil per day, or about 2.5 per cent of Alberta’s total oil sands output. Instead of living at camps on site, hundreds of high-paid employees will be looking for rental housing, meals and entertainment in Cold Lake, the closest town to Imperial's facilities.

Cold Lake Mayor Craig Copeland says his community is more prepared for this expansion than it was for previous Imperial projects, but concedes accommodation will be stretched.

"It's the rental market in Cold Lake that will get really tight," said Copeland, noting that this will pose significant challenges for lower paid workers in some other industries and for renters on the bottom end of the Department of National Defence pay scales at CFB Cold Lake.

Copeland says some significant hotel expansions and upgrades will help when work kicks off in September, but he doesn't expect there will be any significant multi-family housing projects completed in the community before work on Nabiye starts.

That means investors with rental capacity in the city of 14,000 are now sitting in a good position to cash in on the next boom. The uptick in oil investment will further grease Cold Lake, which reached an agreement with the province last year that will pump $11 million annually into city coffers starting in 2012. Under that deal, tax revenue from the Cold Lake Weapons Range will be diverted to the fast-growing community, Copeland explained.

 Some B.C. condo owners and business people who bought their working space may be "shocked" next month as changes stream into the strata market, observers say.

“The [B.C] government sees no difference between commercial or residential stratas,” said Neil Hamilton, senior property advisor with MacDonald Realty Ltd. in Vancouver, who has been monitoring changes to the B.C. Strata Property Act, which come into effect March 13.

The Act revisions are considered the most significant rule changes since the Strata Property Act superseded the B.C. Condominium Act 14 years ago.

The changes means that every strata corporation will have to file a “depreciation report” every three years, outlining the current conditions and of the strata building, and also file and continually update a 30-year budget for repair, maintenance and upgrades. The first depreciation reports must be filed by the end of 2013.

The changes were forced because some B.C. residential strata corporations, the first of which are now 40 years old, have failed to keep contingency funds at levels required under the Strata Property Act.

“The government is trying to clean up the on-going upgrade, repair, maintenance process in B.C. [residential] stratas,” Hamilton said, “it is for consumer protection.”

The changes could raise strata fees, he added, as strata corporations pay to prepare and update the reports, which could run as high as $50,000 for a large condominium building.

A strata corporation will be allowed to exempt itself from the regulations by a 75 per cent vote of members, with each exemption good for 18 months. Also, buildings with five or less units – which can be typical in a commercial strata building – are also exempt.

But strata owners who opt for an exemption may wish they hadn’t, advises Ed Wilson, partner with the Vancouver law firm of Lawson Lundell LLP, who has advised the provincial government on real estate legislation. Wilson said the depreciation reports will be likely be requested by potential strata buyers and mortgage lenders.

“If you don’t have a report, a buyer may not want to buy and a lender may not want to lend,” Wilson said. Even strata owners in buildings with five or less units, which are automatically exempt, may want to file the reports for financing and insurance purposes, he added.

The changes also make it mandatory to attach a depreciation report to the existing disclosure form when a strata unit is being sold. Hamilton added.

“Many strata corporations try to postpone maintenance, repairs and upgrades in order to keep their owners happy and strata fees low. This is short-term thinking,” Hamilton said, “In rainy Vancouver, a building can deteriorate fairly quickly.”

Wilson said the changes could effect first-time buyers of older residential condos, some of which were built in the 1970s. “Buyers may have bought them cheap with high-ratio financing, and with the depreciation reports find they have to pay $50,000 to repair their unit,” he explained. “Now they are underwater.”

And, unlike commercial strata owners, condo owners won’t be able to deduct the costs of repairs from their taxable income.

Stratas now account for more than half of the residential housing sales in Metro Vancouver, but less than 10 per cent of industrial and commercial space, according to industry estimates.

The depreciation reports should also concern commercial strata investors who rent their units to tenants, said Wilson. “The question is ‘who is responsible for paying for the repairs, the tenant or the landlord investor’?” Commercial leases vary, with some saying the tenant is responsible for special levies, while others do not, he explained.

“These [strata act] changes are a good thing,” Wilson said, noting that similar legislation is in effect in Alberta and Ontario, “but they are going to be a shock to some people.” 

