September 29, 2020

Pandemic Fails to Cool Eastside Detached Housing Market!

As the unprecedented year of 2020 moves into autumn, the COVID-19 pandemic has not slowed the recent demand for detached homes on Vancouver’s Eastside. While the spring ‘lockdown’ caused sales to drop, the number of houses listed for sale also dropped. Since then, homebuyers have been taking advantage of record low interest rates to snap up the reduced number of homes listed for sale.

According to Multiple Listing Service (MLS) statistics from the Real Estate Board of Greater Vancouver, 141 detached houses sold on the Eastside in July 2020. 118 sales were registered in August 2020. However, after Labour Day, and as schools began to re-open, homebuyers returned to the hunt. As we have gotten used to wearing masks, sanitizing our hands, and staying `socially distant’, we still have lives to live. This means that people who have a reason to buy a home (upsizing, downsizing, job situation) are still in the market. Meanwhile, listing inventory continues to grow at a snail’s pace. As we go to press, we have less than 550 detached homes for sale in Vancouver East.

The Benchmark Price for a Single Family Detached home on the Eastside is now up to $1,502,700 as of the end of August 2020 (according to the MLS Home Price Index). This is up 10.1% from August in 2019. This is not surprising when some lenders are offering huge discounts from their posted mortgage rates.

In some cases, a 5 year closed mortgage can be found for under 2% to qualified buyers. While the economic picture is not all rosy, sometimes life just has to carry on, even in these complicated times.

September 29, 2020

Home buyers with less than 20% down payment…

Applying for a high-ratio mortgage with a regulated financial institution are typically offered a contract mortgage interest rate.

The regulated financial institution is required to ensure the borrower can make mortgage payments at one of two rates:
• The Bank of Canada qualifying rate, or
• The contracted rate plus 2%.

Borrowers must qualify for the higher of the two rates, which means their income must be sufficient and their debt low enough to make mortgage payments at that higher rate. This is known as the stress test.

How is the Bank of Canada’s rate determined?
The Bank of Canada doesn’t control the 5-year qualifying rate. They set the rules for how it’s calculated, according to BC Real Estate Association chief economist, Brendon Ogmundson.

The rate is an average of large lenders’ posted rates. When a majority of those lenders lower their posted rate, it’s reflected in the official qualifying rate.

As of August 12, 2020, this rate is 4.79%. An average 5-year fixed rate in the market is 2.2%, so the qualifying rate is still a significant spread over what most borrowers are actually paying at current market rates.

You can always check the rate here: www.bankofcanada.ca/rates/daily-digest/

July 26, 2020

Spring Market Hits in the Summer!

Traditionally, the spring is the most active time of year for real estate sales and listings. However, the spring of 2020 was not a ‘traditional’ spring in anybody’s mind! COVID-19 protocols placed restrictions on business and personal activity this spring, resulting in a major slowdown of home listings and sales. While sale prices for detached homes on Vancouver’s Eastside remained mostly steady, buyers and sellers seemed to take a ‘wait and see’ attitude. According to Multiple Listing Service (MLS) statistics from the Real Estate Board of Greater Vancouver, there were 64 detached houses sold in Vancouver East in May 2020. June 2020 sales jumped up to 105 units. With low levels of Active Listings to choose from (around 430 as we go to press), homebuyers have been forced into multiple offer situations over desirable, well-priced listings.

Low interest rates, designed to stimulate the economy, have also pushed buyers off the fence and into the market.

Meanwhile, the Benchmark Price for a Single Family Detached home in Vancouver East has now moved up 7.9% at the end of June 2020 over the same time last year.

According to the MLS Home Price Index, we are still below the peak of the market in late 2017, early 2018. With home sellers seeing improvements to home prices, it appears we may be seeing more listings being brought to market this summer. Will this be enough to satisfy the pent up buyer demand and ease the pressure being put on home prices? So far the ’traditionally’ slower summer housing market has been keeping us as busy as an active spring market.

July 26, 2020

Report Highlights Causes of Spiking Strata Insurance Premiums

The state of the BC strata insurance market is unhealthy and fails to meet the goals of sustainability, affordability, and availability, according to a new interim report from the BC Financial Services Authority (BCFSA) released on June 16.

Tasked by the Province to determine the cause of unaffordable insurance premiums, BCFSA conducted an in-depth analysis, finding that:

  • 1.5 million BC residents (one in three) live in strata properties which range from under $1 million to over $200 million in insured value;
  • Strata insurance premiums rose an average of 40% year-over-year province-wide and 50% in Metro Vancouver, with deductibles increasing up to triple digits;
  • A majority (54%) of strata properties experienced a premium increase of less than 30% compared to premiums the previous year; and
  • 31% of strata properties saw increases in the 30-50% range, 9% faced year-over-year increases of 50-100% and 6% saw strata premium increases in excess of  100% compared to the previous year.

Both local and global factors are driving up the cost of strata insurance.

  • Insurers are incurring losses from minor claims such as water damage due to poor building maintenance practices and construction quality issues. Water damage from plumbing leaks and failures accounted for 46% of the total claim costs since 2017 (56% alone in 2018 or 11,000 claims), with an average claim paid of $3,350 after the deductible.
  • New building construction, building material changes, and rising replacement costs have put further strain on industry profitability.

Data suggests strata insurance has been used to fill the gaps where proper, ongoing maintenance practices haven’t been implemented.

Claims may also be the result of strata insurers absorbing costs that could be covered under the new home warranty programs. It’s often unclear whether the cause of the loss was from a construction defect or poor maintenance.

Other factors including rising property values and excessive exposure to earthquake risk have caused insurers to reduce the amount of strata insurance they offer in the province.

Future Issues
Buildings considered to be higher risk will see large increases and may not be able to obtain full, or in some cases any, insurance coverage.

Stakeholder engagement
In the coming months BCFSA will meet with stakeholders to continue to explore causes, and regulatory as well as industry solutions.

May 23, 2020

Strange Times Indeed!

What an unusual year 2020 has been so far; whether we are speaking about real estate or life during the COVID-19 pandemic!  With so much news coverage about the pandemic, let’s talk about the state of the housing market during this time of upheaval.  The real estate industry is considered part of the financial services sector.  The financial services sector has been considered an ‘essential service’.  Therefore it has been possible to buy and sell real estate during the pandemic.  With some buyers and sellers nervous about ‘being out there’ during a pandemic, the statistics are reflective of this.  According to Multiple Listing Service (MLS) statistics from the Real Estate Board of Greater Vancouver, 109 detached homes sold on Vancouver’s Eastside in March 2020.  At the end of April 2020, during the height of government restrictions on the movement of the citizenry, only 49 sales were registered on MLS.  While this represents a drop of over 50% month over month, the number of new listings added to the inventory was down over 50% in April 2020 compared to March 2020.

Thus, the market was more in a ‘pause’ rather than in a major change.  In fact, prices for detached homes in Vancouver East are up over 5% in the last 6 months.  With about 350 detached homes listed for sale on the Eastside (as we go to press), home buyers are left with extremely limited choices in the available inventory.  This is also why sales are down (limited selection of homes for purchase).  As some easing of government restrictions is slated for May 2020, the pent up demand for buying and selling real estate may cause the market to roll again before the Spring is over.

