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. 

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The Act revisions are considered the most significant rule changes since the Strata Property Act superseded the B.C. Condominium Act 14 years ago.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

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. 

Vancouver's housing market is a bubble that is about to deflate. The Vancouver housing bubble is a myth and average home prices will continue to increase in 2012.
Those are the dueling counterpoints from increasingly bearish lenders and bulllish real estate executives as they forecast the future for Canada's traditionally hottest housing market.
CIBC chief executive officer Gerry McCaughey recently joined analysts at the Royal Bank of Canada and Bank of Montreal in warning that Canada's housing market, and Vancouver in particular, is poised for a downturn this year. McCaughey warned that the condominium sector in both Vancouver and Toronto "might be peaking" due to overbuilding and over evaluation.
“When you look at markets like Vancouver and Toronto, there is a level of caution from a risk perspective that is higher today than it would have been a few years ago,” agreed RBC CEO Gordon Nixon.
Western Investor also found anecdotal evidence on the streets of Vancouver that condomium sales and prices hikes have cooled in recent weeks. "We are seeing more price changes, all downward," one East Vancouver realtor confided.
But Royal Lepage Real Estate Services, in a housing outlook study released this week, is much more bullish. The company is forecasting a 2.3 per cent increase in average prices this year following a surprising stellar 2011. Last year, the company notes, the average price of a Vancouver bungalow increased 14.1 per cent to just over $1 million and the average condominium price was up 10 per cent from 2010 to $536,500.
“Investment from Asia continued to add to demand for real estate in Canada’s most expensive market,” said Bill Binnie, broker and owner of Royal LePage North Shore.  Binnie also noted  that low interest rates drove demand for Vancouver homes. “While we anticipate some slowing of the market this year, we believe calls for a price correction – particularly in the condo market – are unfounded,” he said.
“In the recovery period following the 2008-2009 recession, I found myself repeatedly speaking of ‘irrational exuberance’ in the Canadian housing market,” added Phil Soper, president and chief executive of Royal LePage Real Estate Services. “Expectations were too high and the pace of expansion unsustainable. With this report, I find myself in exactly the opposite position. Widespread calls for a major real estate correction in 2012 simply can’t be justified. The industry has significant momentum entering the year, and is buoyed by the stimulative effect of very low interest rates; we expect the market to continue to expand – albeit at a slower pace.”

As hearings into the controversial Gateway pipeline open in Kitimat, real estate specualtors are apparently voting with their wallets. Last year, housing sales in the nothern port city more than doubled and the total dollar volume hit $29.8 million, up from $13.8 million a year earlier.
This makes Kitimat the hottest housing market in the north, according to the BC Northern Real Estate Board, which notes that overall sales across northern B.C. increased just 5 per cent last year.
Local real estate agents say many of the Kitimat home buyers, perhaps as much as 40 per cent, are from out of town, including investors from the Lower Mainland of B.C. and Fort McMurray, Alberta.
Kitimat would be the western terminus for the $6.6 billion Gateway pipeline that would run from the Alberta oil sands, if it ever gets approved. Kitimat is also the site of a new $4.2 billion liquidfied natural gas plant, and Alcan Inc. is proceeding with a multi-million dollar expansion of its local smelter.
The average house price in Kitimat is in the $140,000 range, down from $170,000 two years ago.

Metro Vancouver office buildings that are within a close walk to a Skytrain or Canada Line transit station have vacancy rates half as low as those buildings more than 0.5 kilometres from a station, a new study suggests.

The recent survey by Jones Lang Lasalle reveals that the direct vacancy rate in transit-linked offices averages 4.8 per cent, but rises to 12.3 per cent in buildings not close to a transit station. As well, offices close to transit were able to charge more for leases, at an average of $18.63 per square foot, compared to $17.26 per square foot for transit-challenged offfices.

Transit links are most important in Surrey. The Jones Lang LaSalle survey found that Surrey’s vacancy rate for offices close to Skytrain is 0.4 per cent, compared to 25 per cent for space further from transit, and the rental rates for transit-linked space are about 33 per cent higher. 

Some analysts point out that many offices close to transit are often newer buildings, which may make them capable of attracting higher rents and lower vacancies.

For more on the Metro Vancouver office market, watch for the January 2012 issue of Western Investor. 

Investor-owned condominiums and houses now make up half of the rental accommodation in Metro Vancouver, where the rental vacancy rate has fallen to 1.4 per cent, according to Canada Mortgage and Housing Corporation (CMHC), down from 1.9 per cent a year ago. The average annual rental increase is running at 2.3 per cent, meaning the typical rent for a two-bedroom apartment is $1,237, with a one-bedroom renting for an average of $964 per month.

Investors are seeing both higher rents and lower vacancies for their condominium rentals, the annual CMHC Fall Rental Market Survey shows. The vacancy rate for rented condos is 0.9 per cent in the Metro region, the survey found, while average rents are from 10 per cent to 20 per cent higher than in the conventional apartment market. 

Low vacancies and rising rents have helped spur the multi-family rental market, with average prices for a Vancouver apartment building now above $230,000 per suite, according to HQ Realty Ltd., of Vancouver.