Building activity in Red Deer remained in bounce-back mode for 2011.

According to City of Red Deer figures, building-permit values in the central Alberta city were up about 70 per cent for the first 11 months of the year, with 2011 permits valued at $160.4 million, versus only $93.8 million for the same period in 2010.

Commercial and industrial values more than doubled those, while residential values were up by a more modest 10 per cent.

from Western Investor February 2012

With large investors buying apartment blocks, the rental vacancy falling and the oil-fired city economy booming, developers have started or built more than 1,800 new rental apartments in Edmonton in the past year. In a recent survey, Avison Young counted more than a dozen new rental buildings underway or complete from downtown to the suburbs, including two 16-storey downtown towers totalling about 500 units that will complete within months. In Leduc, an industrial suburb that serves the oil industry, a five building, 269-unit rental complex opened late last year. Other large rental buildings are underway in Fort Saskatchewan and St. Albert, despite multi-family-zoned land prices topping $910,000 per acre.

Meanwhile, real estate investment trusts and other large landlords have swooped into Alberta's capital to buy up larger rental buildings and portfolios, Avison Young confirms. While low-rise apartment buildings are selling for an average of $111,000 per door, prime concrete buildings are moving in the $130,000 "per door" range or higher, based on sales reported to Western Investor's popular Done Deals section.

Average capitalization rates on Edmonton apartments were in the 6.5 per cent to 6.75 per cent range last year, but "aggressive competition for new product" has pushed cap rates down to the 6 per cent amidst multiple bid situations early in 2012, Avison Young found. An example is a 94-suite rental building on 37th Avenue that recently sold for $186,170 per apartment with a cap rate of 6.1 per cent. 

Eager landlords are understandable. With oil flirting with US$100 per barrel, there has been a rush of workers into the city and its suburbs as resource projects expand. The unemployment rate is now below 5 per cent and Edmonton's economy is expected to grow 3.4 per cent this year and 4 per cent in 2013. The average rent for a two-bedroom Edmonton apartment is $1,036 per month, and rising in a city with no rent controls.

A shared ownership concept that has been used in B.C. for more than a decade to finance hotel development appears to be ending as investors face staggering losses in hotel-condos and fractional real estate plays. Now hotel developers are increasingly looking at mixed-use projects, especially full ownership strata residential, to get new projects off the ground.

“Every hotel condo investment [in B.C.] has lost money for the investor,” said real estate consultant Ozzie Jurock. “Every one.”

The evidence is in a frightening free fall in prices.

At Sun Peaks ski resort near Kamloops, hotel condos at the Sunset Lodge and Hearthstone Lodge that once sold for around $199,000 are now being offered at from $19,000 to $25,000 – with some selling for even less. The typical arrangement allow owners 56 days of use per year with the units potentially rented the rest of the time. The catch, and what has made them such a poor investment, is that monthly fees for owners can easily top $360 per month and the owner receives less than half of any rental income, with the rest going to management. In most cases, rental incomes don’t cover the management fees.

A Vancouver investor who bought a shared unit at the Penticton Lakeside Resort in the Okanagan for $140,000 three years ago estimates the unit has lost half its value. “We only used it for 12 days in the last two years,” said the buyer, who asked not to be named, “but the rentals have never covered our costs.”

At Whistler, hotel condos – known as Phase 2 units - are selling this year for less than they were in 1999, according to veteran Whistler realtor Mike Wintemute. Recent listings show one-bedroom Phase 2 suites at Whistler are now priced as low as $61,000.

Fractional units, where hotel suites are usually sold in one-eighth to one-quarter shares, have also floundered. The most recent and highest profile collapse is the luxury Parkside Resort and Spa in Victoria where one-eighth fractional shares were being sold from $115,000 to $121,000 last January. By November 2011, Parkside was in receivership with more than $61 million in unsold inventory, according to court filings by Victoria-based developer Aviawest Resort Group.

As Jurock explains, the problem with fractionals during a downturn is that up to eight owners will be all trying to sell the same unit at the same time.