May 23, 2020

Facts about the Strata Contingency Reserve Fund

All strata corporations are required to establish a contingency reserve fund (CRF) under the Strata Property Act, Sec. 92(b) to meet expenses.

What is a CRF?
It’s a fund collected from strata owners through strata fees. A CRF is separate from the annual fund collected for the repair, maintenance and replacement of the common property as identified in a strata depreciation report.

What is the CRF used for?
It’s used for unforeseen expenses, including emergencies, that occur less than once a year or that don’t usually occur, including repairs to common property such as the roof, elevator, sidewalks, railings, or recreational facilities.

Insurance deductibles and legal expenses.
The CRF can also be used for unexpected insurance deductibles as well as unexpected legal costs and expenses approved by a majority vote of the owners at a general meeting for specific projects.

How much is the CRF?
A strata corporation must contribute a minimum of 10% of the annual budget to the CRF until the CRF reaches 24% of the annual budget according to the Strata Property Regulation 3.4.

Regulation 6.1 requires the CRF be equal to at least 25% of the operating fund. If the CRF is below this amount at the time of the AGM, an amount equal to 10% of the operating fund must be contributed annually until the CRF is 25% of the operating fund.

Any amount can be contributed to the CRF with a majority vote. Strata fees and contributions to the CRF are approved in the annual budget by a majority vote of the owners.

How is the CRF collected?
The CRF is collected from the strata fees owners are required to pay. Stratas can add surplus funds from the previous year’s operating budget to the CRF as well as funds remaining from a special levy, or funds from the sale of assets.

Who approves expenditures?
Strata owners must approve expenditures from the CRF with a majority vote.
Accountability.
The strata corporation is required to account for the CRF separately from other strata corporation funds, such as the operating fund and special levy funds, at the end of each fiscal year in a financial report detailing the opening balance, contributions, expenses, and the closing balance.
This ensures each strata owner knows how much of their strata fees go to the operating budget and the CRF.
Inadequate funds.
When the CRF is inadequate to cover an emergency cost, a special assessment is typically levied on each strata property owner, according to their unit entitlement.
A Form B Information Certificate contains information about the strata including monthly maintenance fees and the amount in the CRF.

March 28, 2020

Listing Inventory Low as Demand Jumps!

Any ‘market’ is based on the laws of supply vs. demand. The real estate market here on Vancouver’s Eastside is no different. The supply of detached homes listed for sale is well below the historic norms. At the same time, the demand for these homes has increased as homebuyers have returned to the market after a couple of years on the sidelines. According to Multiple Listing Service (MLS) data from the Real Estate Board of Greater Vancouver, 53 detached Vancouver East homes were sold in January 2020. February 2020 saw 86 houses sell on the Eastside. With listing inventory hovering in the 370 range, the demand vs. supply ratio is just over 1:4. In many instances now, homebuyers are competing with one another on sharply priced listings, and pushing prices up. Meanwhile, the Bank of Canada has lowered its prime interest rate by .5%. Major lenders are expected to follow suit, and lower mortgage rates for eligible homebuyers. This will provide yet more stimulus to homebuyers. As we head into the spring market for 2020, housing prices will likely continue to rise, unless more and more homesellers put their homes on the market. To create a more balanced market, we would require a large amount of new listings be brought to market to absorb the demand.

Understanding Increasing Strata Insurance Rates and Deductibles

Strata owners in BC are facing insurance rate increases of between 50 and 300 per cent this year, according to the Condominium Home Owners Association of BC.

Deductibles to cover claims are also rising. In some cases, we’ve heard of deductibles increasing as much as $500,000.

Remember that insurance doesn’t cover claims under the deductible amount. So, for example, if a plumbing incident were to cause $75,000 in water damage to a strata owner’s unit, and the strata’s deductible was $100,000, then insurance wouldn’t cover the claim. In such a scenario, the owner could have to pay for the damages out of pocket, depending on the strata’s bylaws.

Why are rates increasing?
Strata building insurance premiums are increasing for a variety of reasons, according to the insurance industry. These include an increase in the number of claims, in the cost of repairs and rebuilding, and in the growing number of strata developments. Many strata buildings date back to the 1970’s and ‘80’s and strata owners may be reluctant to undertake major system upgrades until problems occur.

What to do?
Given these rising rates, strata owners should ask their strata corporation or property manager for a copy of the corporation’s certificate of insurance. This document details current deductible amounts.

Strata owners should show the certificate of insurance to their insurance provider and understand what their liability would be in the strata, if the insurance doesn’t cover the deductible.

Strata property owners should also:
–  have a unit owner’s insurance policy
–  have a policy that covers the higher deductible (`insurance deductible insurance) to cover a loss in their unit; and
–  understand the risk of not having enough coverage

The Strata Property Act Part 9 requires strata buildings to be insured for full replacement value of all common property, common assets, and fixtures.

January 21, 2020

Vancouver East Detached Listings Plummet!

As we begin a new year and a new decade, the number of detached homes listed for sale in Vancouver East has dropped dramatically from more normal levels. As we go to press, the Eastside listings inventory is in the range of 350 houses. At the end of November 2019, there were 500 detached homes listed for sale in East Vancouver. In May 2019, there were approximately 700 listings, double the inventory home buyers have to choose from today. According to Multiple Listing Service (MLS) data from the Real Estate Board of Greater Vancouver, 74 detached homes sold in Vancouver East during December 2019. 106 houses changed hands in November 2019. So even with lower sales, an extremely low level of listings gives home buyers fewer choices in their price range and desired location. Thus, we are seeing very busy open houses once again, with multiple offer bidding starting to bump up prices once more. The Home Price Index Benchmark Price for a detached home on the Eastside has started to recover some of the value lost since 2017. December and January can traditionally be slower months for sales and listings, but so far, it appears that home buyers are coming back to the market, and are prepared to ‘pay the price’ to get back in.

January 21, 2020

False Creek Leases

In the 1970’s and 1980’s, the City of Vancouver built affordable housing on city-owned land in the 55-hectare False Creek South neighbourhood between the Burrard and Cambie bridges.

The affordable housing included co-ops, rentals and non-profit housing as well as low-rise strata units offered on 60 year leases.

Market Leases
Of the 825 market housing units, 669 of them are residential leasehold strata units and 48 are commercial strata units for a total of 717 leasehold strata units.
Leases are set to expire between 2036 and 2046.

The leasehold strata units are organized into 12 residential stratas, three commercial stratas and one residential/commercial strata.These 16 stratas are located within 12 different sites.

End of Lease Issues
The two main issues are:

  • Whether the city is going to renew any of the leases past the original term; and
  • What will the value of a lessee’s interest in the strata lot be when the lease ends.

The False Creek South Neighbourhood Association has formed a strata leaseholder society bargaining agency to negotiate lease renewal terms with the city.

In False Creek South the land is, and will continue to be, publicly owned.

