Fabrizio Zenone

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Taxes, interest rates made their mark in city market in 2018

 

 


Taxes

Vancouverites have railed against property taxes for decades and made no exemption in 2018. With so many levies to choose from, it’s tough to pick just one. The dour joke that B.C. stands for “Bring Cash” applies no longer to just the high cost of living but also to the rising cost of acquiring and holding real estate in the province – if you can afford it.

The fun kicked off in July 2016 with the announcement of a snap tax on foreign nationals buying residential property, and ramped up in the 2018 provincial budget with news that the property transfer tax on foreign nationals would be expanded to more areas and a vacancy and speculation tax would be introduced. That tax followed in the steps of a similar initiative by the City of Vancouver, which claimed 25,502 homes in the city were vacant but levied the tax against only 2,538 homeowners this year.

Commercial property owners, particular neighbourhood retail, have also been hit hard. City councillors long opposed Walmart’s debut in the city, citing concerns about its impact on local businesses. But property taxes have one-upped Walmart, pushing many long-standing businesses from premises (now subject to redevelopment with higher and better uses) along Broadway, Main Street and Commercial Drive to points east and south.

Interest rates

When the year began, rising interest rates were expected to have an effect on both commercial and residential property sales, not to mention prices. Together with a new federal mortgage stress test, increases to interest rates muted residential purchases this year and seem set to continue to do so.

The impact on non-residential deals was muted, however, thanks to a shortage of opportunities.

This has been particularly true of industrial properties, where deal-making remains strong – a situation that Avison Young expects to continue through the first half of 2020. While interest rates have increased, supply hasn’t, meaning there’s still a price to be paid for assets. Those who want space are willing and able to pay, even if it means buying strata space.

“Vacancy remains tight and financing is easily available to industrial owner-occupiers,” Avison Young said of the strata market, noting that the first half of the year saw $449 million invested in industrial properties worth more than $5 million, while those worth less than $5 million (mostly strata properties) attracted $301 million.

While capitalization rates are inching up, vacancy rates may well prove a better indicator of market strength so long as investors are willing to pay. This isn’t the case for residential, with many homebuilders bracing for a slowdown while acknowledging, as one remarked at a year-end party, “Vancouver’s had a good run.”

In the field

B.C.’s Agricultural Land Commission turned 45 in 2018, and the province marked the occasion by asking people how to revitalize it and the properties it oversees.

While the Agricultural Land Reserve (ALR) is generally considered a fact of life, several pronouncements have – depending on your perspective – either reinforced the ALR’s sacred-cow status or created confusion about what exactly might be allowed. The latter was illustrated by Abbotsford’s decision to pause a planning process that sought, among other things, to crack down on non-compliant use of properties within the reserve.

Meanwhile, initiatives around the province have sought to limit the kind of production that takes place in the ALR. Richmond failed to rein in monster homes within the ALR, then sought to limit the use of slab-on-grade construction with a view to limiting cannabis cultivation. While the province has no problem with food production and has been cool with ginseng and echinacea in the past, cannabis has drawn censure and an order-in-council limiting production to soil-based systems.

Having eliminated the two-zone ALR and strengthened regulations governing activities within the ALR in 2018 (including mandating limits on residential construction), B.C. Agriculture Minister Lana Popham promises to change up governance of the reserve in 2019.

With development land in short supply, the changes mean the ALR will continue to make headlines.

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