Matthew Jay
Sun

OTTAWA – As much as 100 per cent of the cost of a fully renovated kitchen or bathroom, often done with the help of a contractor, can be recovered when it comes time to sell, a report released this week suggests.

Major renovations generally provide higher certainty of return than do-it-yourself projects, said the report prepared by Toronto-based Royal LePage.

“Those still are the No. 1 return on investment,” said Diane Usher, a broker with Royal LePage.

But she cautioned that contracted jobs must be approached prudently to ensure a decent return, and spending should be relative to the value of the property.

“To put a $50,000 kitchen in a $200,000 condo isn’t going to give you as good a return on your investment,” Usher said.

Some improvements made by the homeowner, like replacing a worn carpet or updating light fixtures, are good ideas but can be less effective in terms of the rate of return when compared with other projects.

She explained many people have success finding quality paints, decorating ideas and techniques on their own, but renovations like landscaping are more challenging and returns can be lower without professional aid.

These lower returns are reflective of the relative availability and quality of materials as well as the difficulty of achieving professional results, said Usher.

Condo building is $3.5 million in the hole, court-appointed receiver says

Derrick Penner
Sun

Pre-sale buyers in the east Vancouver Sophia condominium project accept they will have to pay more for their units to rescue the financially troubled development, according to a receiver’s report.

“There is a $31/2-million hole, and the lenders are not going to fund that themselves,” court-appointed receive David Bowra said in an interview. “That is going to have to come out of increased revenue.”

For those who can, it will mean paying between a few thousand dollars and $60,000 more than the $364,000 to $689,000 in the pre-sale contracts they signed during the marketing phase in 2005 and 2006.

The eight-storey Sophia building is on 11th Avenue near Main Street.

Bowra said one of the project’s secured creditors, Bancorp, is going to court next Tuesday to ask for a court order allowing for completion of the project with terms that will offer pre-sale buyers the chance to claim their units, but at higher prices.

The receiver proposes that early pre-sale buyers pay 90 per cent of their units’ current market price, or if people bought the contracts from initial buyers, called assignments, a price 15-per-cent higher than the initial price.

Bowra said four or five buyers have already taken their deposits back and walked away, and expects several others will also be unable to complete their sales.

However, he met with a group representing 54 of the 79 pre-sold units this week, and a majority of those people voted in favour of his recommendation.

The alternative would see the Sophia’s secured creditors foreclose on the project and sell units at current market prices. Pre-sale buyers would still get their deposits back, but wouldn’t get the apartments at what are still attractive prices.

Bowra said the buyers recognize “the train has left the station. We either have to get on the train, or let the train leave and complain.

“Either you want to buy a unit at an amended price, or you don’t.”

Bowra added that the situation was complicated by some buyers, who paid deposits directly to the initial purchasers instead of putting the money into trust.

In his report, Bowra said a few told him they wouldn’t be able to meet the 90-per-cent-of-current-value option.

The Sophia’s developer, the Eden Group, put the project into receivership at the end of February. Company owner Bill Eden cited $4 million in unexpected increases to construction costs.

Bowra said construction delays were a factor, but project management also played a role.

“Things weren’t getting done in a timely fashion. There were issues with trades [contractors], cost overruns and so on,” Bowra added. “But when you peel it all back, it comes down to management.”

© The Vancouver Sun 2008

 

Other

Download Document

Ozzie Jurock
Sun

REITs are like those books that everybody quotes but nobody has read. So, let’s just say that a Real Estate Investment Trust (REIT) is like a mutual fund that deals only in real estate investments. You put your money in a common pool with which properties are bought, sold and moved in and out by a fund manager. As an owner of shares in the REIT, you will get a proportional profit as share value appreciates.

Of course, you may have your proportional share of the losses also. However, shares of publicly traded REITs remain attractive to investors because they can offer great yields and receive favorable tax treatment. Plus, REITs are required to pay 90 per cent of their taxable income in dividends (after depreciation expense). They are RRSP and RRIF eligible investments and enjoy a level of liquidity unmatched by owning the underlying investments outright.

The history of real estate oriented mutual funds and REITS is quite checkered. In the mid-80’s, REITs experienced huge losses when business properties in certain cities went over the ‘cliff’. However since 1992 some of the trusts saw strong gains.

The essential difference between a REIT and owning the real estate outright is liquidity. REITS may invest in commercial or apartment block type properties. If x number of units are issued and traded on the stock exchange, they rise and fall with the market value of the properties in the trust. However, the REIT has no obligation to redeem the units. Just like any other stock market investment, the REIT holder sells it for whatever it will bring.

In Western Canada, REITs deep into the industrial sector may offer fine opportunity, plus those who have the capital muscle to be looking at offshore markets, like in the troubled US commercial real estate.

In 2006, when the federal government slapped a ‘Fair Tax Policy’ on Income Trusts, REITS were largely spared. As long as they met the requirement of the new trust rules: A REIT must maintain 95 per cent of its income from properties.

This has already caused some trusts that were close to the real estate market to rearrange into a pure real estate play.

Now, with another change in policy, the government has sweetened the outlook for REITS,

In December of last year, Ottawa announced “technical amendments” that removed limits on the amount of foreign property REITs can hold. The government said the changes will allow REITs to better compete internationally.