For leasehold properties a purchaser is acquiring, by way of assignment of lease, a lessee’s interest in both the strata lot and the proportionate share of the common property. This gives the purchaser an interest in the improvements and the remaining term of an existing lease. The lease gives the purchaser an exclusive right to use the strata lot land associated with the improvements.

With leasehold tenure, the lease will end at some future date. When the lease ends, the buildings and the lands are surrendered back to the landowner—City of Vancouver—and the lessee is required to deliver vacant possession of the strata unit.

Model Strata Lot Lease
The Model Strata Lot Lease is the agreement between the land owner (the City of Vancouver) and each lessee in False Creek South. The Strata Property Act’s provisions specific to leasehold strata also govern the relationship between the tenant and landlord. The Model Strata Lot Lease is registered on title for all strata lots.

When Does the Lease End?
Each of the 16 strata developments in False Creek South have 60-year leases with definite end dates.
The expiries are grouped into three periods:
–  autumn 2036;
–  summer 2040; or
–  autumn 2046.
Exception: Harbour Terrace at 1425 Lamey’s Mill Lane is the exception to this with a September 2050 expiry.

The model strata lot lease registered on title states the lease expiry date. There’s no right of renewal in favour of the tenant in any of the model strata lot leases.

Has Rent Been Paid until Lease End?
Almost all the strata lots in False Creek South are fully pre-paid. This means that a prior lessee paid the city all of the ground rent due until the end of the lease term. For these lots, a seller is selling the remaining term of the lease—an interest in the improvements and the current market value of the remaining right of exclusive use of the land to the buyer. For these lots, today’s value is based on current land value (and not what the rent paid to the city was).
However, not all strata lots in False Creek South are pre-paid.

What Happens at the End of the Lease?
In False Creek South, strata lot lessees have no rights to a renewal beyond the initial term of the lease. The city has the sole choice to end or renew a lease.
At the end of the lease, the lessee must vacate the premises and will receive a final payment from the city. This final payment is the city’s contractual and statutory obligation to purchase each leasehold tenant’s interest in the strata lot at a purchase price that represents its fair market value as agreed to by the city and the lessee or as determined through arbitration, valued as if the lease didn’t terminate. The city’s view is that this amount doesn’t include land value. At the end of the lease, the city will be purchasing the fair market value of the improvements constructed on the land it leased (those improvements could be up to 60 years old).

What Happens if the Lease gets Renewed?
If the city decides to renew a lease (or leases), the lessees are obligated to pay rent for the new renewal term. This rent will be the market rental value of the lands apportioned to the strata lot at the then-current constructed density.

The city also has the choice to determine the length of the new term. It must be at least five years long, but it could be any length of time. For all strata lot lessees, this future rental payment is a significant obligation. They can’t escape it, unless they sell their interest in the strata lot prior to the start of the renewal term. When selling their interest, they have no way to value the obligation today, as they don’t know if the leases will be renewed, or if they have a choice in accepting should a renewal be given. The city has provided rent prepayment options in the past, but isn’t required to do so in future.

Prospective purchasers and their Realtors should seek legal advice prior to purchasing the leasehold interest in the strata lot. The land lease rights and obligations should be the first thing discussed.

Courtesy of Greg Hamilton, City of Vancouver.

Have an interesting idea for a newsletter article? Contact Norm and watch this page regularly for updates!

July 26, 2020

Spring Market Hits in the Summer!

Traditionally, the spring is the most active time of year for real estate sales and listings. However, the spring of 2020 was not a ‘traditional’ spring in anybody’s mind! COVID-19 protocols placed restrictions on business and personal activity this spring, resulting in a major slowdown of home listings and sales. While sale prices for detached homes on Vancouver’s Eastside remained mostly steady, buyers and sellers seemed to take a ‘wait and see’ attitude. According to Multiple Listing Service (MLS) statistics from the Real Estate Board of Greater Vancouver, there were 64 detached houses sold in Vancouver East in May 2020. June 2020 sales jumped up to 105 units. With low levels of Active Listings to choose from (around 430 as we go to press), homebuyers have been forced into multiple offer situations over desirable, well-priced listings.

Low interest rates, designed to stimulate the economy, have also pushed buyers off the fence and into the market.
Meanwhile, the Benchmark Price for a Single Family Detached home in Vancouver East has now moved up 7.9% at the end of June 2020 over the same time last year.

According to the MLS Home Price Index, we are still below the peak of the market in late 2017, early 2018. With home sellers seeing improvements to home prices, it appears we may be seeing more listings being brought to market this summer. Will this be enough to satisfy the pent up buyer demand and ease the pressure being put on home prices? So far the ’traditionally’ slower summer housing market has been keeping us as busy as an active spring market.

July 26, 2020

Report Highlights Causes of Spiking Strata Insurance Premiums

The state of the BC strata insurance market is unhealthy and fails to meet the goals of sustainability, affordability, and availability, according to a new interim report from the BC Financial Services Authority (BCFSA) released on June 16.

Tasked by the Province to determine the cause of unaffordable insurance premiums, BCFSA conducted an in-depth analysis, finding that:
-1.5 million BC residents (one in three) live in strata properties which range from under $1 million to over $200 million in insured value;
-Strata insurance premiums rose an average of 40% year-over-year province-wide and 50% in Metro Vancouver, with deductibles increasing up to triple digits;
-A majority (54%) of strata properties experienced a premium increase of less than 30% compared to premiums the previous year; and
-31% of strata properties saw increases in the 30-50% range, 9% faced year-over-year increases of 50-100% and 6% saw strata premium increases in excess of  100% compared to the previous year.

Both local and global factors are driving up the cost of strata insurance.
-Insurers are incurring losses from minor claims such as water damage due to poor building maintenance practices and construction quality issues. Water damage from plumbing leaks and failures accounted for 46% of the total claim costs since 2017 (56% alone in 2018 or 11,000 claims), with an average claim paid of $3,350 after the deductible.
-New building construction, building material changes, and rising replacement costs have put further strain on industry profitability.

Data suggests strata insurance has been used to fill the gaps where proper, ongoing maintenance practices haven’t been implemented.
Claims may also be the result of strata insurers absorbing costs that could be covered under the new home warranty programs. It’s often unclear whether the cause of the loss was from a construction defect or poor maintenance.
Other factors including rising property values and excessive exposure to earthquake risk have caused insurers to reduce the amount of strata insurance they offer in the province.

Future Issues
Buildings considered to be higher risk will see large increases and may not be able to obtain full, or in some cases any, insurance coverage.

Stakeholder engagement
In the coming months BCFSA will meet with stakeholders to continue to explore causes, and regulatory as well as industry solutions.

May 23, 2020

Strange Times Indeed!

