Tuesday, June 28, 2011

Vancouver enclaves inflating bubble

It's been touted as the centre of Vancouver's so-called property bubble and now somebody has produced the data that just may back up that claim.

Local firm Landcor Data Corp. says it has been tracking property tax assessment bills to pinpoint the percentage of transactions driven by foreign investors in Vancouver's suburbs -a trend the real estate industry says has been driving up average prices in the country's priciest city.

The latest data from the Canadian Real Estate Association shows the average price of a home sold in May in Vancouver was $831,555, a 25.7% increase from a year ago. CREA has said the sale of multimillion-dollar homes has skewed the city's average sale price and done the same nationally.

Richmond and the west side of Vancouver, favourites of Chinese investors, were the focus of a first-quarter report form Landcor's which looked at the profile of buyers from 2008 to 2010. It found buyers from the "Middle Kingdom," as the company put it, dominated purchases.

In 2008, there were 69 sales of homes priced at $3-million or more, the most expensive $10.5-million, and 46% were purchased by Chinese buyers. By 2010, there were 164 sales in the same category, the highestpriced being $17.5-million, and 74% went to Chinese buyers.

"There is only one way to track this and we are as close as anybody is going to get," said Rudy Nielsen, the president of Landcor, about the use of property assessment to track where buyers are from. It also compared names on sales contracts to names common in the People's Republic of China, excluding people with Western first names.

Mr. Nielson acknowledged his methodology is not without flaws, given assessment notices do not necessarily have to be sent to a person's permanent address and could be forwarded to a friend, property manager or lawyer located in B.C.

"There is a lot of hype and it is hard to tell for sure what the impact of the Chinese buyers has been. He doesn't give you a postal code. He's not like the German buyer who gives you a German address," Mr. Nielson says.

If anything, the impact of Chinese buyers in the market could be even greater because of the number of purchasers shielding their identity, he said.

Andrew Ramlo, executive director of The Urban Futures Institute, a Vancouver research firm that worked with Ledcor, says the data prove that influence of foreign investment is not a major factor in most of the Lower Mainland.

His group points out of the 55,512 sales in 2010 only 195 were to people outside of Canada -0.4% of all sales for the year. Furthermore, he says, foreign investors own only 0.5% of the total housing stock of 774,600 residential properties in the Lower Mainland.

"These data contradict what seems to be largely anecdotal evidence indicating foreign investment is a significant driver to residential price increases in the Lower Mainland," he said in a report.

Benjamin Tal, deputy chief economist with CIBC World Markets, said he needs to see more data on foreign investment in individual neighbourhoods before he makes conclusions.

"What you could have [in Richmond and west side Vancouver] is a bubble within a bubble or a bubble outside the rest of the real estate market," says Mr. Tal, noting his concern is if prices drop in Vancouver's luxury market it will it affect the rest of the city.

By Garry Marr, Financial Post

Thursday, June 23, 2011

Parking leases in a nutshell

The manner in which the Developer designates the parking area on a strata plan depends on the structure of the development. The general rules of thumb are as follows:

STALLS AS LCP:

1) If the project is solely residential and the Developer intends to sell all of the units, it’s most common for the Developer to designate the parking garage as CP, but the individual stalls as LCP such that each strata lot has at least one parking stall designated for its exclusive use.

2) In this scenario, the Developer is required to provide the surveyor with a list of every parking stall that is to be designated to each particular strata lot, and those LCP numbers are included on the strata plan filed in the LTO to raise titles in advance of the first sale. To do this, the Developer must be able to determine in advance of sales, what it wants to do with all the stalls – ie. that it does not intend to retain a handful of stalls for its own use to designate them as a marketing tactic to bigger strata lots in the future, if the sales don’t go well or to sell them to potential buyers (perhaps owners of commercial strata lots close by in the complex etc.) down the road. Once the strata plan is filed and the first sale closes, the Developer has limited means to amend the strata plan without a ¾ vote of the strata corporation.

3) This method ties the Developer’s hands and is generally mostly seen in residential projects only. LCP stalls are designated permanently on the strata plan for the use of the strata lot specified and thus cannot be sold to other owners or outside parties – they run with the sale of the unit, unless a strata plan is permanently amended to change the LCP designation by approval of the strata corporation and an amended strata plan is filed in the LTO (which is rare).

STALLS AS CP:

1) In a project that’s mixed residential and commercial, it’s advantageous for the Developer to designate the parking garage and all stalls as CP. Prior to the first sale (as Developer controls strata corporation in the period between the Strata plan filing and the first sale) the Developer enter into a lease agreement with a company controlled by the Developer and named Random Parking Co. (the Tenant). The Developer leases all of the stalls to the Tenant and causes the Tenant to assign each particular stall to the first purchasers, who then assign the CP stall/storage locker to the new buyer of the strata lot upon sale. A term of the lease provides that once all the strata lots are sold the Developer causes the Strata Corporation to assume the rights and obligations of the Developer, and thus the Strata’s job is to maintain the Parking Assignments (and the register of which strata lots were initially leased which stalls – usually a binder with a list) when the units are sold over and over again, and to ensure the Assignments are kept in order etc.

2) The major advantage to this method is that the Developer doesn’t need to tie themselves to a list of which stalls are designated to which units until each strata lot is sold, which can be long after the strata plan is filed.

3) Thus the Common Property area of the parking garage and all of the stalls become SUBJECT TO the lease arrangement, meaning the owners do own the common property as tenants in common, but that ownership right is subject to any contract in place, and therefore subject to the lease agreement and terms of it.