“Among the proposed amendments is the removal of the distinction between Canadian and foreign real and immovable properties in determining whether a trust is a real estate investment trust (REIT),” the government said in a release.

Formerly, a Canadian REIT had to receive 75 per cent of its income from properties in Canada. As well, 75 per cent of its physical property holdings had to be in the country. But now that regulation is history.

The definition ‘real estate investment trust’ has been amended to remove the distinction between Canadian and foreign properties, the December statement said. “The 75 per cent value and 75 per cent revenue tests . . . will continue to apply, but the geographic location of the real or immovable property will not be relevant.”

However, some Canadian REITs have or will be posting losses over the next few quarters, as they take a future tax charge to reflect Ottawa‘s income trust tax policy, which kicks in 2011. Certain REITs, particularly those with “operating” components such as senior care and hospitality REITs and some apartment REITS, may not qualify for the REIT exemption. Such trusts may need to restructure in order to meet the requirements of the exemption.

The opening of foreign ownership, however, is a major move, freeing REITs to play in the weakened U.S. market, for example.

THINGS TO REMEMBER WHEN

CONSIDERING REITS:

1. Buy for dividend yields and participation in capital gains;

2. Diversify by property type and geographic location for a reliable income stream;

3. There are many kind of REITs. Some REITs are structured to invest in apartment buildings, some in hotels, some in mini-storage units. Make sure the REIT you like to invest in has the required ‘operating income’ component (as above).

4. Look for staggered lease maturities and mortgage dates, and a stable tenant with potential for rent increases, re-development of properties, and future acquisitions;

5. Find out about the REIT’s management track record;

6. Investigate liquidity;

7. For above-average return, invest during a period of low interest and mortgage rates, with rising rents and falling vacancy rates.

THREE INHERENT REIT RISKS:

1. In a fast rising market, many REITs overpay and rely too much on future rent increases to make purchases pay off. The buildings owned by the trust may not generate enough cash flow to carry them.

Result: a drop in income.

Consequence: shares fall in value.

2. If the stock market slips, in general, REITs could slide down in tandem even if they have great assets. (That is happening in the US right now…

3. In order to control the maximum assets, REITs usually invest in highly-leveraged properties.

Result: could be…higher risk.

Consequence: the potential to lose a lot so check on debts carried by REITs…

Major Point:

Remember to look closely at the portfolio of your REIT and its contents to see just what kind of things they do with the money. Look even more carefully at the management and/or the principals’ previous performance.

© The Vancouver Sun 2008

 

Sun

British Columbia‘s unprecedented housing market expansion will continue into 2009, as economic fundamentals and market conditions remain conducive to high sales volumes and rising prices, according to Credit Union Central of British Columbia’s latest forecast.

“Lower mortgage rates, high income growth and rising in-migration through to 2009 are favourable trends supporting sales demand,” said Central’s Chief Economist, Helmut Pastrick. “Poor affordability for low-equity buyers due to high housing prices is the main restraint to even higher sales levels.”

Housing prices will reach new highs this year and next, but with a slowing in the rate of increase as market conditions ease. Prices will typically increase by 10 to 12 per cent this year and five to six per cent during 2009, after rising 12 to 14 per cent last year.

“The high-end market is booming across Canada as more baby boomers inherit large amounts of money, and the Canadian economy is booming right along with it,” says Ann Chiasson, an agent with Sea to Sky Premier Properties in Whistler, whose current listings include an $18 million Whistler chalet. She adds that reasonable interest rates and a desire for unique, higher-end properties are driving the market as well.

Also fueling the high-end market are foreign and second-home buyers, though not necessarily from the United States. The weak American dollar, which for the first time in decades was worth less than the Canadian dollar, has been making real estate in Canada more expensive for Americans.

However for many high-end buyers from major U.S. cities, prices here are a bargain by comparison. In New York for example, a penthouse suite at the Pierre Hotel in Manhattan goes for $70 million and a four-bedroom suite at the Waldorf Towers rents for $75,000 a month.

Since the top-flight market is so cost-prohibitive, factors such as mortgage, appraisal and vacancy rates, as well as moving expenses and market fluctuations, have little-to-no effect on high-end buyers or sellers.

For real estate agents, selling homes valued at over $10 million is a very specialized trade and most brokers in the game hold only a handful of such listings at a time. An occasional sale of a luxury property brings a larger financial boom than regular sales of median-priced properties.

A search of B.C. properties on the MLS website shows more than 500 properties priced over $2 million. Sotheby’s International alone lists 88 properties across the country in the $2 million plus price range — 49 of them are in B.C.

Topping the list is a $29 million waterfront estate on Vancouver Island (pictured left) that Sotheby’s listing agent Bob Milloy describes below:

Simply stated this is the finest oceanfront estate property in the Pacific Northwest. Strategically nestled on a magnificent 2.4-acre gated property with over 1,400 feet of ocean frontage, the dramatic 15,800 square-foot residence blends artfully into its seaside landscape. The residence is crafted in concrete and features spectacular living spaces including a dramatic grand hall and a world-class executive office.

While the B.C. market did enter the multimillion-dollar housing market slightly later than some other regions, it is indeed following all the usual high-end pricing patterns. That is, numbers are going up.

© The Vancouver Sun 2008