“No one will build hotel condos or fractionals anymore,” predicts Zack Bhaista, vice-president of Mayfair Hotels and Resorts of Vancouver, which has just broken ground on the Crystal Blu Hotel on Vancouver's Robson Street. “Anybody who bought a [shared ownership] hotel unit in the last 10 years has lost a tremendous amount of money,” he said.

Bhaista said the end of shared ownership as a financing avenue will make it tough for hotel developers in a province where the average hotel is half vacant most of the time. “It is next to impossible to get financing for a hotel in B.C.,” he said.

Mayfair’s Crystal Blu, like Vancouver’s new Shangri-La, Fairmont and the Rosewood at Georgia, show perhaps the only solution for B.C. hotel developers, he said: include full ownership strata units. “The profit you make on the condos pays for the hotel; that is the only way to make it work," Bhaista said.

Betsy MacDonald, a partner in North Vancouver-based hotel consultancy HVS International, said the industry rule of thumb is that a hotel room must make $1 per night for every $1,000 it takes to build or buy. “If the hotel costs $125,000 per [room], the room has to rent for $125 per night on average and you need 60 per cent to 70 per cent occupancy to break even,” she explained. Across B.C., the average daily rate for a hotel room is $119 and the average occupancy rate is around 42 per cent, according to the most recent HVS survey.

Approximately two million square feet of suburban office space is sitting vacant, representing more than two-thirds of all the vacant offices in Metro Vancouver, according to a report from Avison Young.

The worst hit area is Richmond, where 785,628 square feet of space is empty, including nearly 70,000 square feet of sublease space that has gone dark in the past year. In all, 23.3 per cent of Richmond office space is unused and only 10,124 square feet has been leased up in the past year, the Avison Young survey found. And this represents a minor recovery, since Richmond's vacancy rate had been 24.6 per cent a year ago. Nearly one-third of all Class C office space in Richmond is vacant. "With several significant tenancies in the market downsizing or leaving the market, it is expected that [Richmond] office vacancy rate will rise in 2012," Avison Young warns, noting that tenants can expect "significant inducements and incentives" to close deals this year.

Surrey is also dealing with an apparent overhang of office space after its vacancy rate recently jumped to 8.8 per cent, the highest level in nearly seven years. In the past year the city that claims to be the fastest growing in B.C. saw negative takeup on office space as tenants walked away from 47,000 square feet. Vacancy rates in Class A and B properties have tripled, with Class B space posting the largest amount of sublease space - more than 35,000 square feet - in 12 years. Avison Young notes that Surrey sublease space could more than double this year when, as expected, 51,000 square feet is vacated at Surrey's Central City.

Both New Westminster and Burnaby are also posting double-digit office vacancies, Avison Young reports, with 966,000 square feet of empty space in Burnaby alone.

The suburban slowdown is in contrast to downtown Vancouver, which is seeing the high lease up of office space in five years. The downtown vacancy rate has plunged to 3.9 per cent, down from 5 per cent a year earlier.  At least three new office towers will break ground this year in the core, all of which will come to market by 2015.  Until then, the downtown is expected to remain the tightest office market in the Metro region. 

Regina is ranked by the Conference Board of Canada as the fourth fastest-growing urban economy in Canada, and has the lowest office and residential vacancy rates in Canada, but the city's office developers and home builders are being given generous tax breaks to encourage speculative construction. The incentives include three-year property tax holidays for new office towers, which can amount to from $500,000 to $1 million per year, and cash incentives of up to $7,500 per new home for builders who deliver new housing in the downtown area and other selected neighbourhoods. There is also provincial and city programs that provide developer incentives to build affordable new homes, though Regina has the lowest average house prices east of the Maritimes. "It's a hangover from the NDP days," quipped one Regina realtor.

The Saskatchewan capital city did not see a single new office tower built in 20 years, despite all indicators signalling that a potash and oil boom was coming to the province. One new office building was complete last year, but the developer was given a tax holiday and the provincial government leased up nearly half the space, according to report in the upcoming February issue of Western Investor. The article "Gutless in Regina" questions why city developers do not engage in the type of speculative commercial and residential construction common in other Western Canadian cities. The report also queries why office and residential tenants are not provided with parallel discounts in taxpayer-assisted developments.