What an unusual year 2020 has been so far; whether we are speaking about real estate or life during the COVID-19 pandemic!  With so much news coverage about the pandemic, let’s talk about the state of the housing market during this time of upheaval.  The real estate industry is considered part of the financial services sector.  The financial services sector has been considered an ‘essential service’.  Therefore it has been possible to buy and sell real estate during the pandemic.  With some buyers and sellers nervous about ‘being out there’ during a pandemic, the statistics are reflective of this.  According to Multiple Listing Service (MLS) statistics from the Real Estate Board of Greater Vancouver, 109 detached homes sold on Vancouver’s Eastside in March 2020.  At the end of April 2020, during the height of government restrictions on the movement of the citizenry, only 49 sales were registered on MLS.  While this represents a drop of over 50% month over month, the number of new listings added to the inventory was down over 50% in April 2020 compared to March 2020.

Thus, the market was more in a ‘pause’ rather than in a major change.  In fact, prices for detached homes in Vancouver East are up over 5% in the last 6 months.  With about 350 detached homes listed for sale on the Eastside (as we go to press), home buyers are left with extremely limited choices in the available inventory.  This is also why sales are down (limited selection of homes for purchase).  As some easing of government restrictions is slated for May 2020, the pent up demand for buying and selling real estate may cause the market to roll again before the Spring is over.

July 26, 2020

Spring Market Hits in the Summer!

Traditionally, the spring is the most active time of year for real estate sales and listings. However, the spring of 2020 was not a ‘traditional’ spring in anybody’s mind! COVID-19 protocols placed restrictions on business and personal activity this spring, resulting in a major slowdown of home listings and sales. While sale prices for detached homes on Vancouver’s Eastside remained mostly steady, buyers and sellers seemed to take a ‘wait and see’ attitude. According to Multiple Listing Service (MLS) statistics from the Real Estate Board of Greater Vancouver, there were 64 detached houses sold in Vancouver East in May 2020. June 2020 sales jumped up to 105 units. With low levels of Active Listings to choose from (around 430 as we go to press), homebuyers have been forced into multiple offer situations over desirable, well-priced listings.

Low interest rates, designed to stimulate the economy, have also pushed buyers off the fence and into the market.
Meanwhile, the Benchmark Price for a Single Family Detached home in Vancouver East has now moved up 7.9% at the end of June 2020 over the same time last year.

According to the MLS Home Price Index, we are still below the peak of the market in late 2017, early 2018. With home sellers seeing improvements to home prices, it appears we may be seeing more listings being brought to market this summer. Will this be enough to satisfy the pent up buyer demand and ease the pressure being put on home prices? So far the ’traditionally’ slower summer housing market has been keeping us as busy as an active spring market.

July 26, 2020

Report Highlights Causes of Spiking Strata Insurance Premiums

The state of the BC strata insurance market is unhealthy and fails to meet the goals of sustainability, affordability, and availability, according to a new interim report from the BC Financial Services Authority (BCFSA) released on June 16.

Tasked by the Province to determine the cause of unaffordable insurance premiums, BCFSA conducted an in-depth analysis, finding that:
-1.5 million BC residents (one in three) live in strata properties which range from under $1 million to over $200 million in insured value;
-Strata insurance premiums rose an average of 40% year-over-year province-wide and 50% in Metro Vancouver, with deductibles increasing up to triple digits;
-A majority (54%) of strata properties experienced a premium increase of less than 30% compared to premiums the previous year; and
-31% of strata properties saw increases in the 30-50% range, 9% faced year-over-year increases of 50-100% and 6% saw strata premium increases in excess of  100% compared to the previous year.

Both local and global factors are driving up the cost of strata insurance.
-Insurers are incurring losses from minor claims such as water damage due to poor building maintenance practices and construction quality issues. Water damage from plumbing leaks and failures accounted for 46% of the total claim costs since 2017 (56% alone in 2018 or 11,000 claims), with an average claim paid of $3,350 after the deductible.
-New building construction, building material changes, and rising replacement costs have put further strain on industry profitability.

Data suggests strata insurance has been used to fill the gaps where proper, ongoing maintenance practices haven’t been implemented.
Claims may also be the result of strata insurers absorbing costs that could be covered under the new home warranty programs. It’s often unclear whether the cause of the loss was from a construction defect or poor maintenance.
Other factors including rising property values and excessive exposure to earthquake risk have caused insurers to reduce the amount of strata insurance they offer in the province.

Future Issues
Buildings considered to be higher risk will see large increases and may not be able to obtain full, or in some cases any, insurance coverage.

Stakeholder engagement
In the coming months BCFSA will meet with stakeholders to continue to explore causes, and regulatory as well as industry solutions.

May 23, 2020

Strange Times Indeed!

What an unusual year 2020 has been so far; whether we are speaking about real estate or life during the COVID-19 pandemic!  With so much news coverage about the pandemic, let’s talk about the state of the housing market during this time of upheaval.  The real estate industry is considered part of the financial services sector.  The financial services sector has been considered an ‘essential service’.  Therefore it has been possible to buy and sell real estate during the pandemic.  With some buyers and sellers nervous about ‘being out there’ during a pandemic, the statistics are reflective of this.  According to Multiple Listing Service (MLS) statistics from the Real Estate Board of Greater Vancouver, 109 detached homes sold on Vancouver’s Eastside in March 2020.  At the end of April 2020, during the height of government restrictions on the movement of the citizenry, only 49 sales were registered on MLS.  While this represents a drop of over 50% month over month, the number of new listings added to the inventory was down over 50% in April 2020 compared to March 2020.

Thus, the market was more in a ‘pause’ rather than in a major change.  In fact, prices for detached homes in Vancouver East are up over 5% in the last 6 months.  With about 350 detached homes listed for sale on the Eastside (as we go to press), home buyers are left with extremely limited choices in the available inventory.  This is also why sales are down (limited selection of homes for purchase).  As some easing of government restrictions is slated for May 2020, the pent up demand for buying and selling real estate may cause the market to roll again before the Spring is over.

July 26, 2020

Spring Market Hits in the Summer!

Traditionally, the spring is the most active time of year for real estate sales and listings. However, the spring of 2020 was not a ‘traditional’ spring in anybody’s mind! COVID-19 protocols placed restrictions on business and personal activity this spring, resulting in a major slowdown of home listings and sales. While sale prices for detached homes on Vancouver’s Eastside remained mostly steady, buyers and sellers seemed to take a ‘wait and see’ attitude. According to Multiple Listing Service (MLS) statistics from the Real Estate Board of Greater Vancouver, there were 64 detached houses sold in Vancouver East in May 2020. June 2020 sales jumped up to 105 units. With low levels of Active Listings to choose from (around 430 as we go to press), homebuyers have been forced into multiple offer situations over desirable, well-priced listings.

Low interest rates, designed to stimulate the economy, have also pushed buyers off the fence and into the market.
Meanwhile, the Benchmark Price for a Single Family Detached home in Vancouver East has now moved up 7.9% at the end of June 2020 over the same time last year.

According to the MLS Home Price Index, we are still below the peak of the market in late 2017, early 2018. With home sellers seeing improvements to home prices, it appears we may be seeing more listings being brought to market this summer. Will this be enough to satisfy the pent up buyer demand and ease the pressure being put on home prices? So far the ’traditionally’ slower summer housing market has been keeping us as busy as an active spring market.

