Varing Magazine 2020 - Going the Distance

2020 H O M E L I F E G L E N AY R E R E A LT Y C O M PA N Y LT D.

GOING THE DISTANCE NAVIGATING A NEW DECADE IN REAL ESTATE

CHANGING HOUSE

LANDCOR COMMENTS ON THE SHIFT FROM SINGLE-FAMILY TO MULTI-FAMILY HOUSING

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12

STANDING BY HIS WORD

MAYOR McCALLUM REFLECTS ON HIS FIRST YEAR AS RETURNING MAYOR

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SECURING FINANCING

CANADIAN WESTERN BANK SHARES SOME ADVICE FOR INVESTORS

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WHAT TO KNOW

LESSER-KNOWN TAX TIPS REGARDING YOUR PRINCIPAL RESIDENCE

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"Only those who will risk going too far  can possibly find out how far one can go."

- T.S. Eliot

CONTENTS

07

A LET TER FROM JOE

Joe Varing reflects on the year and shares his thoughts on the new decade.

10

MARKET REVIEW

Get a quick breakdown of what’s happening with Fraser Valley development.

12

CHANGING HOUSE

Landcor Data Corp dives into the shift from single-family to multi-family housing as we grow.

VARING MAGAZINE 2020 ISSUE Publisher Gabriella Denizot Gabriella@varinggroup.com Editor Tori Thistlethwaite Art Director Gabriella Denizot Contributors Joe Varing Jeff Tisdale Rick Gendemann Puneet Agrawal Tori Thistlethwaite Printed by Glenmore Printers, Richmond BC Contents ©2020, Varing Marketing Group Varing Marketing Group Homelife Glenayre Realty Company Ltd. #360-3033 Immel St. Abbotsford, BC V2S 6S2 604.565.3478 WWW.WESELLDIRT.CA

16

WHAT TO EXPECT IN 2020

Changes in the industry and navigating them before you sell.

20

STANDING BY HIS WORD

Mayor McCallum of Surrey talks about his accomplishments as mayor so far and his plans for the future.

24

SECURING FINANCING

Canadian Western Bank's Puneet Agrawal answers investors’ common financing concerns.

28

WHAT TO KNOW

Rick Gendemann, partner at Manning Elliott LLP shares some of the lesserknown tax tips on principal residence.

36

VARING IN THE COMMUNIT Y

Involvement in local events and charities is one of Varing Marketing Group’s core values. See what we've been up to.

"THOSE WHO CAN IMAGINE ANYTHING CAN CREATE THE IMPOSSIBLE." AL AN TURING

7

A LETTER FROM JOE Reflection and contemplation offer a great return on time, and as a new decade has begun, I want to take the opportunity to thank all of our clients and the readers of our annual magazine.

It’s you who help us move the needle year after year. It’s you who keep us grounded and forward-thinking. It’s your success that makes it all worth our while. For this, I, and everyone at Varing Group, are beyond grateful.

What lies ahead for our industry fills me with excitement, but the road to success will not be easy. This year, let’s not rest on our laurels or let the thought of complacency enter our minds. To achieve the future we envision, we must work. Work hard, and encourage one another—and come together as an industry so we can fly at a comfortable altitude no matter what turbulence may be on the horizon.

As we leave the past behind, it is my sincere hope that we will all carry our accomplishments, as well as our challenges, into the years to come— and that our experiences will shape the decisions ahead. It’s time, in both our personal and professional lives, to live outside of our comfort zones and seize

the opportunities that come our way.

There certainly will be opportunities.

This is the only way we can change, and the only way we can facilitate change. Let’s go for it!

As for this year’s issue of the Varing Magazine, we continue to align ourselves and combine forces with some of BC’s most respected industry experts. We've collaborated to provide you with sound knowledge and resources, as well as address many commonly held questions regarding real estate, and of course, land. As for this new year, new decade, we remain hyper-focused on serving our clients at the highest level.

Live well, Joe Varing

OUR PEOPLE

JOE VARING

GABRIELLA DENIZOT

PERSONAL REAL ESTATE CORPORATION LTD.

SENIOR MARKETING MANAGER

Embracing Varing Marketing Group’s core values in all aspects, Joe, founder and principal, always puts people first while exceeding expectations and driving change. With over fourteen years of industry experience and successful ventures, Joe continues to use his extensive knowledge of land to both lead the industry and his team to new heights.

