This week’s top commercial real estate stories cover new fees and mortgage guidelines that could affect investors and homebuyers looking to purchase a new home. Meanwhile, the legalization of marijuana has brought into question whether producers should be allowed to manufacture on Agricultural Land Reserve properties, drawing mixed opinion. Lastly, B.C.’s recreational market is drawing high demand, causing owners and investors to pump more money in to upgrading and expanding resort properties.
Here is Western Investor’s pick of the most buzzworthy real estate stories published this week.
OSFI sets new mortgage rules beginning January 1, 2018 – Business in Vancouver
A report from RBC says stricter mortgage guidelines coming into effect may force homebuyers to seek out unregulated lenders to qualify for a lower rate, Business in Vancouver reports.
Starting January 1, 2018, Canadian homebuyers will need to meet stiffer guidelines in order to qualify for a mortgage with a federally regulated mortgage lender.
As expected, Canada’s banking watchdog, the Office of the Superintendent of Financial Institutions Canada (OSFI), confirmed October 17 that starting next year, all borrowers – even those who have down payments of 20% or higher and do not require mortgage insurance – will need to qualify for mortgages that are two percentage points higher than the rates at which they are applying.
The rules were proposed as a measure to decrease the risks for households with high levels of indebtedness as interest rates rise. RBC said these risks will likely decline long-term as a result of the measures, but in the short term, the new rules have the potential to “rock the market,” because non-insured mortgages represent a high percentage of the total mortgage market; the bank said 45% of mortgages at domestic banks are currently uninsured.
“Nonetheless, the ultimate impact on the housing market will depend on the extent to which borrowers will ‘migrate’ to non-federally regulated mortgage lenders that will not be subject to the new OSFI rule,” the bank said in a press release. “These lenders include provincially regulated credit unions and caisses populaires.
“Our view is that such migration is likely to be material.”
RBC it expects there to be a “brief run-up in activity” until the end of this year as homebuyers rush to qualify for mortgages before the new rules come into effect; after January 1, 2018, activity in the housing market is expected to drop. The bank still expects a soft landing for Canada’s housing market.
“We expect that, at the margin, the higher qualifying rate will drive some buyers out of the market and reduce the budget of others next year – both factors adding downward pressure on prices,” RBC said. “Yet the odds of a crash-landing are still low.”
Sewer fee increases to jack up price of new homes – Business in Vancouver
A sizeable 111% hike in Vancouver utility fees may add cost to new developments, in turn jacking up prices for new homes. Business in Vancouver looks at how much more homebuyers can expect to pay factoring in new sewer fees.
The Metro Vancouver regional district, an unelected body responsible for utilities like water and sewer, are set to increase sewer fees for new development, sparking an outcry from the Greater Vancouver Homebuilders Association (GVHBA) and Urban Development Institute (UDI).
The sewer charges for new development will increase between 82% and 111%, depending on the building type, for Vancouver, and between 214% and 230% in the Fraser Valley, according to the UDI and GVHBA.
“The timing of this imposed stack of government charges on new homes couldn’t be worse,” said GVHBA CEO Bob de Wit.
De Wit said it is largely to pay for the new sewage infrastructure needed for greenfield development, especially in areas like Langley and North Surrey.
He doesn’t question the need for increased rates to pay for new infrastructure that will be required by new development. But they are coming all at once, and will be piled on top of other development cost charges and community amenity contributions are also being increased by a number of municipal governments.
Developers also assume additional charges could also be forthcoming from TransLink.
“The infrastructure that they’re wanting to build is critical,” de Wit said. “No one disagrees with that. It’s just with everything else that’s going on, imposing that large charge at the same time that other things are going up, it’s really going to hit the end buyer hard when it make its way through the system.”
De Wit said the sewer fee increases for new development will add up to $5,000 to the price of a new single family home, $4,000 for a townhouse and $3,500 for condos.
That’s the high range, he added. The increases would be less in areas like Vancouver.
B.C. marijuana growers hope to bloom on ALR farmland – Western Investor
Local cannabis producers are looking to ALR properties in Delta ahead of legalization, causing lawmakers to weigh whether marijuana production should be allowed on farmland or kept to industrial zones.
Will cornfields and greenhouses that now grow tomatoes and cucumbers give way to marijuana crops on farmland in the Agricultural Land Reserve (ALR) in Delta?
This is among questions the B.C. government needs to answer by July 2018, when new federal legislation makes recreational marijuana use legal.
In an attempt to get some kind of public consensus on key regulatory issues, like taxation, distribution and retailing, the B.C. government is asking the public for input.