July 26, 2020

Report Highlights Causes of Spiking Strata Insurance Premiums

The state of the BC strata insurance market is unhealthy and fails to meet the goals of sustainability, affordability, and availability, according to a new interim report from the BC Financial Services Authority (BCFSA) released on June 16.

Tasked by the Province to determine the cause of unaffordable insurance premiums, BCFSA conducted an in-depth analysis, finding that:
-1.5 million BC residents (one in three) live in strata properties which range from under $1 million to over $200 million in insured value;
-Strata insurance premiums rose an average of 40% year-over-year province-wide and 50% in Metro Vancouver, with deductibles increasing up to triple digits;
-A majority (54%) of strata properties experienced a premium increase of less than 30% compared to premiums the previous year; and
-31% of strata properties saw increases in the 30-50% range, 9% faced year-over-year increases of 50-100% and 6% saw strata premium increases in excess of  100% compared to the previous year.

Both local and global factors are driving up the cost of strata insurance.
-Insurers are incurring losses from minor claims such as water damage due to poor building maintenance practices and construction quality issues. Water damage from plumbing leaks and failures accounted for 46% of the total claim costs since 2017 (56% alone in 2018 or 11,000 claims), with an average claim paid of $3,350 after the deductible.
-New building construction, building material changes, and rising replacement costs have put further strain on industry profitability.

Data suggests strata insurance has been used to fill the gaps where proper, ongoing maintenance practices haven’t been implemented.
Claims may also be the result of strata insurers absorbing costs that could be covered under the new home warranty programs. It’s often unclear whether the cause of the loss was from a construction defect or poor maintenance.
Other factors including rising property values and excessive exposure to earthquake risk have caused insurers to reduce the amount of strata insurance they offer in the province.

Future Issues
Buildings considered to be higher risk will see large increases and may not be able to obtain full, or in some cases any, insurance coverage.

Stakeholder engagement
In the coming months BCFSA will meet with stakeholders to continue to explore causes, and regulatory as well as industry solutions.

May 23, 2020

Strange Times Indeed!

What an unusual year 2020 has been so far; whether we are speaking about real estate or life during the COVID-19 pandemic!  With so much news coverage about the pandemic, let’s talk about the state of the housing market during this time of upheaval.  The real estate industry is considered part of the financial services sector.  The financial services sector has been considered an ‘essential service’.  Therefore it has been possible to buy and sell real estate during the pandemic.  With some buyers and sellers nervous about ‘being out there’ during a pandemic, the statistics are reflective of this.  According to Multiple Listing Service (MLS) statistics from the Real Estate Board of Greater Vancouver, 109 detached homes sold on Vancouver’s Eastside in March 2020.  At the end of April 2020, during the height of government restrictions on the movement of the citizenry, only 49 sales were registered on MLS.  While this represents a drop of over 50% month over month, the number of new listings added to the inventory was down over 50% in April 2020 compared to March 2020.

Thus, the market was more in a ‘pause’ rather than in a major change.  In fact, prices for detached homes in Vancouver East are up over 5% in the last 6 months.  With about 350 detached homes listed for sale on the Eastside (as we go to press), home buyers are left with extremely limited choices in the available inventory.  This is also why sales are down (limited selection of homes for purchase).  As some easing of government restrictions is slated for May 2020, the pent up demand for buying and selling real estate may cause the market to roll again before the Spring is over.

May 23, 2020

Facts about the Strata Contingency Reserve Fund

All strata corporations are required to establish a contingency reserve fund (CRF) under the Strata Property Act, Sec. 92(b) to meet expenses.

What is a CRF?
It’s a fund collected from strata owners through strata fees. A CRF is separate from the annual fund collected for the repair, maintenance and replacement of the common property as identified in a strata depreciation report.

What is the CRF used for?
It’s used for unforeseen expenses, including emergencies, that occur less than once a year or that don’t usually occur, including repairs to common property such as the roof, elevator, sidewalks, railings, or recreational facilities.

Insurance deductibles and legal expenses.
The CRF can also be used for unexpected insurance deductibles as well as unexpected legal costs and expenses approved by a majority vote of the owners at a general meeting for specific projects.

How much is the CRF?
A strata corporation must contribute a minimum of 10% of the annual budget to the CRF until the CRF reaches 24% of the annual budget according to the Strata Property Regulation 3.4.

Regulation 6.1 requires the CRF be equal to at least 25% of the operating fund. If the CRF is below this amount at the time of the AGM, an amount equal to 10% of the operating fund must be contributed annually until the CRF is 25% of the operating fund.

Any amount can be contributed to the CRF with a majority vote. Strata fees and contributions to the CRF are approved in the annual budget by a majority vote of the owners.

How is the CRF collected?
The CRF is collected from the strata fees owners are required to pay. Stratas can add surplus funds from the previous year’s operating budget to the CRF as well as funds remaining from a special levy, or funds from the sale of assets.

Who approves expenditures?
Strata owners must approve expenditures from the CRF with a majority vote.
Accountability.
The strata corporation is required to account for the CRF separately from other strata corporation funds, such as the operating fund and special levy funds, at the end of each fiscal year in a financial report detailing the opening balance, contributions, expenses, and the closing balance.
This ensures each strata owner knows how much of their strata fees go to the operating budget and the CRF.
Inadequate funds.
When the CRF is inadequate to cover an emergency cost, a special assessment is typically levied on each strata property owner, according to their unit entitlement.
A Form B Information Certificate contains information about the strata including monthly maintenance fees and the amount in the CRF.

March 28, 2020

Listing Inventory Low as Demand Jumps!

Any ‘market’ is based on the laws of supply vs. demand. The real estate market here on Vancouver’s Eastside is no different. The supply of detached homes listed for sale is well below the historic norms. At the same time, the demand for these homes has increased as homebuyers have returned to the market after a couple of years on the sidelines. According to Multiple Listing Service (MLS) data from the Real Estate Board of Greater Vancouver, 53 detached Vancouver East homes were sold in January 2020. February 2020 saw 86 houses sell on the Eastside. With listing inventory hovering in the 370 range, the demand vs. supply ratio is just over 1:4. In many instances now, homebuyers are competing with one another on sharply priced listings, and pushing prices up. Meanwhile, the Bank of Canada has lowered its prime interest rate by .5%. Major lenders are expected to follow suit, and lower mortgage rates for eligible homebuyers. This will provide yet more stimulus to homebuyers. As we head into the spring market for 2020, housing prices will likely continue to rise, unless more and more homesellers put their homes on the market. To create a more balanced market, we would require a large amount of new listings be brought to market to absorb the demand.

Understanding Increasing Strata Insurance Rates and Deductibles

Strata owners in BC are facing insurance rate increases of between 50 and 300 per cent this year, according to the Condominium Home Owners Association of BC.

Deductibles to cover claims are also rising. In some cases, we’ve heard of deductibles increasing as much as $500,000.

Remember that insurance doesn’t cover claims under the deductible amount. So, for example, if a plumbing incident were to cause $75,000 in water damage to a strata owner’s unit, and the strata’s deductible was $100,000, then insurance wouldn’t cover the claim. In such a scenario, the owner could have to pay for the damages out of pocket, depending on the strata’s bylaws.