Combining imagination and technical expertise, Gabriella is Varing Marketing Group’s brand ambassador and marketing manager. Using her experience as a graphic designer, Gabriella makes imagination tangible and creates unique marketing materials that enhance the properties Varing represents and inspire people to see beyond the dirt.

RECOGNITION

14+ YEARS OF AWARD WINNING SERVICE

#1 AGENT SALES VOLUME IN CANADA HOMELIFE INTERNATIONAL

300+ DEVELOPMENT SITES SOLD

CORE VALUES

PURSUE GREATNESS

Being a goal-oriented team, we never settle and always push ourselves to become better people and service providers to our clients.

RELATIONSHIP DRIVEN

We are devoted to creating authentic relationships and believe the foundation of our business are the people.

Nurturing these relationships continues to motivate us.

RELENTLESS AMBITION

We embrace challenges and look forward to overcoming any obstacles. Our persistence helps us stand the test of time and get the best for our clients.

OVER DELIVER

Our drive to exceed all client expectations and pushing the boundaries of what is possible is what sets us apart as industry leaders.

Your Challenge. Our Passion.

Whether your land development project is large or small, our multi-disciplinary team is ready to help you dig in.

Connect with one of our local teams in Surrey, Langley, Vancouver, and Whistler at www.mcelhanney.com.

Civil Engineering | Surveying | Land Use Planning | Environmental 3D Modeling | Arborist Services | Landscape Architecture

30+ offices in Western Canada

MARKET REVIEW LOOKING BACK

2019 2019 was the definition of anti-climactic. Many industry analysts were predicting a major correction in pricing and sales; what took place instead was a slow start and a year-end that was slightly above the ten year average for sales volume. As dozens of other countries lowered their interest rates, Canada sat on the sidelines and maintained their rate. The resilience of the housing market was tested, but the pent up demand from buyers previously sidelined by the stress test came out of the woodwork in the second half of the year. Although the residential market faired quite well, development land transactions were reduced by nearly 70% year over year. This was to be expected, as developers exercised caution in anticipation of lower presales and end product demand. 2019 finished strong with development land activity showing signs of life and residential resales showing strong signs of a potential rebound.

WHAT'S TO COME

2020 With the demand for single-family housing decreasing each year, the demand for higher density transit-oriented development land will show strength as more developers compete for the same product. The focus will undoubtedly be on the SkyTrain corridor. Two big storylines for 2020 are: whether funding is secured for the SkyTrain portion between Clayton and the City of Langley, which would create a definite buzz for land buying and speculation. The other being the American election, which will, without a doubt, send ripples in both the Canadian and Global Economies. The combination of easing trade uncertainty, a bullish stock market and low borrowing rates could be enough to maintain high real estate prices, but if either was to trend the opposite direction, we could see price decreases in real estate.

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MISSION Hardly on the radar, Mission quietly went along its business during the last few years, boasting impressive growth and armed with a revised Official Community Plan. Cedar Valley and Mission’s Downtown Core each saw respectable growth and a noted increase in transaction volume. Although subdivisions such as Meadowlands and Hatzic Ridge are selling at impressive rates, the real star of Mission is undoubtedly Silverdale. Silverdale is set to nearly double the city's population over the next 50 years and will one day house 40,000 residents. Under the cover of the Valley’s housing boom in late 2017, the City of Mission began conducting a Master Infrastructure study, which essentially lays out the most valuable and viable areas for development and offers a rough idea of where servicing will be routed.

Although only a handful of developers have acquired land in the area to date, the city’s planning staff are forging ahead with their initiatives for the area. Fall 2020 should give us a look at preliminary land uses, which in our opinion, will attract a flood of interest to the once sleepy hillside.

AREAS OF INTEREST: Downtown Core, Silverdale

SURREY

LANGLEY

Surrey once again took the cake for progress and growth in 2019 as they surged forward with dozens of new projects underway in the City Centre and many more in the pipeline for 2020. Although South Surrey has definitely felt the brunt of the correction that evolved in 2019, 2020 offers hope for the area, at least for development land where both Redwood Heights and Semiahmoo Town Centre are gaining serious interest from the development community. The obvious main attraction continues to be the SkyTrain Corridor along Fraser Highway as speculators and developers alike make educated guesses regarding future density and exact stop locations.