B.C. Solicitor General Mike Farnworth announced an online consultation campaign at the recent Union of BC Municipalities annual conference.
“Collaboration is key to getting it right here in British Columbia,” Farnworth said.
Dan Sutton, founder and managing director for Tantalus Labs, a licensed medical marijuana grower, welcomes the government’s plans to consult the public. He thinks B.C. is uniquely positioned to turn cannabis into a major new industry.
“This will be one of the largest industries in B.C. – certainly one of the top five industries – if it’s executed effectively,” he said.
Growers like Tantalus, which is licensed to supply the medical marijuana market, are hoping they will also be able to capture the recreational marijuana space.
Farnworth added that he hopes to see provinces set “uniform” levels of taxation on marijuana sales so that provinces are not competing against each other.
A big question, however, will be whether marijuana growers should be allowed to use farmland in the ALR or be relegated to industrial zones and warehouses.
Lower taxes in ALR
“I really don’t want to be the pot capital of Canada,” Delta Mayor Lois Jackson said.
She said 35 companies have already made inquiries about growing marijuana on Delta ALR land. That’s not surprising, given that ALR land is taxed at a much lower rate than industrial land.
“I think we’re going to have to address the question: Are we going to allow, or should we allow, all of our agricultural lands to be used for growing of marijuana – and our greenhouses – or are we going to grow our own vegetables?” Jackson said.
Sukhbir Manhas, a lawyer with Young Anderson, said the provincial government has already addressed that question with respect to medical marijuana: municipalities cannot prevent medical marijuana growers from setting up on ALR land.
It’s not clear whether municipalities like Delta would have the authority to prohibit ALR land from being used to grow marijuana for recreational use.
“Certainly, if we want to have some teeth vis-a-vis ALR land, we’re going to have to see that regulation amended,” Manhas said.
Sutton said it would make no sense to relegate marijuana growing to warehouses because the energy inputs for growing indoors are enormous.
“Cannabis is agriculture,” Sutton said. “It makes zero agricultural, economic or environmental sense to cultivate any flowering plant in a warehouse environment. It absolutely belongs in greenhouses on the ALR.”
While the federal government is responsible for regulating production, provincial governments are responsible for things like sales taxes, distribution and retail.
B.C. resort properties upgraded – Business in Vancouver
B.C. resort owners are pumping their money faith into the province’s active lodging market, particularly at ski resorts. Business in Vancouver’s Peter Mitham reports.
With long-range forecasts calling for another winter of thick snow, and winter tires now required on the Coquihalla, ski hills from Whistler to Revelstoke are prepping for another season.
In the case of Panorama Mountain Village Inc., planning is taking the long view. Panorama recently signed Replay Resorts Inc. to elevate the guest experience at the resort, which is near Invermere and features a 4,265-foot vertical drop at the height of its 3,000 acres.
“Replay will begin work immediately on defining a future vision and the key aspects of the resort master plan within resort operations and real estate development. This combination will elevate the guest and ownership experience, while continuing to differentiate Panorama from other destinations in the industry,” a statement announcing the partnership explained.
Replay will identify tracts of land ripe for development, building on the $25 million invested into the resort since 2010. The initial development, Trappers Ridge, launched in 2012. With the assistance of Replay, new amenities for the resort as well as ski-in, ski-out and golf-oriented units are planned.
Panorama president and CEO Steve Paccagnan was unavailable for an interview but provided comments indicating that “a rapidly evolving tourism environment” required Panorama to take steps to differentiate itself from competitors.
Several new hotels have opened in Revelstoke with the expansion of its namesake mountain resort, while fresh investment in Mount Baldy above Osoyoos and $345 million worth of improvements at Whistler Blackcomb tip the time as ripe for improvements.
Big volume
While some resort owners invest in upgrades, the broader world of resort properties will come into focus at the Western Canadian Lodging Conference in Vancouver November 21-22.
The city’s an apt venue, given that B.C. has been a hot spot for hotel deals this year.
Colliers International reports that 19 hotels sold in Western Canada in 2017’s first half, and 13 of the deals were in B.C. While economic woes dogged other markets, buyers leapt at the chance to buy properties such as the Robsonstrasse in Vancouver and the Coquitlam Sleepy Lodge.
There was also BC Investment Management Corp.’s strategic sale of its 25-hotel SilverBirch portfolio to Hong Kong-based Leadon Investment Inc. for $1.1 billion.
Colliers pointed out that most of the deals took place outside Vancouver, which lacked properties for sale. The stock of available assets is likely to decrease because most of the properties that changed hands are set for conversion or redevelopment.
