Author Topic: Garth Turner - Real Estate in Canada  (Read 538956 times)

Viking

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 2023
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: 2412
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: 1326
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: 338
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: 1326
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: 338
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