Surrey city planners are undergoing planning revisions along the route, which are expected to be released in the Fall of 2020. Mayor McCallum has shown his willingness to face adversity since his re-election, which seems to have emboldened developer confidence for continued steady growth into the foreseeable future.

In recent years, the Township of Langley has earned the spotlight with its impressive growth, but things have started to shift–especially since the announcement of the Surrey-Langley SkyTrain, proposed to end right in the City of Langley’s core near 203 St. In our meetings with the city, the message is clear: the City of Langley is open for business. The City’s planning department has undertaken an impressive revision of their Official Community Plan which appears to have caught the attention of several prominent developers. The City’s highest building currently stands at 8 storeys yet the assumption is that it’s only a matter of time before 20+ storey development is feasible and palatable to residents. Interest also remains high in the Township of Langley, but the increase of several development fees coupled with the post 2017 slowdown has taken its toll on absorption rates and profitability. Nevertheless, the outlook for 2020 has provided us hope for a continuation of the area’s incredible growth in recent years.

AREAS OF INTEREST: SkyTrain Corridor (Fleetwood, City Centre, Clayton)

AREAS OF INTEREST: Brookswood, Downtown Langley

CHANGING HOUSE

by Jeff Tisdale // CEO of Landcor Data Corp.

13

WHEN I DRIVE THROUGH GUILDFORD, I OFTEN THINK OF MY GRANDPA AND WHAT SURREY MUST HAVE BEEN LIKE WHEN HE WAS GROWING UP IN THE ’20s.

Imagine this… often on the weekends, he– along with a couple of his siblings would walk from the farm in Newton up the undeveloped King George ending up in Guildford to hunt ducks. Keep in mind that Surrey in the ’20’s was very much a rural farming community of well under 10,000 people. How times have changed.

Today, Surrey is home to just over 500,000 inhabitants, and it's safe to say that Guildford is no longer duck hunting ground. But population isn’t the only thing that’s changed. Housing has changed since my Grandpa and his family lived on their farm in Newton a hundred years ago.

Change in terms of the number of homes, the valuation, and the image of what a ‘home’ is.

For my Grandpa’s generation, and that too of my parents, when a ‘home’ was discussed, often the reference point was the single-family dwelling–—right from market entry up to retirement. For subsequent generations, this image has been morphing into a variety of different types, meeting a variety of different housing tastes.

At Landcor Data Corporation, we’re in the business of providing automated valuations for residential properties to a variety of real estate and mortgage professionals on a weekly basis.

In doing so, we also track the changing housing mix (attached, detached, condo) and can quite clearly see the setting of one housing type and the growing prominence of another. Of course, I am talking about the decline of the single-family dwelling and the continued growth of the multifamily home (duplex, condo, townhouse etc). In the tables provided, there are some interesting statistics on past changes to housing inventory, both in terms of ‘new’ product to market as well as overall composition. For the Varing Group readers only, we’ve taken our ‘best guess’ at predicting the housing mix in the future (2026 & 2031), and the results to be expected.

CONTINUE READING

»

SURREY'S SHIFT FROM SINGLE-FAMILY TO MULTI-FAMILY HOUSING 2009-2031

120,000

80,000

DATA SOURCE: Landcor Data Corporation

NUMBER OF UNITS

100,000

60,000 40,000 20,000 Single-Family Multi-Family

2009

2018

2026

2031

75,670 37,015

82,169 57,719

84,4 83 84,243

88,4 85 106,701

Keep 2026 in mind as this is the year that the mix of single-family and multi-family dwellings will be nearly equal for the first time in Surrey, and each year thereafter, the gap will grow between the two—in the opposite historical direction.

multi-family dwelling will soon be the predominate housing form and the traditional single-family dwelling is the vehicle to enable this transition.

To put this pending transition in context, consider that this cross over has already occurred in three other cities in Metro Vancouver and are directly corresponded to the scarcity of land. New Westminster is an interesting contrast to Surrey – in that while they share a Municipal border, the Royal City is a mere 15.6km² and quite early on recognized the need for an optimal residential land-use strategy.

When comparing to other major cities in Metro Vancouver using the graph on the right, Surrey shows the largest spread between single and multi-family units which equates to the lowest number of dwellings per person when taking the city’s population into account. The desirability to be close to the many new (and planned) amenities in Surrey will increase demand for housing in the city and will force planners to densify and allow for more ‘affordable’ housing to be built.

