As everyone spends the day talking about the big news that Bank of Canada Governor Mark Carney is leaving the BOC to assume the top spot at the Bank of England, let's turn our attention to property assessments for a moment.
As faithful readers know, we have spent a considerable amount of time profiling local properties which are falling in value below their 2011 assessed levels. In Richmond virtually all properties that are selling, are doing so below assessed value - and significantly at that.
And shortly the new assessments will come out for 2012.
Since they will be based on the HPI and calculated based on values in July 2012, the expectation is that assesments will not change very much - certainly they won't reflect the drops we have seen since summer.
But what about 2013?
Certainly if trends continue, the drops will be significant. How will that impact municipalities dependant on property tax income?
Perhaps we are seeing a preview of that in West Vancouver right now.
In a news item that didn't get much attention, the Vancouver Sun recently had a piece about how the assessed value of Horseshoe Bay Ferry terminal has been slashed from $47 million to $20.
The District of West Vancouver is heading to court to fight a recent decision that slashed the assessed value of BC Ferries’ Horseshoe Bay ferry terminal to just $20 from more than $47 million.
The decision, made after BC Ferries argued the property was worthless because it’s restricted to use as a ferry terminal, could set a precedent for other assessing terminals such as Tsawwassen, Swartz Bay or Departure Bay.
The Horseshoe Bay dispute revolves around two parcels of land at the ferry terminal leased from the province, which had been valued at a total of $47.7 million.
Prior assessments had put the land value at about $44.15 million in 2011 and $45.6 million in 2010.
But this year, BC Ferries decided to appeal its assessment.
The BC Assessment Board's ruling to change the assessed value was largely based on a Newfoundland Supreme Court Case that pitted the town of Gander against the Gander International Airport. In that case, a parcel of land was found to have no value except as part of the airport. In that case, the appeal board ruled the port property could only be valued according to the restricted use imposed by the lease from the federal government.
Hence the change at Horseshoe Bay.
The take away that is important here (beyond the impact that the decision could have at other limited use facilities) is on realizing the amount of revenue loss faced by the City of West Vancouver in property taxes by just one property that has dropped significantly in 'assessed value.'
The decision essentially strips the municipality of about $250,000 of anticipated property taxes in 2013, meaning a possible two-per-cent increase in property taxes for homeowners.
“It’s a significant loss of revenue,” said Smith. The board’s decision is retroactive, meaning the district will be required to repay approximately $750,000 in property taxes it collected on the parcels going back to 2010.
Think about that. One single property in West Vancouver drops in value and it costs the municipality $250,000 in property taxes next year. While no one is suggesting all properties would drop 99% in value, imagine if the entire City sees every single property drop 10%, 20%, 30% or more in value?
According to BC Assessment, $6.2 billion in property taxes is collected across the entire province of British Columbia based on these valuations.
Any drop will impact municipalities profoundly.
Right now in Richmond, virtually every single property is selling below assessed value. Some real estate agents are advising sellers to list a minimum of 10-15% below assessed value if they expect anyone to even look at their house. We have profiled a number of homes that have sold for between 25%-34% below assessed value.
Right now in Richmond, virtually every single property is selling below assessed value. Some real estate agents are advising sellers to list a minimum of 10-15% below assessed value if they expect anyone to even look at their house. We have profiled a number of homes that have sold for between 25%-34% below assessed value.
The impact has the potential to cost municipalities hundreds of millions of dollars.
For those that think a collapse in the housing bubble won't effect every single one of us, think again.
There are some very rocky times ahead.
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The way i understand it, municipalities come up with some kind of budget for the next year, say $X. Then it divides $X by the total assessed value of the properties within its jurisdiction and determine the tax for each property accordingly.
ReplyDeleteThus, for the case of West Van, I think when one property has significant value drop relative to the rest, the rest of the homeowners will see an increase in taxes.
For cases like Richmond, if assessed property values drop across the board, everyone is expected to pay similar amount of property taxes (adjusted for inflation).
In Surrey property taxes are determined by dividing the current assessed value of land and improvements as determined by BC Assessment (see below for BC Assessment's key dates) by 1,000 and multiplying by the rate for the class type (in the case of residential homes it would be 2.35469).
DeleteIf the assessed value drops, the amount paid will drop... baring a tax increase, of course.
ya that's exactly my point. if assessed value drops, the tax rate will probably increase to make the city "whole". Of course, there's a limit to how much the tax amount can be increased.
DeleteAnother value investor has it. They will just adjust the multiplier to make sure they are whole + the usual 2,3,5 or whatever percent tax increase they decide to impose.
DeleteLikewise when property was going up at 10 or 20 percent per year revenues were not going up at that rate but at the council approved tax increase rate.
I believe the multiplier is called a "mill rate" which is determined by the tax department.
DeleteI believe it's $20.00 dollars, not $20M..
ReplyDeletehttp://www.biv.com/article/20121122/BIV0118/121129979/-1/BIV/west-van-goes-to-court-over-20-valuation-of-horseshoe-bay-ferry
You are correct, I will update this part.
DeleteSounds pretty dramatic eh, lol.. from $47M to $20!
DeleteTypo in third paragraph... Do you mean will not drop too much?
ReplyDeleteReal comment: So why would West Vancouver even want a ferry terminal there with the traffic, noise, pollution and a huge tract of land removed from a better use at all if they get no tax revenue? BC Ferries is constantly attempting to prevent passengers from leaving the terminal and supporting local businesses (In Swartz Bay recently I found they had eliminated the exit one could previously take to have a lovely walk in Canoe Cove and a bite at the Stone House. They call it security, I call it a captive audience for terrible and overpriced food.)
This one has huge implications for any terminal within a municipality.
Where exactly is the land located on the terminal? because I will gladly purchase it at this new reduced assessment value.
ReplyDeleteWho knows, the way things are going with BC Ferries they may not need it in the future due to low passenger loads...
I would think that this has been the discussion behind closed doors for a year or more in all municipalities.
ReplyDeleteIn a balanced community is it not around 60% residential and 40% commercial? So business must be worried as well. It may bode well for municipalities to keep that firetruck for another year or two, extend the vehicle life of service vehicles and unions had better be wary - the public/taxpayer of which you are probably one are not going to be happy.....
Cheers,
Way back in ancient history, the ferry terminal was supposed to be located on LuLu Island. But for reasons I can't recall off hand, it was moved to Horseshoe Bay and Tsawwassen. But the taxes should be based on revenue generation, which is the only fair way to value this government owned property.
ReplyDelete$20.00, huh?
ReplyDeleteI suggest that anyone going to BC Assessment to ask for a significant reduction in the assessed value of their land, should be, upon the granting of the reduction, be required to put that land+property up for auction, one time only, with a reserve price set at the new assessed value.
This would reduce the number of spurious value reduction claims and eliminate such obviously wrong valuations such as this one.
Hell, I'd throw in $20 for the land just to get a permanent parking space...
I can't count the number of times I've read posts like this that don't understand property taxes. If the housing assessments go down, it doesn't change the city's budget or requirement for the same amount of funds. You pay the same taxes, regardless. Our houses can collectively all go to $1 each and we're still going to pay the same property taxes. The only exception is this one case where the assessment changes relative to everyone else. Nice try!
ReplyDeleteJust curious, how those "poor" municipalities, including The District of West Vancouver,
ReplyDeletewere surviving 10+ years ago, when prices, thus tax revenues were 3 times lower? (but the cost of labour and materials to repair the streets stays the same as it was)
Probably they hired more expensive house estimators :-)