Toronto Municipality: The Big Tax Loser with a Condo Bubble Burst

While the biggest losers in a Toronto condominium bubble collapse would be the owners of the property – there will be fallout to other stake holders (looking to the US for clear examples) including banks, federal insurance programs, and the condominium complexes (abandoned units which don’t pay their condominium fees).

But owners that decide to simply bunker down and hold on to their properties until they rise once again will face an additional burden for their trouble: higher taxes.

Toronto has a Municipal Land Transfer Tax (MLTT) – on top on the provincial land transfer tax – which accounts to about 300 million dollars a year. This tax takes place when a property changes ownership. For a cost example, on the average cost of a condo ($369,892 – Toronto Real Estate Board) the Toronto MLTT works out to $3074.52.

If property prices fall 20% the drop in city taxes isn’t the same because the rate varies based on the price of the property. This is important to realize when the cost of detached homes in Toronto averaged $650,147, and the blended value of all property types  in Toronto averaged $517,556 – a 20% reduction in property value would result in a 34% reduction in the MLTT – or about $105 million in reduced revenue for the city.

A collapsed bubble market coupled with a MLTT will result in even further loss in property values. It will be bad enough when values naturally drop in a bubble, but with Toronto scrambling to make up 100+ million in taxes, there will be dramatic raises in property tax (or other service costs) that will continue to put a downward pressure on housing values.

People who hold on to under-water equity homes will get punished for riding out the loss with new and greater taxes that were previously funded by an addiction to the MLTT.

I’m not a big fan of MLTT – I much prefer a fair market taxation rate (which is nice – more expensive properties pay more taxes) as a single, primary, tool of municipal taxation. The MLTT seems too variable, too addictive in certain markets, and especially too difficult to deal with when a municipality has to go cold turkey on a collapsed housing bubble.

TD Canada Trust Condo Poll Results – Owners Confuse Fees with Rent

TD Canada Trust’s annual Condo Poll results have been released for 2012, and there are some interesting findings in the four releases they have published:

• Canadians don’t mind paying for the perks of condo living (link)
• Maintenance-free living but can Calgarians really relax in their condos? (link)
• Torontonians worry about affording their mortgage – but many don’t mind paying for the perks of condo living (link)
• More affordable than a house: Condos seen as an attractive option in Vancouver’s expensive real estate market (link)

The interesting point for me

More than one-quarter (28%) of Vancouver condo dwellers say that their monthly strata fees make it feel like they are still paying rent, so they are saving up to buy a home without set monthly maintenance fees.

Condo, Strata, and HOA fees are not rent, but the monthly payments required to maintain the property that you have purchased. There is no concept of profit with monthly condominium fees unlike rent. The collection of monthly condominium fees is based off of a budget that is designed to be as close to actual cost as can be forecasted.

There is another focus about paying maintenance vs. paying rent. With rent – you have an owner that looks to maximize revenue and that usually includes significant controls on expenditure. Every penny provided to update or maintain the property is an out of pocket cost for a landlord.

With condominiums, you are paying (usually, unless the board is unusual) for proactive and ongoing maintenance and work designed to maintain the common property and the corporation. While owners may not like paying fees (35% of poll respondents want fees $200/month or less, 44% are ok with fees up to $400/month, and 17% with fees up to $800/month), they should realize that instead of lining the pockets of a landlord they are lining their own pockets by maintaining the condominium corporation.

I hope that helps understanding the difference between rent and condominium fees.

247Condo Receives Consulting Recommendation

CondoFeed is the blog for 247Condo, which received a letter of recommendation for its consulting services from Bank West. Bank West has recently started a condominium loan system for financing reserve fund costs called CondoFlex Maintenance Financing.

Of 247Condo, Bank West had the following to say:

Your expertise and experience in the condominium industry were invaluable to us.  We appreciated your professionalism and candor while assisting us during the product.

I look forward to utilizing your services again and would certainly recommend you to anyone needing information or services in the condominium sector.

You can see the letter here, on our 247Condo Consulting page.

When Considering a Condominium Purchase, Check How Long the President Has Ruled the Roost

If you are looking for a condominium that you’ll feel comfortable with, check how long the current board has been in power. If the board doesn’t turn over, it’s the same names year after year, then add additional caution when purchasing in the condominium or HOA.