Thus, the quest for the scarcest commodity—land will reach a new height.

Turning our eye back to Surrey, city planners are currently modelling a city that will contain well over 800,000 inhabitants by 2046, only twenty-five years from today. Smart, long-term investment strategies are key, especially knowing that the

Speaking of land, I have always thought it fitting (and a bit interesting) that in the area where my Grandpa’s family farm once stood, there is now a strip mall with one peculiar office located inside…Ducks Unlimited. 

Jeff Tisdale / CEO of Landcor Data Corporation Established in 1988, Landcor Data Corporation is a leading provider of Financial Services and Real Estate solutions that enable fast, accurate and unbiased valuation and analysis of properties throughout the province of British Columbia. Landcor maintains the best source of real estate data and analytic tools available.

Visit Landcor.com or email jeff@landcor.com for more market trends and property analytics.

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COMPARING HOUSING DENSITY METRO VANCOUVER/LOWER MAINLAND - 2018

SURREY NEW WESTMINSTER VANCOUVER BURNABY LANGLEY PORT COQUITLAM COQUITLAM RICHMOND (CITY & TOWNSHIP)

1.4%

SINGLE-family units

Multi-family units

82,169

57,719

7,815

15,300

total units

city's Population

139,888 567,700 23,115

# of people to units

4.06

58,500

3.95

75,300 113,300 188,600 635,000

3.37

27,600

45,700

73,300

247,000

3.37

23,900

19,600

43,500

141,800

3.26

10,300

8,900

19,200

59,800

3.11

24,000

21,200

45,200

114,800

2.54

52,100

44,600

96,700

218,300

2.26

This column represents the number of residents in a given city per 1 housing unit

AVG. ANNUAL POPULATION GROWTH RATE FOR BC

DATA SOURCE: Landcor Data Corporation

NAVIGATING

2020 Written by Varing Marketing Group

Times are changing for real estate.

Keep an eye out for some upcoming trends and changes to deal structures.

The last few years in real estate have been a whirlwind to say the least. As the market sobers from the dizzying heights of 2016 and 2017, we continue to notice a shift in how transactions are taking place. These shifts have been noticed in financing, completion terms, and listing periods, just to name a few.

One key trend in 2019 was the changing financing climate, especially for land. Since land is typically purchased as an investment, banks not only have more stringent qualifications but they also tend to be much more cautious when markets are in limbo. In the past 18 months, more and more buyers have gotten creative with acquisition structures. We wanted to address these topics further and offer suggestions as the industry continues to face headwinds in uncertain economic times.

An example of this shift is the reemergence of Vendor Take-Back Mortgages, where the seller of the land extends a loan to the buyer for a portion of the sale price. The seller typically retains equity in the land and continues to own a percentage equal to the amount of the loan until the vendor take-back mortgage is paid in full. As banks have tightened their requirements and

interest rates remain near historic lows, Vendor TakeBack Mortgages often make sense for both parties, especially in land transactions where the seller may not need immediate access to all funds from the sale. The benefit to the buyer would, of course, be the ability to get financing, while the benefit to seller is earning additional funds through the interest on the loan.

Another interesting topic has been the resurgence of buyers providing small deposits, often less than 5%, to secure a property as the due diligence period is completed. These due diligence periods can range from a couple of weeks, up to several months, or even a year. Although these transaction structures often result in a successful sale, we’ve also encountered numerous situations where the overall market deteriorated during the due diligence period and the would-be buyer decided to forfeit the small deposit, leaving the seller in a sometimes vulnerable position and back to square one. By working with land specialists, these transactions can be structured in ways that protect your equity and improve your chances of successfully selling your property to a reputable buyer. In changing markets, the importance of working with professionals is more apparent than ever. Selling a real estate asset is a big decision, one where utmost attention should be spent combing through prospective offers, ensuring the seller’s best interest is kept in mind at all times.

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If considering a sale in 2020, here are some valuable tips: Pricing is Critical: In a changing market, it’s imperative to consider current market conditions and to price the property accordingly.

In recent years, prices were climbing so quickly that even if a property was substantially overpriced, that price range was eventually reached. In our current price sensitive market where values are hard to determine, pricing can only be based on comparable recent sales rather than perceived market direction.

Completion Flexibility: A completion is the date where a new buyer takes legal ownership of the property. In the past 18 months, we’ve noticed a widening range of completion lengths, ranging from a couple of weeks to several years. It’s important to communicate your expectations to your realtor as it can dramatically impact incoming offers. For example, a buyer may offer a larger purchase price in exchange for their preferred completion period.