4) The assignment of the lease from the Tenant to each owner grants the owners the exclusive contractual right to use and occupy that particular stall and storage locker. Because the contractual right to use the stall is granted to the owner of the strata lot – that owner could assign their right to use and occupy the stall and locker to another owner in the building by entering into an assignment (and taking payment for the sale of the leased stall/locker) – BUT this would mean that when the strata lot is sold, the owner must advise the new buyer that the unit does not come with a stall or locker - - the Strata Corporation should carefully maintain the Assignment Registry to verify if a stall and locker has not been previously assigned by the owner of a pending sale.

5) Usually there is a term in the lease that restricts transfer so that owners are only permitted to assign the stall/locker to another owner in the building – sometimes though the Lease expressly provides that assignments can be made to owners outside the development (ie. anyone who is willing to pay the developer $20,000 for a stall.. developers commonly reserve a handful of CP stalls for themselves - ie. remember they are the Tenant under the Lease (eg. Onni Parking Co.) so they use this method to be able to sell stalls to neighbouring retailers long after they’ve sold out the strata lots and lost control of the strata corporation.

6) In summary by incorporating a company before the strata plan is filed and entering into this lease arrangement which the Strata Corporation later assumes by stepping into position of “Developer/Landlord” once all units are sold.. the Developer gets out of being the Landlord and having to administer the lease in the future (first they assign all the stalls to the Tenant (themselves) and then causes Tenant to assign the ones it wants to provide to strata lots for new buyers - at least one per strata lot is mandatory by City bylaw) BUT Developer gets to remain as the parking Tenant which allows them to retain control over the stalls they want to keep to later profit from them.

7) Normally in mixed developments there’s a provision the developer has added to ensure that assignment of stalls/lockers can be made to outside parties who are not owners in the strata plan.

Friday, June 10, 2011

Title Insurance – You bought it! But, what is it?

Congratulations on the purchase of your new home! During the closing we briefly discussed your Title Insurance policy, but now that you have a little more time to breath you’d like to know more about it. Well, Title Insurance is an integral, yet often times misunderstood, component of almost every real estate transaction.

Banks and lenders require it in most transactions, and for that reason – People Buy It! But it’s also important to understand what you’ve purchased. Below you will find a brief summary on the ins and outs of a Title Insurance policy.

What is Title Insurance?

Title insurance is an insurance policy that protects residential and commercial property owners and their lenders against losses related to the property’s title or ownership. The term “title” is a legal term that refers to the legal ownership of property. Title insurance provides protection from the various potential losses related to your property. These include unknown title defects, existing liens against the property’s title, encroachment issues, title fraud, and other title-related issues that can affect your ability to sell, mortgage, or lease your property in the future. For a one-time fee, called a premium, a title insurance policy will offer protection from such losses. Importantly, title insurance policy will only protect you as long as you own your property. In addition, a title insurance policy will cover losses up to the maximum coverage set out in the policy. It may also cover most legal expenses related to restoring your property’s title.

The Type of Protection Offered by Title Insurance

Before purchasing a title insurance policy, be sure to review the coverage as there are possible exclusions. These include known title defects, environmental hazards, native land claims, zoning bylaw violations, matters that are not listed in public records, problems that would only be discovered by a new survey or inspection of your property, and other additional exclusions.

Given that a title insurance policy does not provide compensation for non-title related issues, it does not provide compensation for damages due to flooding, fire, general wear and tear of your property, theft, and other damages due to non-title related issues.

Title insurance policy provides protection for residential and commercial properties. Residential title insurance policy insures houses, condominiums, rental units, cottages, cooperatives, leased properties, and vacant and rural land. Commercial title insurance policies can insure office buildings, industrial buildings, shopping centers, warehouses, leased commercial properties, vacant commercial land, and rental units.

Residential title insurance can provide coverage for individuals planning to purchase new property, or even if they own a property already. Specifically, the policy can provide comprehensive coverage which offers protection against losses related to the property’s title. Also, it can provide gap coverage which protects you for the “gap” between the time your property purchase is finalized and the time your title is registered in the land registration system. Next, the policy provides survey coverage which eliminates the need for a new up-to-date survey of your property. Finally, the title insurance policy provides legal coverage which offers payment for most legal expenses related to defending your home’s title. Most importantly, title insurance simplifies the closing process for your lawyer, thereby saving your time and money!

When can title insurance policy be purchased?

Title insurance may be purchased at the time of buying your property, or anytime after the purchase. However, policies for existing homeowners and new property buyers are slightly different. The cost of residential title insurance varies based on the value of your property, and the insurance company you choose. A one-time fee, called a premium, applies to all purchasers.

Residential title insurance coverage lasts as long as you own the property. Most residential title insurance policies extend coverage trough a will, or when the property is transferred from parents to children for nominal consideration.

Title insurance can be purchased through a lawyer or title insurance company. You can also contact an insurance agent for more information.

Once you have decided to purchase title insurance be sure to verify that your property is insured for its full value, that your policy’s effective date is the same as your property’s closing date, and that you understand the terms of your coverage.

Importantly, all real estate lawyers in Ontario are required to carry professional liability insurance and this insurance may provide coverage for title-related issues that relate to the services provided by your lawyer.

How to Make a Title Insurance Claim

In order to make a title insurance claim you must first verify that the title-related problem is covered by the policy. Once it is established that you qualify for protection, ask your title insurance company or refer to your policy to find out when claims must be submitted. Your claim must be submitted in writing specifying the information on the losses you have experienced and must include your policy number, contact information and any relevant documents related to your claim. Finally, it is recommended that you keep a copy of your claim. A decision about your claim will be communicated with you within a reasonable amount of time.