Why are rates increasing?
Strata building insurance premiums are increasing for a variety of reasons, according to the insurance industry. These include an increase in the number of claims, in the cost of repairs and rebuilding, and in the growing number of strata developments. Many strata buildings date back to the 1970’s and ‘80’s and strata owners may be reluctant to undertake major system upgrades until problems occur.

What to do?
Given these rising rates, strata owners should ask their strata corporation or property manager for a copy of the corporation’s certificate of insurance. This document details current deductible amounts.

Strata owners should show the certificate of insurance to their insurance provider and understand what their liability would be in the strata, if the insurance doesn’t cover the deductible.

Strata property owners should also:
–  have a unit owner’s insurance policy
–  have a policy that covers the higher deductible (`insurance deductible insurance) to cover a loss in their unit; and
–  understand the risk of not having enough coverage

The Strata Property Act Part 9 requires strata buildings to be insured for full replacement value of all common property, common assets, and fixtures.

January 21, 2020

Vancouver East Detached Listings Plummet!

As we begin a new year and a new decade, the number of detached homes listed for sale in Vancouver East has dropped dramatically from more normal levels. As we go to press, the Eastside listings inventory is in the range of 350 houses. At the end of November 2019, there were 500 detached homes listed for sale in East Vancouver. In May 2019, there were approximately 700 listings, double the inventory home buyers have to choose from today. According to Multiple Listing Service (MLS) data from the Real Estate Board of Greater Vancouver, 74 detached homes sold in Vancouver East during December 2019. 106 houses changed hands in November 2019. So even with lower sales, an extremely low level of listings gives home buyers fewer choices in their price range and desired location. Thus, we are seeing very busy open houses once again, with multiple offer bidding starting to bump up prices once more. The Home Price Index Benchmark Price for a detached home on the Eastside has started to recover some of the value lost since 2017. December and January can traditionally be slower months for sales and listings, but so far, it appears that home buyers are coming back to the market, and are prepared to ‘pay the price’ to get back in.

January 21, 2020

False Creek Leases

In the 1970’s and 1980’s, the City of Vancouver built affordable housing on city-owned land in the 55-hectare False Creek South neighbourhood between the Burrard and Cambie bridges.

The affordable housing included co-ops, rentals and non-profit housing as well as low-rise strata units offered on 60 year leases.

Market Leases
Of the 825 market housing units, 669 of them are residential leasehold strata units and 48 are commercial strata units for a total of 717 leasehold strata units.
Leases are set to expire between 2036 and 2046.

The leasehold strata units are organized into 12 residential stratas, three commercial stratas and one residential/commercial strata.These 16 stratas are located within 12 different sites.

End of Lease Issues
The two main issues are:

  • Whether the city is going to renew any of the leases past the original term; and
  • What will the value of a lessee’s interest in the strata lot be when the lease ends.

The False Creek South Neighbourhood Association has formed a strata leaseholder society bargaining agency to negotiate lease renewal terms with the city.

In False Creek South the land is, and will continue to be, publicly owned.

For leasehold properties a purchaser is acquiring, by way of assignment of lease, a lessee’s interest in both the strata lot and the proportionate share of the common property. This gives the purchaser an interest in the improvements and the remaining term of an existing lease. The lease gives the purchaser an exclusive right to use the strata lot land associated with the improvements.

With leasehold tenure, the lease will end at some future date. When the lease ends, the buildings and the lands are surrendered back to the landowner—City of Vancouver—and the lessee is required to deliver vacant possession of the strata unit.

Model Strata Lot Lease
The Model Strata Lot Lease is the agreement between the land owner (the City of Vancouver) and each lessee in False Creek South. The Strata Property Act’s provisions specific to leasehold strata also govern the relationship between the tenant and landlord. The Model Strata Lot Lease is registered on title for all strata lots.

When Does the Lease End?
Each of the 16 strata developments in False Creek South have 60-year leases with definite end dates.
The expiries are grouped into three periods:
–  autumn 2036;
–  summer 2040; or
–  autumn 2046.
Exception: Harbour Terrace at 1425 Lamey’s Mill Lane is the exception to this with a September 2050 expiry.

The model strata lot lease registered on title states the lease expiry date. There’s no right of renewal in favour of the tenant in any of the model strata lot leases.

Has Rent Been Paid until Lease End?
Almost all the strata lots in False Creek South are fully pre-paid. This means that a prior lessee paid the city all of the ground rent due until the end of the lease term. For these lots, a seller is selling the remaining term of the lease—an interest in the improvements and the current market value of the remaining right of exclusive use of the land to the buyer. For these lots, today’s value is based on current land value (and not what the rent paid to the city was).
However, not all strata lots in False Creek South are pre-paid.

What Happens at the End of the Lease?
In False Creek South, strata lot lessees have no rights to a renewal beyond the initial term of the lease. The city has the sole choice to end or renew a lease.
At the end of the lease, the lessee must vacate the premises and will receive a final payment from the city. This final payment is the city’s contractual and statutory obligation to purchase each leasehold tenant’s interest in the strata lot at a purchase price that represents its fair market value as agreed to by the city and the lessee or as determined through arbitration, valued as if the lease didn’t terminate. The city’s view is that this amount doesn’t include land value. At the end of the lease, the city will be purchasing the fair market value of the improvements constructed on the land it leased (those improvements could be up to 60 years old).

What Happens if the Lease gets Renewed?
If the city decides to renew a lease (or leases), the lessees are obligated to pay rent for the new renewal term. This rent will be the market rental value of the lands apportioned to the strata lot at the then-current constructed density.

The city also has the choice to determine the length of the new term. It must be at least five years long, but it could be any length of time. For all strata lot lessees, this future rental payment is a significant obligation. They can’t escape it, unless they sell their interest in the strata lot prior to the start of the renewal term. When selling their interest, they have no way to value the obligation today, as they don’t know if the leases will be renewed, or if they have a choice in accepting should a renewal be given. The city has provided rent prepayment options in the past, but isn’t required to do so in future.

Prospective purchasers and their Realtors should seek legal advice prior to purchasing the leasehold interest in the strata lot. The land lease rights and obligations should be the first thing discussed.

Courtesy of Greg Hamilton, City of Vancouver.

Have an interesting idea for a newsletter article? Contact Norm and watch this page regularly for updates!

July 26, 2020

Spring Market Hits in the Summer!

Traditionally, the spring is the most active time of year for real estate sales and listings. However, the spring of 2020 was not a ‘traditional’ spring in anybody’s mind! COVID-19 protocols placed restrictions on business and personal activity this spring, resulting in a major slowdown of home listings and sales. While sale prices for detached homes on Vancouver’s Eastside remained mostly steady, buyers and sellers seemed to take a ‘wait and see’ attitude. According to Multiple Listing Service (MLS) statistics from the Real Estate Board of Greater Vancouver, there were 64 detached houses sold in Vancouver East in May 2020. June 2020 sales jumped up to 105 units. With low levels of Active Listings to choose from (around 430 as we go to press), homebuyers have been forced into multiple offer situations over desirable, well-priced listings.