Expertise: In the height of the market, anyone could list a property, Marketing Period: put it on MLS and receive offers simply based on the When marketing your development property, it’s direction of the market. 2020 will likely prove to be quite important to ensure that it receives adequate time on the the contrary, where in-depth knowledge of the area market to be properly exposed to potential buyers. and development land as a whole makes all the As more properties sit on the market, buyers difference. A realtor who specializes in land is have ample time on their hands to make consistently meeting with clients and city 2020 will decisions and complete their due officials in regards to properties and areas likely prove to be diligence. As a land owner, you want that are ripe for development which allows quite the contrary, to ensure the property is shown in the them to acquire a vast market knowledge where in-depth best light and to as many prospective from an insider perspective. By using knowledge of the area buyers as possible. What typically an experienced agent with a successful and development land took 30-60 days on the market in track record, a land owner is more likely as a whole makes all recent years can now exceed six to get favourable terms, and of course a the difference. months, so it’s important that when great price. you choose a realtor, an adequate listing As more and more opinions flood the news and period is given. By allowing your realtor some social media, it’s important to take the time to educate time to effectively market the property, they can then conduct any necessary property studies and communicate yourself and learn about possible scenarios that might with city staff which then increases the probability of a affect you and the sale of your property. successful sale.

Accounting Assurance Business Advisory Estate Planning Transition Planning Tax “From the time the shovel hits the dirt, to the eventual sale, we’re with you every step of the way”

Vancouver

Burnaby

Surrey

Abbotsford

1700-1030 W. Georgia Street Vancouver, BC, Canada V6E 2Y3

225-9600 Cameron Street Burnaby, BC, Canada V3J 7N3

302-2626 Croyden Drive Surrey, BC, Canada V3Z 0S8

201-2001 McCallum Road Abbotsford, BC, Canada V2S 3N5

T 604-714-3600

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604-557-5750

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604-421-1171

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S BY W A LOOK INTO SURREY'S FUTURE

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TANDING

BY HIS WORD Doug McCallum—a name that is synonymous with Surrey, and one that has earned notoriety because of one straightforward act: that despite adversity, Mayor McCallum stands by his word.

McCallum’s approach to politics is simple, relying on the age-old promise of what it means to give one’s word. At a time where optics often supersede action, follow-through couldn’t be more important—especially to the citizens of Surrey. Reflecting on his campaign success, McCallum credits his re-election to listening to and acting on behalf of the residents of Surrey.

“The electorates are very smart now and know what they want,” says McCallum, “they want to hold people to their commitment to get their vote, and they want things to happen quickly.

The people don’t want any more of this 'we’ll look at doing it in ten years or five years or spread the money over ten years' or something like that. They want actions.”

Having spent nine years previously in office as the Mayor of Surrey, McCallum is no stranger to the community and navigating public concerns. In fact, it was the people who brought him out of retirement. “Every time I came back here,” McCallum tells us, “people said, Doug, why don’t you run? Bring a brand new team together, new faces, but with your experience. You can lead them, and you can get in and get this city moving.” He continues,

“

I saw how Surrey was changing, how it had changed over the past ten years and turned into a vibrant, exciting city.

I knew I could do great things for the community with my experience and an all new council.”

Surrounded by a new council, McCallum showed the people of Surrey that he didn’t just campaign on promises by enacting his two major initiatives—the SkyTrain extension and the creation of a Surrey Police Department— the very evening new council was sworn in.

“We said that if we got elected, we would on the very first council meeting cancel the RCMP contract and move towards our own police force. We did that. We’re committed to that. Our second big campaign promise was to change from Light Rail to SkyTrain, and we’ve done that too. We have the green light from the province.”

With his two primary campaign promises well underway, McCallum and his council are bringing more attention to their other nineteen campaign promises, notably Smart Development. In the past ten years alone, Surrey has experienced unprecedented growth and has become an increasingly multicultural city. McCallum laughs and notes how his staff alone “speak something like 120 different languages. It’s very impressive.” Developing this growing city is about addressing the needs of the community; a community, McCallum sees, as a piece of fabric: “if you can picture a piece of fabric stitched together, the threads joining each piece—that’s what’s happening in Surrey. We have all these different cultures living, working, and playing together, joined by the land we share.”

