Don Cayo
Sun

In a city known for runaway land costs, the property tax policy of “averaging” has been a godsend for many business owners.

It means that a given year’s tax bill is based not on their current land assessment — which might be up dramatically from a year or two earlier — but on the average land value for the past three years. The tax bill will eventually grow to reflect the new value, but it takes three years and the hit isn’t as bad as if it all came at once.

The trouble is that, while this tool works well for some businesses, it also becomes a weapon that works against many others. It lowers the tax load for businesses that can take advantage of averaging — and, in this real estate climate, that’s most firms. But it also foists the cost of what they save onto businesses that don’t qualify.

In a normal real estate market, any commercial property that has been rezoned within a year or two won’t qualify for averaging. And in the specific Vancouver market as it’s unfolding these days, a whole group of businesses — downtown office tower tenants — find themselves penalized, not helped, by the policy.

It takes a little head-scratching to understand why, but Paul Sullivan, the property tax guru at Burgess Cawley Sullivan and Associates, walked me through it. The crux of the problem, he says, is the uneven rate at which commercial land values are rising. In most parts of Vancouver, the average land increase in 2008 was 20 per cent, making businesses in these neighbourhoods prime candidates to benefit from averaging.

But in the downtown, where prices were already sky high, the latest assessment recognized that land prices had already maxed out. Thus the land value assigned to most downtown office towers went up little or not at all.

It sounds at first blush like good news — at least on the property tax front — if land values don’t rise. But when taxpayers think about how office towers’ total tax assessments are calculated, it’s not good news at all.

The total assessment is based on rent paid, and rents have been going up sharply. So total assessments are also up sharply. With the land value stable, this means much higher values are, somewhat arbitrarily, assigned to the buildings in order to bring the total to what it should be. Only land, not these higher-valued buildings, are eligible for averaging. But the buildings are subject to tax which, as I’ve written before, is assessed at a stiff rate, nearly six times greater than homeowners pay.

The long and the short of it is that non-downtown businesses can profit from averaging because it makes their assessments smaller than they would otherwise be. But downtown businesses wind up with much larger assessments and no break to offset the increase.

The total tax burden paid by all businesses is also fixed. So when most businesses can use averaging to lower the portion they must pay, Sullivan notes, the upshot is a big shift of tax burden from other parts of the city onto the downtown core.

A better way to help businesses cope with escalating assessments would be some variation of the solution proposed by Stanley Hamilton’s Property Tax Commission last year. It simply involves phasing in increases over a specified number of years — the commission suggests five — when assessment increases pass a specified threshold.

That is, however, administratively less convenient than averaging, and a city staff report in late February recommends against it. Indeed, the report argues for extending the averaging formula over five years, instead of the current three — a policy that would worsen the hit on businesses that can’t take advantage of averaging.

Sullivan is a technical co-chair of the Vancouver Fair Tax Coalition, which had such success with the tax-shifting issue earlier this year, and his company represents a lot of downtown office owners. He has got his oar in early on this one, writing to City Hall before the matter goes to council for a decision.

It’ll be interesting to see what response he gets — a continued push for administrative convenience, or a genuine effort to help all taxpayers equally in this difficult time of soaring costs.

© The Vancouver Sun 2008

 

Stephanie Armour
USA Today

A mortgage industry alliance plans to announce Tuesday that it’s reached agreement with lenders and loan servicers to develop a standardized process for helping homeowners at risk of foreclosure.

The move by the Hope Now alliance involves uniform guidelines that lenders and servicers have agreed to abide by, such as issuing a decision within 45 days on whether to modify a homeowner’s loan. The plan follows complaints that the Hope Now alliance, which was set up to aid troubled homeowners, has been slow to help enough people.

Organizers offered no projections on how many people might be helped. But the major thrust of the program is to create a more streamlined approach to speed the process of providing help. The roughly 25 lenders and servicers that work with Hope Now have agreed to the guidelines, which aren’t legally binding. Some servicers may adopt the guidelines quickly, but all are expected to do so within 60 days.

