Author Topic: Garth Turner - Real Estate in Canada  (Read 559901 times)

Viking

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 2304
Re: Garth Turner - Real Estate in Canada
« Reply #1920 on: April 16, 2020, 12:24:10 AM »
Over the past few months across BC, there has been an industry struggle to renew strata corporation insurance polices. With renewals, the cost of the insurance has increased anywhere from 50‐300% and the deductibles to cover claims have also increased substantially, from manageable rates of $25,000 per claim to as high as $250,000 and $500,000. While not all regions of the province have been affected in the same manner, there have been targeted building types or large strata communities across BC that have seen the dramatic increase.

Have either of you heard a plausible explanations for the increase in insurance rates? That sort of jump seems very strange to me. Like, were these things priced to make a huge loss five years ago, or are the new high prices just to make a massive profit?

I would've guessed that the insurance markets are close enough to efficient that a 100-300% increase in premiums without an extreme event would never happen. But I'm clearly wrong, so what's the deal here?

From the article:

What is the cause of the dramatic increases? In addition to worldwide catastrophes, we live in a high‐ risk earthquake zone, and with several major building claims in the province, there are a reduced number of insurance companies who are covering strata insurance in BC. The hardest hit regions are the high‐density metro areas, but resort properties and communities with large developments of more than 250 units are also feeling the crunch as they have the highest compound risks when there is a claim. In addition, with a limited number of insurers, increase in claims, higher property and construction values and a high demand for insurance, a supply/demand imbalance has been created where the insurers have imposed much higher costs and deductibles to manage risks.


Cigarbutt

  • Hero Member
  • *****
  • Posts: 2732
Re: Garth Turner - Real Estate in Canada
« Reply #1921 on: April 16, 2020, 05:29:25 AM »
The condo insurance rate issue is discussed here:
https://www.insurancebusinessmag.com/ca/news/breaking-news/experts-react-to-skyrocketing-condo-insurance-rates-208826.aspx

So, basically three (four?) conceptual reasons that happen to move in the same direction:
-reasons specific for the condo market in Western Canada (rising 'actuarial' costs, past, present and future)
-hardening market at large
-social inflation development (business interruption with threat of retroactive coverage change)
-? changing perception about the price of risk ?

Price adjustments came come slowly or suddenly and deviations from 'true' value can occur, sometimes wildly so. And it can work both ways.

bizaro86

  • Hero Member
  • *****
  • Posts: 1473
Re: Garth Turner - Real Estate in Canada
« Reply #1922 on: April 16, 2020, 07:37:53 AM »
I can't speak to BC, but I own a number of condos in Alberta next door, and insurance rates here are up dramatically as well. The lowest building was a 30% increase in insurance.

Here, a hardening market has come from firms leaving what has been a poor market for profitability for years, and the remaining options becoming much more aggressive on price.

The market has been poor because claims keep rising. This is mostly claims for water damage, which go up every year. Buildings are getting older and tenants are harder on pipes than owners (put oil down the sink, stuff you shouldnt flush down the toilet).

The damage from individual claims is also much higher. I spoke to the restoration guy (older) when one of my condos was damaged. He said 10 years ago most units had carpet. They would pull up the carpet, install dehumidifiers and fans to dry everything out, and re-stretch the carpet. Now many/most units have laminate floors, which are destroyed by water. So they pull out the floor, and need to pay for install of a new floor. The restoration companies have also realized they have an agency problem by the tail. They recommend how many dehumidifiers and fans are needed, and then rent them. The rentals are very expensive. Adjusters are too busy, so value a restoration firm that just deals with stuff more than one that minimizes costs.

matts

  • Sr. Member
  • ****
  • Posts: 340
Re: Garth Turner - Real Estate in Canada
« Reply #1923 on: April 16, 2020, 07:45:44 AM »
Bizaro,

What's your view of the alberta rental market? I used to own mainstreet equity which is an amazing company, but i sold once oil collapsed. Stock has been cut in half. They just reported 94% of rents were paid for April but also said they would be delaying their next quarterly filing as allowed by the new regulatory guidance. 

bizaro86

  • Hero Member
  • *****
  • Posts: 1473
Re: Garth Turner - Real Estate in Canada
« Reply #1924 on: April 16, 2020, 08:01:23 AM »
I have a considerably smaller sample size, but I got 100% of my rents for April. And one tenant who hasn't paid on time for a year paid on the 1st.

For tenants who have lost their jobs, the CERB is $2000/month for 4 months. For a family with 2 adults, that's $4k/month. Someone working full time 40 hours/wk at minimum wage ($15/hr) only has a gross of $2500/month. So between taxes and payroll deductions and missing a shift many/most renters are as good or better off financially than they were. Even tenants in higher end professions seem to be mostly working from home, getting full pay, and saving money on commuting, lunches out, etc.

The piper will have to be paid for this eventually, but for now it seems OK. I think next spring when folks realize they need to pay income tax on their CERB could be tough, as one example. (No tax was withheld)

The market for property sales has slowed considerably, and both pricing and transaction volumes are way down.

I'm not sure about the leasing market, I haven't had a vacancy since this started. I suspect it's quite bad.

matts

  • Sr. Member
  • ****
  • Posts: 340
Re: Garth Turner - Real Estate in Canada
« Reply #1925 on: April 16, 2020, 08:04:57 AM »
I have a considerably smaller sample size, but I got 100% of my rents for April. And one tenant who hasn't paid on time for a year paid on the 1st.