It’s not just the people that make Surrey unique, McCallum recognizes. It’s the land itself. “Surrey is different from other big cities because we have a very large landmass that is about one-third agricultural. Not many cities have a huge green belt running through the centre of their city like Surrey does, and we’re lucky to have such a thriving agricultural industry.” Aiming to balance the preservation

23

of the environment and the need for housing affordability, Mayor McCallum and his team ran part of their campaign on the introduction of Smart Development—a densification plan for Surrey’s transit corridors.

McCallum expresses his hope that in the not so distant future, people will be getting out of their cars and onto rapid transit. “Our plan is to densify along the transit corridors—namely east to west along Fraser Highway and north to south on King George Highway to start. Those are our two main corridors, with Fleetwood coming after, and by introducing Smart Development, we can get away from the urban sprawl we’ve had before.” Mayor McCallum continues, weighing in on the future densification of Surrey, and remarks, “the people of Surrey know we have to densify along the transit corridors. They know what we’re putting together and that we campaigned on it. It’s why they elected us.”

Leadership in Surrey has changed, and as more campaign promises get enacted, so will the social and physical landscape of the city. However, all eyes are on Surrey right now as McCallum navigates the logistics of change and public concern over the enactment of his campaign promises, and during adversity, McCallum has made it clear that he gave his word and he is standing by it. 

ON THE GO FOR SURREY: Mayor McCallum's campaign "to-do list" is well on it's way.

K E Y I N I T I AT I V E S :

Extension of the SkyTrain to Langley City + Create a Surrey Police Department Implement 'Smart Development' No development in the Agricultural Land Reserve Eliminate backlog in building permits Hold property tax increase to the Consumer Price Index (Oct. 2018) of 2.9% Bring the City of Surrey’s debt load under control by taking a pay as you go approach Eliminate pay parking around Surrey Memorial Hospital and at City Hall Institute Inadmissible Patrons Program and Surrey Anti-Gang Family Empowerment Program Bring transparency, accountability and fairness with the establishment of an Independent Ethics Commissioner at City Hall Create Truck Parking and Community Engagement Task Forces Purchase and protect park land in Campbell Heights Begin planning of a new Track and Field and Kabaddi facility at Bear Creek Park Increase discount for seniors from 25% to 75% on recreation passes and drop-in admissions

SECURING FINANCING

Written by Puneet Agrawal // Canadian Western Bank

25

What challenges are developers and builders facing while trying to secure financing?

• Have they successfully navigated a market downturn in the past?

For development sites, the main challenge is the timing of purchase contract dates versus city approval delays.

• How many projects are underway? Can they manage another?

• The timing gap between the date of property purchase and the point at which the developer has some project certainty from the city can sometimes be two or even three years—during which time, markets can shift (i.e. demand change for one or two-bedroom or infrastructure improvements), politics can change (locally, provincially, federally and even internationally), etc.

• This timing gap can restrict financing levels, thereby demanding a higher capital input by the developer which reduces liquidity for other opportunities or projects.

• Uncertainty of city requirements and/or costs, especially when entering a new and untested neighbourhood. a) Entering a seemingly rural area where zoning is unclear, services are limited, or market and demand is unknown. b) Neighbouring property owners may be resistant to new development and thereby extend or delay the process further.

Another challenge developers are facing are the increasing levels of presales.

• A buyer market may not be inclined to presales early on.

• To entice sales, developers need to consider providing unique but cost-effective incentives.

When financing a developer, what are the key things you look for?

• Level of market knowledge and understanding.

Then we look at liquidity.

• Do they have sufficient capital reserves to meet unforeseen costs or delays?

• Do they have alternate sources of stable income to support project costs and/or lifestyle?

What is the typical approval time for land and construction financing?

Four to six weeks from initial contact is the typical approval time, depending on what type of financing was requested, level of financing, property type, project status, reports available, etc.

Does lack of liquidity impact land values?

In the long run, yes, liquidity could impact land values.

Lack of liquidity for down payments, to pay loan interest or delays or city costs, will reduce the number of buyers in the market, thus possibly pushing the values down.

What makes Canadian Western Bank a preferred lender?

We are relentless in proactively finding ways to help you succeed. By listening intently and asking the right questions, we uncover your goals and find financial solutions to make them come true. Most importantly, we’re there for you because we genuinely care.