Still, some economists say even streamlined guidelines may not make much of a dent.

“Hope Now has been helpful, but it’s getting completely overwhelmed by the magnitude of the problem,” says Mark Zandi, chief economist of Moody’s Economy.com. “Anything they can do to help more homeowners is great, but they’re not set up and designed to solve the problem that is now plaguing the mortgage market, which is negative equity.”

Among the agreements:

•Prompt contact with borrowers. Lenders and servicers will correspond within 45 days with borrowers who seek assistance. This will provide homeowners with deadlines and status notices that let them know when action is likely to be taken.

•Foreclosure-avoidance steps. The agreement will set up options that mortgage holders agree to use, including loan modifications, repayment plans and temporary suspension of payments. Also, if a borrower falls 90 days or more past due on payments, the servicer would agree to delay foreclosure proceedings if there’s a chance other options could help avoid repossession.

•Short sales and second mortgages. Both issues have been tricky in negotiations with lenders. But the agreement would mean that secondary loan holders would be more apt to allow modifications or refinancing plans. For homeowners facing hardship, the servicers would agree to suspend foreclosure for a period to allow for the possibility of a short sale, which involves selling a property for less than the market value.

“It’s really important to have more clarity and transparency for what foreclosure prevention can look like,” says Faith Schwartz, executive director of the Hope Now alliance. “It’s a big step forward for the industry. When you make something more uniform and set expectations … you’re going to help more people.”

Critics have complained that the help amounts to a Band-Aid in many cases. Austin King, national director of Acorn, the Association of Community Organizations for Reform Now, says Hope Now has a chance to make good on this new agreement, since previous steps have produced little improvement.

“What they are announcing would be a huge step forward, if these pieces come together,” King says. “The question is, what kind of work-outs are the distressed borrowers going to be getting?”

The Homeownership Preservation Foundation runs the hotline for the Hope Now alliance, which is 888-995-HOPE (888-995-4673).

 

USA Today

WASHINGTON (AP) — Housing starts slid 3.3% in May to their lowest level in more than 17 years, while permits for future construction also fell, signaling more weakness ahead for the battered housing sector.

The Commerce Department said Tuesday that housing starts fell to an annual pace of 975,000 units in May, lowest since March 1991. Economists polled before the report were expecting a 980,000-unit rate. April’s figure was revised down to 1.008 million from the 1.032 million originally reported.

Building permits fell to an annual rate of 969,000, slightly higher than the 960,000 expected by economists.

The housing market has been battered for months by failing mortgages and uncertainty about when the sector might recover. Across the regions, there were some mixed signals about the health of housing.

The Northeast saw a 61.5% jump in May housing starts from the previous month while the region set a record low level of housing permits in single-family homes.

Starts were off in all other regions with building down 25% in the Midwest, 10.3% in the West and 4.4% in the South.

More buyers head to real estate sidelines, especially in the Kootenays and Okanagan

Derrick Penner
Sun

Potential homebuyers are becoming worn down by rising fuel and food prices, wary about economic uncertainty, and less flush with equity to take on second-home purchases, the B.C. Real Estate Association believes.

While B.C. has one of the better-performing economies in the country, association chief economist Cameron Muir said slower economic growth and bad news from the U.S. housing recession is eroding consumer confidence.

The result of that, in May, was more people taking to the market sidelines, Muir said in releasing the association’s monthly sales statistics. Much of the impact is being felt in the Kootenays and Okanagan.

“High gasoline prices and the spectre of rising food prices are having an impact on consumers and the way that they’re looking at their household budgets,” Muir said.

That concern over household financing, he said, spills over into decisions to purchase real estate, particularly recreational property, since those decisions are easy to postpone.

In the Okanagan and Kootenays, booming construction continues to push up housing supply while sales are falling. Those markets are also facing increased competition from U.S. resort destinations, where declining prices are an attractive lure for buyers.