I’ve read, and had some personal experience, about too many “lifer presidents” (an example here) that over time begin to treat the board as their exclusive play grounds. Where most elected bodies recognize the threat to good governance elected lifers create – even the President of the United States has term limits – no such measures exist for community associations.

The risk is, and it seems to come to fruition, that over a period of time the basic principles of the board get eroded.

Take for example the board of President Lorraine Walsh, who has held her title for over 20 years at the Deveonwood, Hercules California, condominium. According to one resident the board hasn’t held an election since 2005. Further, though there is a vacancy on the current board and an owner volunteered to fill it till next election – the current board voted down the appointment 4 to 0.

Other shenanigans appear to be happening there as well: holding in camera executive sessions in the middle of public meetings. That’s clearly a method to shut down the meetings.

Often long serving boards tend to use fining as a heavy handed method to enforce compliance, or threaten owners financially if they raise trouble. For the Deveonwood, first time violations carry $350 fines and have been handed out for improper window coverings and poor garden pot locations.

Sometimes I wonder if the property management firms hired by these long term boards are somewhat responsible for the condominium’s or HOA’s decline. If there really hasn’t been an election since 2005 the property management company should resign or make public notice that the board is failing to abide by all rule and regulations. The problem is management companies can fear failing to comply with the board will result in a non-renewed contract. It’s hard to protest the board that pays you. For the Deveonwood, one owner appears to have asked for the record of past elections to confirm when and how the last elections were held, and the management company denied to fill the request.

Condominiums are great places to live, but like any organization they benefit deeply from a regular turnover of the board, and a rotation of the roles. There is nothing scared or amazingly difficult about being on a board, and normally a management company will ensure all the i’s are dotted and the t’s crossed. I have yet to see a new board, with none of the old guard remaining, mess up a community.

When the Condominium Board Demands Your Facebook Page

There are many owners in condominiums and HOAs that, for one reason or another, have started Facebook pages for their community. I am all for supporting owners that want better communication with their neighbours – and it doesn’t matter in what venue: monthly klatches, book groups, or social websites.

What does get my hackles up is the boards of these condominiums or HOAs threatening, or taking, legal action to shut down these social media groups or sue for control of the social media.

The Maplewood Homeowner’s Association, Nashville Tennessee, has issued a letter to Susan Rowe that her failure to remove the name of the subdivision (Maplewood) from her 2 year old Facebook page would cause the association to sue her. The intent of the letter is not only to have her change the name of the site, but to turn the Facebook group over to the board.

Her Facebook group – “Residents of Maplewood” (changed from “Maplewood Subdivision”) is a private, invite only, group which posts about lost cats and neighbour requests to borrow lawn equipment. This isn’t even a case of “we hate our association postings”.

The use of Facebook for neighbors to communicate without authorization from the board is something that is legal, justified, and fully supportable. As well, identifying the group as related to a particular local or building – but indicating that it’s not the “official site” is also well and good. There can be no limitation on a group of activist residents using the name of the association within the group title. Otherwise it’s a lot like saying the Nashville Singers couldn’t use the word Nashville in their name. Just plain silly.

HOAs don’t have a right to control owner conversation – and really that’s the crux of most of these conflicts. It’s overbearing, control-freak, boards that see any ability for owners to organize as a threat to their position. To them I say good luck with that. Spend your time on building community – not destroying other people’s successful endeavours

PS. If the association wants is the word Maplewood removed – maybe the association should first go after all those other associations that show up on a Google search for Maplewood. It’s all so confusing as to which one is the real Maplewood, when they all stand up shouting “No, I’m Maplewood!“

Safe Deposit Boxes Sold As Condominiums

I have already blogged about the use of condominium designation for storage facilities (here, and here for super luxury) – so it seems a natural evolution to offer really really tiny storage. SafeBox Condominium Vaults (Parallax Investment Corporation is the developer) will be opening up the first (world wide) condoized safe deposit box facility in Toronto, with further development in most large cities across Canada.

On a square foot basis, the units go for either $2160/sq. foot (for 3” ceilings), or $3300/sq. foot for the luxury 8” ceilings.