For tenants who have lost their jobs, the CERB is $2000/month for 4 months. For a family with 2 adults, that's $4k/month. Someone working full time 40 hours/wk at minimum wage ($15/hr) only has a gross of $2500/month. So between taxes and payroll deductions and missing a shift many/most renters are as good or better off financially than they were. Even tenants in higher end professions seem to be mostly working from home, getting full pay, and saving money on commuting, lunches out, etc.

The piper will have to be paid for this eventually, but for now it seems OK. I think next spring when folks realize they need to pay income tax on their CERB could be tough, as one example. (No tax was withheld)

The market for property sales has slowed considerably, and both pricing and transaction volumes are way down.

I'm not sure about the leasing market, I haven't had a vacancy since this started. I suspect it's quite bad.

Much appreciated

alpha

  • Full Member
  • ***
  • Posts: 210
Re: Garth Turner - Real Estate in Canada
« Reply #1926 on: August 16, 2020, 10:25:07 AM »
The condo insurance rate issue is discussed here:
https://www.insurancebusinessmag.com/ca/news/breaking-news/experts-react-to-skyrocketing-condo-insurance-rates-208826.aspx

So, basically three (four?) conceptual reasons that happen to move in the same direction:
-reasons specific for the condo market in Western Canada (rising 'actuarial' costs, past, present and future)
-hardening market at large
-social inflation development (business interruption with threat of retroactive coverage change)
-? changing perception about the price of risk ?

Price adjustments came come slowly or suddenly and deviations from 'true' value can occur, sometimes wildly so. And it can work both ways.

Does anyone know if these increases are going to affect "bare land stratas" in BC? or the increases only affecting condo stratas?

Anyone know how to independently verify the financial health of a strata in BC?

Thanks

bizaro86

  • Hero Member
  • *****
  • Posts: 1473
Re: Garth Turner - Real Estate in Canada
« Reply #1927 on: August 16, 2020, 08:20:12 PM »
The condo insurance rate issue is discussed here:
https://www.insurancebusinessmag.com/ca/news/breaking-news/experts-react-to-skyrocketing-condo-insurance-rates-208826.aspx

So, basically three (four?) conceptual reasons that happen to move in the same direction:
-reasons specific for the condo market in Western Canada (rising 'actuarial' costs, past, present and future)
-hardening market at large
-social inflation development (business interruption with threat of retroactive coverage change)
-? changing perception about the price of risk ?

Price adjustments came come slowly or suddenly and deviations from 'true' value can occur, sometimes wildly so. And it can work both ways.

Does anyone know if these increases are going to affect "bare land stratas" in BC? or the increases only affecting condo stratas?

Anyone know how to independently verify the financial health of a strata in BC?

Thanks

I would expect the percentage change to the cost of insurance to be the same, but the portion of your fees that is composed of insurance is likely much lower in a bare land condo, as there isn't much to insure.

I'm in Alberta not BC, but here condominium corporations publish audited financial statements that you can purchase from the management company. They charge an unreasonable amount for them (imo) but its a must-have before buying a condo.

I like to check how the actuals compared to the budget (if they came way over the fees are likely not sustainable). Also, check the reserve fund. If contributions are lower than called for in the report OR if the balance in the fund is lower than called for then fees will likely go up and/or a special assessment. The one exception is if a big project has been completed early. I own a couple of units in a building where we did the windows 2 years early. So instead of having the $250k that the reserve fund study calls for us to have saved for windows, we have $250k worth of new windows.

scorpioncapital

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 2107
    • scorpion capital
Re: Garth Turner - Real Estate in Canada
« Reply #1928 on: August 17, 2020, 03:02:38 AM »
I have a considerably smaller sample size, but I got 100% of my rents for April. And one tenant who hasn't paid on time for a year paid on the 1st.

For tenants who have lost their jobs, the CERB is $2000/month for 4 months. For a family with 2 adults, that's $4k/month. Someone working full time 40 hours/wk at minimum wage ($15/hr) only has a gross of $2500/month. So between taxes and payroll deductions and missing a shift many/most renters are as good or better off financially than they were. Even tenants in higher end professions seem to be mostly working from home, getting full pay, and saving money on commuting, lunches out, etc.

The piper will have to be paid for this eventually, but for now it seems OK. I think next spring when folks realize they need to pay income tax on their CERB could be tough, as one example. (No tax was withheld)

The market for property sales has slowed considerably, and both pricing and transaction volumes are way down.

I'm not sure about the leasing market, I haven't had a vacancy since this started. I suspect it's quite bad.

I believe it's now 12,000. But even so, there will be very little tax to pay because if you take 6 months of this, and have then a regular salary (whatever that means these days) for the other 6 months, there is no way you are pushing more than 40k and so tax will be very low.

bizaro86

  • Hero Member
  • *****
  • Posts: 1473
Re: Garth Turner - Real Estate in Canada
« Reply #1929 on: August 17, 2020, 10:53:37 AM »
Yeah, they added another 2 months since my last post, so the max is now 12k.

I think the tax thing will be an issue for lower income types. Say 20% tax is owed on the 12k, (under 40k in Ontario) that's $2400. I think the number of low wage folks that will have that money saved by next spring is very, very low.

I get it doesn't seem like an objectively large amount of money for probably anyone on this board, but for the types who struggle to pay their rent every month it will absolutely be an issue.