Real Estate Values remain high although in some markets in Canada there are now signs that demand may be fraying around the edges.  In Greater Vancouver, however, it would appear that values for quality product, for the most part, continue to either rise slightly, or have at least maintained their historical highs.

Vancouver continues to be a preferred location for real estate investment in Canada, and remains a competitive location among Pacific Rim cities, in terms of occupancy costs.

There is also evidence of strong office demand for B.C. real estate, with recent sales revealing robust valuation parameters, i.e., IRR / OCR, in particular for secondary office in Greater Vancouver.

Investors still have to compete with multiple offers on any quality product coming to the B.C. market.

There still appears to be a lack of quality real estate investment product currently available in Greater Vancouver.

The poorer availability of debt, the anticipated higher debt costs and more stringent credit requirements may have some negative impact on a few of the property classes over the short term.

Despite high prices and low cap rates, some investors contacted appear to see real estate as a solid long-term investment. They are not overly concerned about whether we could be nearing the top of this market cycle, since many are looking one or more cycles into the future.  There is no strong evidence to suggest that a downturn in the Greater Vancouver Real Estate Market is imminent.  High land and construction costs continue to push replacement costs higher.  This helps maintain current pricing levels.

Development Land Property Taxes

Property assessment of development land is a greater challenge these days with higher land values, rising construction costs and accelerated pace of development.  Assessed value is changing rapidly and predictability of property taxes is increasingly more difficult.  No doubt this trend will continue as we roll into the 2008 assessment year which will reflect values as at July 1, 2007.

Assessment Must Be Equitable

If you have recently purchased land, you may be surprised when you receive your 2008 tax bill. For 2007, land assessments saw the largest increase in value.  When assessing a parcel of land, the purchase price of the property will generally offer the best evidence of its market value, and must be considered in determining its assessed value. It is important to note that in B.C., properties must be assessed in accordance with the Assessment Act "at actual value in a fair and consistent manner." This has been interpreted by the courts to establish that a property cannot be assessed inequitably when compared to similar properties in the same jurisdiction. Accordingly, it is important to confirm that the assessment of a recently purchased property is equitable with similar properties in its jurisdiction.

The assessed value of the purchased property cannot increase disproportionately, relative to similar properties. For each property type, any sales relevant to that class of property must be considered in establishing assessments for the coming year. It is worth noting that often there are comparatively few sales to rely on when determining assessment parameters for land, so it is likely that only a limited number of sales in a particular jurisdiction will be heavily relied upon.

Improvement Value Must Be Accurate

With regard to developments under construction, the assessor tends to use the "Cost Approach" to value.  This is based on the principle of substitution, which assumes a purchaser would pay no more than the cost of creating a similar property.  

A problem in the use of the "Cost Approach" is that it is based on a theory of value rather than on actual market evidence.  Furthermore, only certain construction costs are assessable and must be physically in place.  In addition, some construction costs are inherent in the land value,  or are extraordinary, and therefore not assessable.

Partially complete buildings will appear on the Assessment Roll, based on the physical condition and permitted use as at October 31st in the year prior to the assessment year.  This means that for the 2008 assessment year, the physical condition date is October 31, 2007.

Classification Must Be Correct

As residential tax rates are typically several times higher than non-residential rates, it is crucial to ensure that a property has been properly classified, and if applicable, that the split between classes is correct.

Land values have risen at a greater rate than those for other property types. Consequently vacant land and development properties have been experiencing greater tax increases than fully developed properties.  It is therefore essential that these properties are properly classified, to ensure that they achieve the lowest possible tax exposure.

It is important to consider the present use in addition to the "highest and best use" of the land, given that it is the present use that will establish the classification of a property. A change in classification could shift the tax rate from business to residential - which is significantly lower. 

In summary, it is important to carefully audit your assessment (value and classification) and to consider how your property is assessed in comparison with similar properties.  Your assessment could be reduced if appealed through equity provisions, assessable construction costs or classification change.

For valuation-related questions, please contact David Eger at 604-683-5591 or david.eger@altusgroup.com For cost-related questions, please contact Steve Elias at 604-683-5591 or steve.elias@altusgroup.com For property-assessment-related questions, please contact David Howard at 604-683-5591 or david.howard@altusgroup.com

The Grosvenor Building
1040 West Georgia Street
Suite 630
Vancouver, BC  V6E 4H1
altusgroup.com