“While last year the hottest markets in the province were amenity markets such as the Okanagan, Kootenays and Kamloops, that situation has reversed this year,” Muir said in an interview.

He said investors or recreational buyers have a bigger influence in those markets, and because of higher transportation costs and greater uncertainty, “many of those markets have edged into the buyers’ category.”

In 2008, Muir said, the more active markets have been the bigger urban ones in the Lower Mainland and Victoria, which remain in “balanced-market” territory.

Greater Vancouver saw sales drop almost 31 per cent to 3,065 units in May, compared with May 2007 and listings rose 38 per cent to 17,336 unsold units.

In the Fraser Valley, sales dropped 25 per cent to 1,531 units and listings rose almost 32 per cent to 9,400 unsold homes.

And sales have slowed considerably across the province.

B.C. recorded 8,101 sales through the Multiple Listings Service, a 31-per-cent drop from the same month a year ago.

And the total dollar value of those sales, $3.9 billion, represented an almost 27-per-cent decline.

Average sale prices, however, are still up 5.9 per cent in May compared with the same month a year ago, which makes the average B.C. home price $475,656.

Muir said property prices for the first five months of the year are still, on average, up 11 per cent from 2007 levels. He expects that to ease back to nine per cent by the end of the year.

“It’s a gradual easing of prices, and that easing may occur a little bit sooner because of the number of listings that have come on in the spring market,” Muir said.

Listings across the province in May, Muir reported, were up 43 per cent compared with the same month a year ago, with an inventory of 52,893 unsold homes on the market, the highest it has been since at least 2000.

Canada‘s “six-year housing boom has indeed fizzled,” Robert Kavcic, an analyst with the stock brokerage BMO Capital Markets wrote in a recent note.

Sales of previously owned homes in Canada‘s major markets declined almost 17 per cent, Kavcic said, with activity in 19 of 20 markets below 2007 levels.

Kavcic said Calgary and Edmonton, in Alberta‘s oil-fuelled economy, actually experienced year-over-year price declines in May of 2.4 per cent and almost five per cent respectively.

The only other city to see a price decline, Kavcic said, was layoff-plagued Windsor, Ont.

Paul Fabri, a Canada Mortgage and Housing Corp. analyst in the Okanagan, said he expects the declines in the Alberta markets will translate into fewer sales in the Okanagan, since many of those purchases have been financed from equity gains in the buyers’ primary residences.

“Well, they’re not seeing those big price gains over the last year or 18 months,” Fabri said.

Fabri said he has taken note of several “travelling road shows” from U.S. resort destinations, which also serve as competition for the Okanagan’s recreational real-estate products.

Fabri said sales in the Okanagan are still robust, and “you’ve got to remember we’re coming off successive record highs [for sales and price gains] over a number of years.”

Tsur Somerville, director of the centre for urban economics and real estate in the Sauder School of Business at the University of B.C., said the experiences of Calgary and Edmonton are evidence that real-estate prices can decline even in locations where the economy is strong if prices get out of equilibrium with fundamentals.

“We’re not magically immune to the fact that overpriced markets have to adjust,” Somerville said.

However, that doesn’t necessarily mean price corrections, Somerville said. Prices might simply stagnate, as they did in B.C. during the late 1990s, Somerville added, or simply slow to below-average levels.

“I’m confident that [B.C.] markets are adjusting back towards equilibrium,” Somerville said. “But what I’m not clear on is what path that will take.”

© The Vancouver Sun 2008

 

Eric Shackleton
Other

TORONTO – Analysts say rising mortgage rates are expected to further soften Canada‘s housing market as affordability erodes, sales cool and the economy in many parts of the country blows off more steam.

Their comments Monday follow last week’s half percentage point rise in mortgage rates, and a report by the Canadian Real Estate Association showing that a flood of homes onto the market sent resale listings to their second consecutive record level in May as sales slowed and price gains cooled.

Mortgage rates are expected to keep on rising as the Bank of Canada shifts its focus to taming inflation from stimulating the economy with rate cuts.

