BC Depreciation Reports

If you don't happen to live in a Strata (Condo) Property in BC, this post will be of no interest to you.

At dinner last night, we had a conversation about BC's new "Depreciation Report" Legislation for strata properties. Basically, it's now a requirement that any strata property with more than five units (so small properties are exempt) must now:

1. commission a regular engineering report detailing the estimated repair, maintenance and replacement of all the components of common property in the strata (things like roads, roofs, common buildings, painting, fences, etc) for a thirty year time period (ongoing)
2. fund the expected costs of these items through their monthly strata fees

This legislation will parrot the same laws in most other jurisdictions, with the intended outcome of adding predictability to the strata housing market. A new market will be created where you'll know about the long term financial commitments of a strata property, and the funding for those commitments will be in place.

I have no problem with the intent of this legislation, I'm only concerned with the unintended consequences of its adoption.

When I do an online search for "BC Depreciation Reports" the only hits I get are from Engineering firms (doing the reports) and Strata Management Companies (commissioning the same). There are no "anti" or "against" opinions. It's like the legislation only has as upside, and no downside.

The law does give us an out - with a 3/4 vote at regular intervals, a strata can "opt-out" of the reports and the funding.

The Argument For
The basic argument is to analyse two otherwise identical properties. One has a funded depreciation report on file, and the other doesn't. Which one would you buy?

The industry maintains that "of course, you'd chose the property with the report - as a matter of fact, the mortgage provider (banks) will demand it".

The market will provide higher selling prices for those properties with reports.

The Argument Against
Same scenario. Two identical properties. One with a report, one without. The one with the report has strata fees of $500 a month. The one without has strata fees of $200 a month.

The non-report property has decided that major cash infusions will be handled the way they are now - by a special assessment levied against each home owner. That way, you're not paying for repairs that may be needed years after you leave the strata. You pay for the repairs the same way you would if you owned a house. As they happen.

The non-report property has decided to take a "wait and see" attitude. If the market truly does start to differentiate between report and non-report properties, they will opt in. Same if banks start requiring a report (currently, my conversation with mortgage specialists at banks is that they don't know anything about this).

My Opinion
I think the "wait and see" strategy makes the most sense. Sit on the sidelines until you see how this whole thing shakes out.

Currently, this legislation looks terribly pro business (engineering companies and strata property managers). A change in government here in BC (likely next year) might change political will.

Let the market decide if this is important or not. Let the "bulge" of people commissioning engineering reports make its way through the system. Let the "price gouging" that's going on now work through the system.

I don't think now is the time to make a decision which could affect your strata for decades. Now is the time to sit back, vote against the depreciation reports for the time being, and see what happens.

Tell the Strata Property Managers and Engineering Firms

"Thanks, but no thanks, for now. Come see me in a couple of years and I'll tell you if I've made a different decision."