Low interest rates, designed to stimulate the economy, have also pushed buyers off the fence and into the market.
Meanwhile, the Benchmark Price for a Single Family Detached home in Vancouver East has now moved up 7.9% at the end of June 2020 over the same time last year.

According to the MLS Home Price Index, we are still below the peak of the market in late 2017, early 2018. With home sellers seeing improvements to home prices, it appears we may be seeing more listings being brought to market this summer. Will this be enough to satisfy the pent up buyer demand and ease the pressure being put on home prices? So far the ’traditionally’ slower summer housing market has been keeping us as busy as an active spring market.

July 26, 2020

Report Highlights Causes of Spiking Strata Insurance Premiums

The state of the BC strata insurance market is unhealthy and fails to meet the goals of sustainability, affordability, and availability, according to a new interim report from the BC Financial Services Authority (BCFSA) released on June 16.

Tasked by the Province to determine the cause of unaffordable insurance premiums, BCFSA conducted an in-depth analysis, finding that:
-1.5 million BC residents (one in three) live in strata properties which range from under $1 million to over $200 million in insured value;
-Strata insurance premiums rose an average of 40% year-over-year province-wide and 50% in Metro Vancouver, with deductibles increasing up to triple digits;
-A majority (54%) of strata properties experienced a premium increase of less than 30% compared to premiums the previous year; and
-31% of strata properties saw increases in the 30-50% range, 9% faced year-over-year increases of 50-100% and 6% saw strata premium increases in excess of  100% compared to the previous year.

Both local and global factors are driving up the cost of strata insurance.
-Insurers are incurring losses from minor claims such as water damage due to poor building maintenance practices and construction quality issues. Water damage from plumbing leaks and failures accounted for 46% of the total claim costs since 2017 (56% alone in 2018 or 11,000 claims), with an average claim paid of $3,350 after the deductible.
-New building construction, building material changes, and rising replacement costs have put further strain on industry profitability.

Data suggests strata insurance has been used to fill the gaps where proper, ongoing maintenance practices haven’t been implemented.
Claims may also be the result of strata insurers absorbing costs that could be covered under the new home warranty programs. It’s often unclear whether the cause of the loss was from a construction defect or poor maintenance.
Other factors including rising property values and excessive exposure to earthquake risk have caused insurers to reduce the amount of strata insurance they offer in the province.

Future Issues
Buildings considered to be higher risk will see large increases and may not be able to obtain full, or in some cases any, insurance coverage.

Stakeholder engagement
In the coming months BCFSA will meet with stakeholders to continue to explore causes, and regulatory as well as industry solutions.

May 23, 2020

Strange Times Indeed!

What an unusual year 2020 has been so far; whether we are speaking about real estate or life during the COVID-19 pandemic!  With so much news coverage about the pandemic, let’s talk about the state of the housing market during this time of upheaval.  The real estate industry is considered part of the financial services sector.  The financial services sector has been considered an ‘essential service’.  Therefore it has been possible to buy and sell real estate during the pandemic.  With some buyers and sellers nervous about ‘being out there’ during a pandemic, the statistics are reflective of this.  According to Multiple Listing Service (MLS) statistics from the Real Estate Board of Greater Vancouver, 109 detached homes sold on Vancouver’s Eastside in March 2020.  At the end of April 2020, during the height of government restrictions on the movement of the citizenry, only 49 sales were registered on MLS.  While this represents a drop of over 50% month over month, the number of new listings added to the inventory was down over 50% in April 2020 compared to March 2020.

Thus, the market was more in a ‘pause’ rather than in a major change.  In fact, prices for detached homes in Vancouver East are up over 5% in the last 6 months.  With about 350 detached homes listed for sale on the Eastside (as we go to press), home buyers are left with extremely limited choices in the available inventory.  This is also why sales are down (limited selection of homes for purchase).  As some easing of government restrictions is slated for May 2020, the pent up demand for buying and selling real estate may cause the market to roll again before the Spring is over.

May 23, 2020

Facts about the Strata Contingency Reserve Fund

All strata corporations are required to establish a contingency reserve fund (CRF) under the Strata Property Act, Sec. 92(b) to meet expenses.

What is a CRF?
It’s a fund collected from strata owners through strata fees. A CRF is separate from the annual fund collected for the repair, maintenance and replacement of the common property as identified in a strata depreciation report.

What is the CRF used for?
It’s used for unforeseen expenses, including emergencies, that occur less than once a year or that don’t usually occur, including repairs to common property such as the roof, elevator, sidewalks, railings, or recreational facilities.

Insurance deductibles and legal expenses.
The CRF can also be used for unexpected insurance deductibles as well as unexpected legal costs and expenses approved by a majority vote of the owners at a general meeting for specific projects.

How much is the CRF?
A strata corporation must contribute a minimum of 10% of the annual budget to the CRF until the CRF reaches 24% of the annual budget according to the Strata Property Regulation 3.4.

Regulation 6.1 requires the CRF be equal to at least 25% of the operating fund. If the CRF is below this amount at the time of the AGM, an amount equal to 10% of the operating fund must be contributed annually until the CRF is 25% of the operating fund.

Any amount can be contributed to the CRF with a majority vote. Strata fees and contributions to the CRF are approved in the annual budget by a majority vote of the owners.

How is the CRF collected?
The CRF is collected from the strata fees owners are required to pay. Stratas can add surplus funds from the previous year’s operating budget to the CRF as well as funds remaining from a special levy, or funds from the sale of assets.

Who approves expenditures?
Strata owners must approve expenditures from the CRF with a majority vote.
Accountability.
The strata corporation is required to account for the CRF separately from other strata corporation funds, such as the operating fund and special levy funds, at the end of each fiscal year in a financial report detailing the opening balance, contributions, expenses, and the closing balance.
This ensures each strata owner knows how much of their strata fees go to the operating budget and the CRF.
Inadequate funds.
When the CRF is inadequate to cover an emergency cost, a special assessment is typically levied on each strata property owner, according to their unit entitlement.
A Form B Information Certificate contains information about the strata including monthly maintenance fees and the amount in the CRF.

March 28, 2020

Listing Inventory Low as Demand Jumps!

Any ‘market’ is based on the laws of supply vs. demand. The real estate market here on Vancouver’s Eastside is no different. The supply of detached homes listed for sale is well below the historic norms. At the same time, the demand for these homes has increased as homebuyers have returned to the market after a couple of years on the sidelines. According to Multiple Listing Service (MLS) data from the Real Estate Board of Greater Vancouver, 53 detached Vancouver East homes were sold in January 2020. February 2020 saw 86 houses sell on the Eastside. With listing inventory hovering in the 370 range, the demand vs. supply ratio is just over 1:4. In many instances now, homebuyers are competing with one another on sharply priced listings, and pushing prices up. Meanwhile, the Bank of Canada has lowered its prime interest rate by .5%. Major lenders are expected to follow suit, and lower mortgage rates for eligible homebuyers. This will provide yet more stimulus to homebuyers. As we head into the spring market for 2020, housing prices will likely continue to rise, unless more and more homesellers put their homes on the market. To create a more balanced market, we would require a large amount of new listings be brought to market to absorb the demand.