Higher rates will “certainly affect people … who are at the margins of affordability,” said Gregory Klump, chief economist at the Canadian Real Estate Association, or CREA.

Robert Kavcic, an analyst with BMO Capital Markets, says “we’ll probably see a continued cooling trend for the rest of the year and probably into next year” in the housing market as the economy sputters and mortgage rates move up.

“The trend is definitely higher” with rates, said Kavcic. “That’s just another hit to the demand side,” along with rising food and energy costs.

While the Bank of Montreal does not expect the Bank of Canada to hike its key rate until 2009 – good news for homeowners whose loans float and are tied to the banks’ prime rate – mortgages linked to the bond market are moving higher now, he said.

“I don’t think it’s going to be short and fast, but the cost of borrowing should definitely trend higher over the next couple of years.”

The recent half a percentage point rise in five-year fixed term mortgages, said Scotia Economics analyst Aron Gampel, is “a reflection of the changing sentiment” in the bond markets., where banks finance their mortgage lending.

Average customers now face a discounted rate of about 6.09 per cent for a five-year fixed term, compared with the earlier rate of 5.59 per cent.

“Longer-term mortgages, in particular, are priced off the longer end of the bond market,” said Gampel.

“What we’ve been seeing is that while growth expectations have been reduced, inflation expectations have been increased substantially on the back of the sharp and sustained rise” in energy and food prices, he said.

Central bankers, he said, have been caught off guard “with their earlier focus on growth now has to change to a renewed focus on inflation … their No. 1 mandate.”

Said Gampel, “we have this juxtaposition where global growth is still strong enough to put upward pressure on commodity prices which is fuelling inflation even in those countries where growth pressures have diminished quite substantially.”

Kavcic said the upward pressure on mortgage rates will “certainly take the steam out of it (the housing market) that we’ve seen. But given that the pace is going to be pretty slow, it’s not going to be a crippling blow.”

The country’s economy has been slowing since last summer following the subprime mortgage crisis in the U.S. and resulting worldwide credit crunch.

Falling consumer confidence and demand in the U.S. and the high Canadian dollar have hurt the country’s export sensitive auto, forestry and housing sectors, leading to plant and mill closings and thousands of job losses and layoffs, especially in manufacturing orientated Ontario and Quebec.

Last month, there were 54,029 new listings of resale housing units in major markets, a 2.2 per cent increase over the seasonally adjusted record hit in April, according to data released by CREA.

On an unadjusted basis, listings rose to 67,628 units, up seven per cent from May 2007.

Year-over-year sales, however, fell in 18 of the 20 markets. Unit sales across Canada dropped by 17 per cent in May from the year before on an unadjusted basis, and by 0.5 per cent compared with April 2008, on a seassonally adjusted basis.

Prices rose one per cent in May from a year earlier to $337,071, a new record for the average price, but the smallest hike in more than seven years.

Klump said “rising food, fuel and home prices are denting consumer confidence,” while continuing price increases are eroding affordability.

Increasingly, he said, “cautious home buyers may keep listings on the market longer before being sold, which increases the importance of realistic pricing.”

CREA is “looking at an 11.5 per cent decline in sales activity this year and a further four per cent decline in activity next year. Prices are forecast to continue rising this year and next,” said Klump.

Canadians, said Kavcic, can expect to see a more balanced housing market by the end of the year.

“Sales are down pretty sharply year-over-year and listings are up sharply year-over-year. But there are still pretty elevated housing starts in a lot of the segments” especially condos in Toronto.

“There could be a bit of balancing ahead in terms of those new condos coming on the market and then prices having to adjust down if demand softens with higher mortgage rates.”

Close to downtown, these beauties are bound to draw a crowd

Kate Webb
Province

Vancouver condo hunters have always had a tough choice between making their nest at a newer or older address.

Go too new and you could end up with something that seems cold, tritely trendy or lacking in personality. Go too old and you might end up with a leaker, or some other equally nightmarish structural defect.