First and foremost, experience: • Have they completed this type of project before?

• Do they have the right people in place to be successful?

Puneet Agrawal, Senior AVP of Real Estate Lending at CWB and the Greater Vancouver Real Estate Group, ensures that there’s always a balance in the books. This branch specifically focuses on construction financing on a larger scale offering clients the support and guidance that they need to succeed in real estate.

Visit cwbank.com for more information.

2019

FROM

QX50

44,490*

$

2019

QX80

FROM

78,350*

$

OpenRoad Infiniti Langley 5995 Collection Drive, Langley (5 minutes from Willowbrook Shopping Centre)

604-532-8888 OpenRoadInfiniti.ca

Moe Khan General Manager

* Selling price of a new 2019 QX50/QX80 is $44,490/$78,350. Freight and PDE, all applicable levies and charges, license, registration, insurance, duties, applicable taxes and Doc Fee of $395 are extra. Retailer order/trade may be necessary. Vehicle and wheels may not be exactly as shown. See OpenRoad Infiniti for details.

WHAT  TO KNOW PRINCIPAL RESIDENCE TAX TIPS Written by Rick Gendemann, CPA, CA, Partner of Manning Elliott LLP Accountants and Business Advisors

29

One of the largest tax breaks Canadians have is the ability to claim the principal residence exemption (“PRE”) on the sale of their homes. The PRE provides a homeowner with an exemption from tax on the capital gain realized when they sell the property that they have designated as their principal residence.

Does the Exemption Really Apply?

In most situations, individuals buy and sell their personal homes without any consideration of the possible effect income taxes may have on the profit realized on the sale.

For many individuals, a large portion of their personal wealth may be vested in their home which has a large accrued gain.

If you have recently sold or are considering the sale of your home, you need to assess if the PRE really applies to exempt the sale of your Principal Residence (“PR”) from income tax.

The answer is not always as straightforward as you might think.

Does the Sale Meet the Requirements for the PRE? For most situations, your answer to the following questions will determine whether you meet the technical requirements for claiming the PRE in Canada.

1. Have you been a resident in Canada for the entire period that you owned your property?

2. Is the land you own greater than one-half hectare or 1.2 acres in size?

3. Do you own another property, such as a vacation or recreational property?

4. Have you ever rented out a portion of adjoining land and buildings on the property?

5. Have you ever used the property in the course of earning income from a business or farming operation?

6. Do you and your spouse (or common-law partner) own separate properties?

Depending on your answers, the principal residence exemption may, or may not, apply to the tax-free sale of your home. It all depends on your specific situation.

Let’s take a closer look at how the PRE rules apply.

CONTINUE READING

»

Designation of a Property as Your Principal Residence (“PR”) For a property to be your PR for a particular year, you must designate it as such for the year and no other property may have been so designated by you for the year.

Furthermore, no other property may have been designated as the PR of any member of your family unit for the year.

For purposes of the latter rule, which applies for 1982 and subsequent years, a family unit is you, your spouse (or common-law partner) and any children under the age of 18.

For 2016 and later tax years, you can only utilize the PRE if the sale is reported and a designation of PR is made in your tax return for the year of sale. If the disposition is not reported or you forget to file the designation, the full amount of the capital gain will be taxable.

How is the Principal Residence Exemption Calculated?

The mechanism for sheltering the capital gain realized on the sale of a home from personal income tax is based on a formula provided in the Income Tax Act of Canada. The exempt portion of the capital gain is calculated by using the following formula:

A × (B ÷ C) The variables in the above formula are as follows:

A is the taxpayer’s capital gain otherwise determined B is: •

if the taxpayer was resident in Canada during the year that includes the acquisition date, 1 + the number of tax years ending after the acquisition date for which the property was the taxpayer’s principal residence and during which he or she was resident in Canada; or

•

if the taxpayer was not resident in Canada during the year that includes the acquisition date, the number of tax years ending after the acquisition date for which the property was the taxpayer’s principal residence and during which he or she was resident in Canada.

C is the number of tax years ending after the acquisition date during which the taxpayer owned the property (whether jointly with another person or otherwise).

You Must Ordinarily Inhabit the Home For income tax purposes, there is no minimum period for which you must own or inhabit the property for it to qualify as your PR. From the Canada Revenue Agency (“CRA’s”) perspective, a home would qualify as a PR if you and your family “ordinarily inhabited” the dwelling during the calendar year.