I’m all thinking this is a phenomenal idea, until I checked out their website and see they are marketing the purchase as “the ability to own a prime piece of real estate at an affordable price.” This is not an investment opportunity, this is a different way to manage and secure valuables. That the company is even marketing 1.67 sq. foot condos as a real estate play is not only inexcusable, it makes that plan feel a little scammy to me. Now I’ve got a little of that “buyer beware feeling.”

Owner to Owner Intimidation Must Be Responded To Immediately By a Board

Painting “Gay a*****e” on a person’s door is downright rude. But in a condominium community it’s significantly wrong. Publicly attacking a person in this manner stabs at the roots of trying to create an inclusive, functional, community.

It not only acts as an attempt to intimidate the owner, it’s a public statement that directly influences others owners to perform the same action, or become supportive of it. Seriously.

Setting aside all the work on advertising and the use of messaging, there’s a pretty famous test called the Milgram experiment which shows that people who see someone perform an action, even if they find that action harmful to another human being, would perform the same action (in Milgram’s case it was applying powerful electric shocks to another person) more often than a person who has no example of the action. In essence, people are way more willing to do things they are personally uncomfortable with (even harmful) if they have first had experience of the act.

So by publically painting the slogan on, in this case James Burns’ door, the painter not only attempts to intimidate James, but hopes to receive community support to repeat or increase the severity attack on James. Even implicit support (nobody objecting) creates the feedback needed by the painter.

Thankfully at least one other member of the condominium community objects to the vandalism. Mr. Burns received a poster that was hung on the door with statements including “We advocate zero-tolerance for hate crimes” and “heart, caring, helpful, kind.”

That’s freaking awesome. It’s the “backfire” that’s required to nip owner on owner persecution before it grows. With only 66 units in the “upscale” complex (Zillow shows unit prices at about 440k at the moment), the management and board should immediately follow up with letters to all the owners, postings in the building, and a letter to Mr. Burns that state any attack on an owner is fully condemned by the condominium corporation. The communication should not only include positive statements that people of all walks and cultures are welcome at the Copley Court condominiums, Braircliff Manor NY, but person or persons found responsible for the act will be sanctioned to the maximum allowance of the bylaws.

A home, is a home, is a home. And the corporation is always in the role to ensure that all people can enjoy and feel comfortable within their residence, and by extension the common property.

Sadly – at the time of this article neither the board nor property manager has contacted Mr. Burns about this.  Time for the board to step up to the plate ensure a positive community. The longer the board waits to respond, the more implicit support they give the evil doer.

Twin Lakes HOA: Killing for Skittles

HOA Retreat at Twin Lakes, Florida, is about to be owned. And by owned, I mean sued and found responsible for the killing of 17 year old Trayvon Martin. Every owner in the Retreat at Twin Lakes HOA should get ready to open their pocketbook.

Briefly, for those not familiar with the case – HOA Block Watch captain George Zimmerman shot to death Trayvon while the boy was returning to his residence after purchasing Skittles and an ice tea. George Zimmerman claims self defense, even though he chased the boy after the police told him not to, and the deadliest thing Trayvon had on him was 2.17oz of tasty rainbow.

Here’s why the HOA is about to pay out a whole lot of cash:

1. Mr. Zimmerman was performing an activity authorized and backed by the HOA– performing the duties of Block Watch within the neighbourhood. An HOA newsletter confirms this role in the community.
2. The HOA, in backing Mr. Zimmerman as a Captain, authenticates a person who had been charged in 2005 for battery of a police offer, and had previously a restraining order filed against him.
3. Mr. Zimmerman failed to conform to any of the neighbourhood watch mandated training. Block watch clearly indicates that watch members are there to observe only, and never confront suspicious persons. They are “eyes and ears only”.
4. Mr. Zimmerman was recorded actively chasing Trayvon while on the phone with 911 (audio of call). The 911 operator also indicated that this action was unnecessary. This was definitely an act to confront Trayvon.
5. While carrying a gun is not illegal in this situation, neighbourhood watch members are not permitted to carry firearms.
6. Mr. Zimmerman made 46 calls to 911 since the beginning of 2011 to report disturbances, break-ins, windows left open and other incidents. Not only is it reported that he was out on his rounds for the watch, it is reasonable to assume as this encounter also started with a 911 to report a suspicious person, he was operating as a neighbourhood watch member as he was the 46 other times.