Understanding Increasing Strata Insurance Rates and Deductibles

Strata owners in BC are facing insurance rate increases of between 50 and 300 per cent this year, according to the Condominium Home Owners Association of BC.

Deductibles to cover claims are also rising. In some cases, we’ve heard of deductibles increasing as much as $500,000.

Remember that insurance doesn’t cover claims under the deductible amount. So, for example, if a plumbing incident were to cause $75,000 in water damage to a strata owner’s unit, and the strata’s deductible was $100,000, then insurance wouldn’t cover the claim. In such a scenario, the owner could have to pay for the damages out of pocket, depending on the strata’s bylaws.

Why are rates increasing?
Strata building insurance premiums are increasing for a variety of reasons, according to the insurance industry. These include an increase in the number of claims, in the cost of repairs and rebuilding, and in the growing number of strata developments. Many strata buildings date back to the 1970’s and ‘80’s and strata owners may be reluctant to undertake major system upgrades until problems occur.

What to do?
Given these rising rates, strata owners should ask their strata corporation or property manager for a copy of the corporation’s certificate of insurance. This document details current deductible amounts.

Strata owners should show the certificate of insurance to their insurance provider and understand what their liability would be in the strata, if the insurance doesn’t cover the deductible.

Strata property owners should also:
–  have a unit owner’s insurance policy
–  have a policy that covers the higher deductible (`insurance deductible insurance) to cover a loss in their unit; and
–  understand the risk of not having enough coverage

The Strata Property Act Part 9 requires strata buildings to be insured for full replacement value of all common property, common assets, and fixtures.

January 21, 2020

Vancouver East Detached Listings Plummet!

As we begin a new year and a new decade, the number of detached homes listed for sale in Vancouver East has dropped dramatically from more normal levels. As we go to press, the Eastside listings inventory is in the range of 350 houses. At the end of November 2019, there were 500 detached homes listed for sale in East Vancouver. In May 2019, there were approximately 700 listings, double the inventory home buyers have to choose from today. According to Multiple Listing Service (MLS) data from the Real Estate Board of Greater Vancouver, 74 detached homes sold in Vancouver East during December 2019. 106 houses changed hands in November 2019. So even with lower sales, an extremely low level of listings gives home buyers fewer choices in their price range and desired location. Thus, we are seeing very busy open houses once again, with multiple offer bidding starting to bump up prices once more. The Home Price Index Benchmark Price for a detached home on the Eastside has started to recover some of the value lost since 2017. December and January can traditionally be slower months for sales and listings, but so far, it appears that home buyers are coming back to the market, and are prepared to ‘pay the price’ to get back in.

January 21, 2020

False Creek Leases

In the 1970’s and 1980’s, the City of Vancouver built affordable housing on city-owned land in the 55-hectare False Creek South neighbourhood between the Burrard and Cambie bridges.

The affordable housing included co-ops, rentals and non-profit housing as well as low-rise strata units offered on 60 year leases.

Market Leases
Of the 825 market housing units, 669 of them are residential leasehold strata units and 48 are commercial strata units for a total of 717 leasehold strata units.
Leases are set to expire between 2036 and 2046.

The leasehold strata units are organized into 12 residential stratas, three commercial stratas and one residential/commercial strata.These 16 stratas are located within 12 different sites.

End of Lease Issues
The two main issues are:

  • Whether the city is going to renew any of the leases past the original term; and
  • What will the value of a lessee’s interest in the strata lot be when the lease ends.

The False Creek South Neighbourhood Association has formed a strata leaseholder society bargaining agency to negotiate lease renewal terms with the city.

In False Creek South the land is, and will continue to be, publicly owned.

For leasehold properties a purchaser is acquiring, by way of assignment of lease, a lessee’s interest in both the strata lot and the proportionate share of the common property. This gives the purchaser an interest in the improvements and the remaining term of an existing lease. The lease gives the purchaser an exclusive right to use the strata lot land associated with the improvements.

With leasehold tenure, the lease will end at some future date. When the lease ends, the buildings and the lands are surrendered back to the landowner—City of Vancouver—and the lessee is required to deliver vacant possession of the strata unit.

Model Strata Lot Lease
The Model Strata Lot Lease is the agreement between the land owner (the City of Vancouver) and each lessee in False Creek South. The Strata Property Act’s provisions specific to leasehold strata also govern the relationship between the tenant and landlord. The Model Strata Lot Lease is registered on title for all strata lots.

When Does the Lease End?
Each of the 16 strata developments in False Creek South have 60-year leases with definite end dates.
The expiries are grouped into three periods:
–  autumn 2036;
–  summer 2040; or
–  autumn 2046.
Exception: Harbour Terrace at 1425 Lamey’s Mill Lane is the exception to this with a September 2050 expiry.

The model strata lot lease registered on title states the lease expiry date. There’s no right of renewal in favour of the tenant in any of the model strata lot leases.

Has Rent Been Paid until Lease End?
Almost all the strata lots in False Creek South are fully pre-paid. This means that a prior lessee paid the city all of the ground rent due until the end of the lease term. For these lots, a seller is selling the remaining term of the lease—an interest in the improvements and the current market value of the remaining right of exclusive use of the land to the buyer. For these lots, today’s value is based on current land value (and not what the rent paid to the city was).
However, not all strata lots in False Creek South are pre-paid.

What Happens at the End of the Lease?
In False Creek South, strata lot lessees have no rights to a renewal beyond the initial term of the lease. The city has the sole choice to end or renew a lease.
At the end of the lease, the lessee must vacate the premises and will receive a final payment from the city. This final payment is the city’s contractual and statutory obligation to purchase each leasehold tenant’s interest in the strata lot at a purchase price that represents its fair market value as agreed to by the city and the lessee or as determined through arbitration, valued as if the lease didn’t terminate. The city’s view is that this amount doesn’t include land value. At the end of the lease, the city will be purchasing the fair market value of the improvements constructed on the land it leased (those improvements could be up to 60 years old).

What Happens if the Lease gets Renewed?
If the city decides to renew a lease (or leases), the lessees are obligated to pay rent for the new renewal term. This rent will be the market rental value of the lands apportioned to the strata lot at the then-current constructed density.

The city also has the choice to determine the length of the new term. It must be at least five years long, but it could be any length of time. For all strata lot lessees, this future rental payment is a significant obligation. They can’t escape it, unless they sell their interest in the strata lot prior to the start of the renewal term. When selling their interest, they have no way to value the obligation today, as they don’t know if the leases will be renewed, or if they have a choice in accepting should a renewal be given. The city has provided rent prepayment options in the past, but isn’t required to do so in future.

Prospective purchasers and their Realtors should seek legal advice prior to purchasing the leasehold interest in the strata lot. The land lease rights and obligations should be the first thing discussed.

Courtesy of Greg Hamilton, City of Vancouver.

Have an interesting idea for a newsletter article? Contact Norm and watch this page regularly for updates!