However, the CRA will look at all circumstances during the period of ownership including length of time in dwelling, your primary income sources and patterns of buying, living, moving and selling to determine if, in fact, the home is an eligible PR or is part of a business pattern to earn money off of real estate flipping.

Land in Excess of One-half Hectare or 1.2 Acres Where the total area of the land upon which your home is situated exceeds one-half hectare, the excess land is deemed not to have contributed to the use and enjoyment of your home. In this situation, the excess land will not qualify as part of a principal residence, except to the extent that you can establish that it was necessary for such use and enjoyment.

The excess land must clearly be necessary for the home to properly fulfill its function as a residence and not simply be desirable. Generally, the use of land in excess of one-half hectare in connection with a particular recreation or lifestyle (such as for keeping pets or for country living) does not mean that the excess land is necessary for the use and enjoyment of the housing unit as a residence.

Land in excess of one-half hectare may be considered necessary where the size or character of a home together with its location on the lot make such excess land essential to its use and enjoyment as a residence, or where the home’s location requires the excess land to provide access to and from public roads. Other factors may also be relevant in determining whether excess land is necessary for the use, such as a minimum lot size or a severance or subdivision restriction. In all cases, however, it is a question of fact as to how much, if any, of the excess land is necessary for the use and enjoyment of the home as your residence.

If You Own More Than One Property You Have Choices Here’s the advantage: You can claim any property you own and “ordinarily inhabit” as your principal residence.

As a result, you have the choice of designating a seasonal residence such as a vacation property as your principal residence. Just keep in mind that the occupancy requirement must be met for each year that you want to make the designation.

Note that a seasonal residence, such as a cottage, cabin, or ski chalet can be considered to be “ordinarily inhabited in the year” even if you only use it during vacation periods “provided that the main reason for owning the property is not to gain or produce income.”

For families with more than one property, you need to consider how you should designate each property as your principal residence in order to maximize the exemption and minimize the amount of tax owed on each property.

Principal Residence on Land Used in a Business or Farming Operation If you sell property and a portion of the land has been used in a business or a farming operation, the gain realized on the business or farm use portion of the land will not generally qualify for the PRE. For example, if you bought a 10-acre farm property and lived in the farmhouse, you would not have to pay tax on the appreciated value of the farmhouse or on 1.2 acres of

the land because that portion would quality for the PRE. However, you would have to pay capital gains tax on the appreciated value on the adjoining 8.8 acres of land and related business use structures on that portion of the property.

You Cannot Earn Income from the Property Have you used your property to earn income? If so, you may not be able to exempt the profit from capital gains tax.

Under the CRA’s rules, a property cannot be considered a primary residence if it’s overall aim was to earn an income.

For instance, if you purchased a duplex and lived in one side, while renting out the other, you cannot shelter the capital gains earned on that rental property portion.

The popularity of creating detached secondary dwellings has continued to grow, considering many circumstances.

Coach or carriage houses as secondary separate living spaces are typically rented out to supplement the cost of living but are also used to keep aging parents or disabled adult children independent yet close, or to assist adult children who cannot afford to purchase their own home.

The PRE is only available to a family for one housing unit in any year. Despite both homes being on the same title and on the same land which cannot be subdivided, the introduction of a self-contained secondary home with its own entrance and separate electrical, plumbing and heating systems brings into question the ownership of more than one housing unit.

CLOSING THOUGHTS The principal residence exemption is often an after-thought for most Canadians who buy a house, live in it, sell it and claim the exemption. The incidence of taxation arising on the gain realized is generally not an issue in most situations. However, as outlined above, it can get very complicated to determine your eligibility to claim the exemption and how to effectively use the exemption to minimize income taxes payable on the sale of your residence.

Rick Gendemann, CPA, CA // Partner with Manning Elliott LLP. Rick has developed an extensive background providing accounting, tax, business advisory, estate and succession planning services for privately held businesses. His practice focuses on businesses operating in manufacturing and food processing, agriculture, real estate development, wholesale distribution and R & D industry sectors. Rick’s practice also includes a focus on delivering income tax consulting and tax planning services to owner-managed businesses and their shareholders.

Rick can be reached at (604) 557-5760 or rickg@manningelliott.com.

The above content is believed to be accurate as of the date of posting. Canadian tax laws are complex and are subject to frequent changes. Professional tax advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained herein.

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