But V6A, a brand-new condo development going up on the edge of Chinatown in Strathcona, manages to stake out the perfect middle ground by melding homey heritage style with modern convenience — and without breaking the bank.

Real estate junkies are sure to descend in hordes on this soon-to-be-released gem, especially since 40 of its 128 units are priced under $400,000.

“The main attraction is its unique location, being so close to downtown, Gastown, Chinatown and Southeast False Creek,” says Chris Evans, executive vice-president of V6A developer Onni Group. “A lot of people are interested in this because it’s in an area of growth. Vancouver‘s moving east.”

The first thing to strike this writer upon walking into the display suite was the natural finish and beautiful grain of the engineered oak floors — an upgrade from the standard wood laminate, it looks too fabulous to pass up.

Beyond that, the standard package doesn’t miss a beat.

Dual colour schemes — named for the building’s vantage point at Main and Union — soothe the senses with warm brown and creamy white tones.

Main is the lighter theme of the two, its stained-teak cabinetry casting the kitchen in an orangey glow, while Union is a touch darker, with a greyish walnut façade.

The open floor plan is framed by the linear kitchen, which takes up the longest wall, and perpendicular to that, floor-to-ceiling windows look out on an attractive, spacious balcony. “Most units come with decks of approximately 75 square feet,” says Evans.

Depending on the unit, views will survey either South Main Street, Southeast False Creek or the North Shore mountains.

Brick masonry will cover the shell of the cement-construction building up to the seventh floor, while the top two floors of penthouses will enjoy an all-glass exterior.

“The architecture responds to being in a heritage district, but at the same time it has a very modern feel,” says Evans.

Kitchen afficionados will revel in the sight of the elongated rectangular undermounted sink, white stone-composite countertops, an elegant marble tile backsplash, and built-in high-end appliances, including a covert dishwasher.

“The overheight cabinets go right to the roof to make the most of the space,” Evans explains, pointing out their soft-close feature.

While the lower bank of cabinets automatically comes in all wood, buyers can choose to match their uppers in the same or, for a more contemporary look, have them done in a bright, high-gloss white finish. The contrast of the latter option offers a great way to ease back on exhibiting too much wood, while giving the floor back to . . . well, the floor.

The bedroom can either be a cozy enclosure or a kick-back-and-lounge area contributing to the space’s lofty feel, thanks to smartly installed retractable glass walls.

The boudoir is also precisely measured to fit a queen-size bed and side tables, with a giant double closet running the entire length of the longest wall. “You’re going to be able to live and entertain here, even in the smaller units,” Evans says.

Oversized bathrooms are the surest giveaway V6A isn’t actually a heritage building, but then residents will hardly mind that. One-bedroom buyers will have the option of a tub or walk-in shower, while most two-bedroom owners will get both.

White stone counters complement the near-matching ceramic of the undermounted sink, emanating a distinctly spa-like sense of luxury. Plus, there’s a dual-flush toilet, more drawer and storage space than any diva could ask for, and chic porcelain tile floors.

If you’re a bit iffy on the neighbourhood — it is, after all, only four blocks from Main and Hastings — have no fear: Onni has seen to it the building will have two parkade gates, a full-time evening security guard, and a long list of other high-tech security features to put your mind at ease.

Sales start at the end of June and move-ins get going at the end of 2009, just in time for the Olympics, so beat a path to the presentation centre or register online if you want a secure a spot in the sales line.

[email protected]

THE FACTS

What: V6A, a 128-

unit, nine-storey condo midrise.

Where: 221 Union St., Vancouver.

Developer: Onni Group

Sizes: One-bedroom or one-bedroom-plus-den all the way up to three bedroom, from 630 sq. ft. to 1,335 sq. ft.

Prices: $336,900 to $999,900

Open: Presentation centre and display suite open now from 12 to 6 p.m. Saturday to Thursday at 1829 Quebec St.

More Information: www.onni.com

© The Vancouver Province 2008