It’s a pretty simple line to draw the HOA as responsible for failing to maintain the required screening and standards required of their volunteers. Unlike a criminal prosecution, a civil case needs significantly less burden of proof or certainty. It is well documented that a person found innocent of a crime may still face significant monetary loss in a civil court. In this case it won’t be a person found liable in civil court, but the HOA.

I have said before that the Block Watch program is a phenomenal program, and every condominium and HOA that faces a crime issue should operate one. The Block Watch program has operated for over 50 years with astounding success. I still stand by the success.

The issue is an HOA must take the steps required. A formal relationship must be made between the community and local law enforcement. All members of the neighborhood watch must attend training – both at the beginning and ongoing. The HOA needs to create, back, and act on the mission statement: “eyes and ears only” – and repeat that message to the volunteers and the community constantly.

Importantly, the HOA needs to have a firm, written, commitment from each volunteer that they will abide by all the recommendations and requirements of both the national neighborhood watch program and local police authority.

And seriously, if this event makes you afraid to have a neighborhood watch – don’t be. Just stick to the program and enforce a role of observation only. That approach works most awesomely. A neighborhood watch that observes only, and doesn’t carry weapons, is both safe to themselves, safe to the community, and safe to 17 year olds coming home with a bit of ice tea and candy.

District Energy Advantages and Risks for Condominiums: Research Paper

Phenomenal full envelope failures in the last few years of new development – including Leduc, Fort McMurray, and Calgary all indicate that the industry needs to evolve both the development process, and likely the costs and processes involved in creating multi-unit housing.

For existing buildings, under-funded reserve funds and higher than expected maintenance costs are forcing corporations to find innovative methods (including borrowing against future use) to avoid fiscal hardship or bankruptcy on current owners.

District Energy (the supply of heating or cooling from a central source usually though piped water or steam, also known as District Heating or Teleheating), where available, may be a powerful and sustainable solution for condominiums – both at the development phase and at the maintenance level. Based on experience from existing implementations in Canada, the US and Europe, District Energy may lower development costs, maintenance costs, and reserve fund contributions.

247Condo has released a research paper (with additional focus on the ENMAX implementation in Calgary, Alberta, Canada) that outlines the advantages and risks of tying your condominium to a District Energy solution.

Condominium Board Fines Resident $4500+ for Flowers

I don’t know if Kimberly Bois, of the Portsmouth’s Atlantic Pointe condominiums, New Hampshire, is the nefarious evil doer her condominium board makes her out to be. I mean, if the board doesn’t stop her green thumb, perennial planting, capers – who knows what seeds of chaos and tendrils of civil unrest she may cause to root in her neighbourhood.

Seriously though, the specific perennials that she’s planted (daisies, irises, lavender, hydrangeas and tulips) may be counter to the by-laws and she may very well have to dig them up. I indicate specific perennials, because this sales video shows numerous colourful swaths of flowers when tooling through the condominium complex. There definitely are flowers there.

What I very much object to, and I think Kimberly has a leg to stand on, is the overbearing and unreasonable process of fining that is going on. On 24 October 2011 the board started fining $25/day, and has since increased it to $50/day.

That is completely unreasonable, and a great example of a condominium board – being judge, jury and executioner – attempting to financially bludgeon an owner into cowed submission. I very much think that Ms. Bois should be legally refuting all demands from the board, and use that in front of every judge as a means to be excluded from any judgement against her.

Boards have a duty and a responsibility to act reasonable, especially given the fact they act as the sole body to enforce and punish for condominium by-law infractions. A board failing to respect the powers they have been granted (and that’s not the power to cudgel owners) needs to be rapped on the wrist, turned around, and sent on their merry way.

It’s especially important, as many boards are filled with “regular joes” who, though have the best intentions, fail to act outside of personal emotion and vendetta. There are significantly too many complaints about the mismanagement of board power. Colorado Division of Real Estate recently found:

What we discovered was that the complaints we received primarily involved the board of director’s failure to follow corporate governance rules and procedures of the HOA; the transparency of the board of directors, particularly as it related to the finances of the HOA; and harassment and bullying of homeowners by the board of directors and management company by arbitrary fining, preclusion from providing input into the associations’ affairs, and verbal harassment.

Ahh, that last point is specifically applicable to this situation. The inordinate and unreasonableness of the fine Ms. Bios has received shows it.

The board needs to get their feelings and their actions pruned.