Wednesday, April 18, 2007

The Bare Land Strata

We're pretty sure everyone knows what a strata is. But how about a bare-land strata? Are you aware of the number of new developments in the CRD that are using this method of gaining permits? And it's not just in Langford.

Essentially a bare-land strata works just the same as any other strata corporation. There are individual assets (your home) and there are shared assets (streets, sewer, water, power lines and street lamps). Some bare-land strata corporations also own golf courses, marinas and other recreation facilities. Some are upscale and have amenities to attract luxury buyers, but a growing glut of these bare-land strata's are being developed and targeted to low-end buyer segments.

When the municipal council grants developers permits to put in communities (I define a community as places like Sun River Estates, Citation Village etc) the biggest concern for the municipality is the cost in servicing these new areas of town. The municipality wants to increase its tax base (largest taxpayers are local business, not residential) and wants to keep its costs under control. So how do they do this?

Enter the bare-land strata. The province created this 'corporation' some time ago. Municipalities are taking advantage of it to pass on the costs of what we would normally consider community services paid through property taxes onto the strata owners. Consider this: you buy a house in Citation Village for $400K. You're getting a brand new home, it's pretty nice, it's pretty big compared to what that money buys you elsewhere and the community is new. Lots are real small though, but that's less lawn to mow anyway so no big deal. You have to pay a strata fee of $85/month, but that's less than the average condo fee by almost half, so again, seems like a great deal.

Are you aware though that when the winds hit and the lampposts come down that it's the strata that pays? Or when the rains come and the inevitable potholes appear, again it's the strata that pays. Now these would be relatively minor costs for the strata corporation to bare, but what about ten years from now when the roads need to be re-paved completely? Normally, the city takes care of it. Not in your bare-land strata though. Instead, it's like a condo roof has to be replaced and the strata corp either saves up for it, or if the strata isn't run in a proactive manner (and it's easy for strata's to be managed in less-than proactive ways) the bill gets divided up and passed onto the homeowners. I'm not positive on the CRD cases, but I've read about bare-land strata's that are responsible for their own fire departments. I can't imagine that being the case here though.

You still pay the same rates of property taxes as your neighbours who aren't part of the bare-land strata.

I know that I'm not painting a very good picture of the situation. And I also know that I don't have all the information. So please feel free to chime in with your thoughts and corrections. Does anyone own one of these or know of someone who does?

We walked through a home in a bare-land strata about 1.5 months ago. It was nice and big. It had a suite downstairs and parking for one car. If you wanted more than one car you had to park in the common parking two blocks away. There was no on-street parking as the streets are too narrow. We were actually pretty impressed with the home. It needed some work to complete it, but we figured we could get that as part of the offer, or knock $15K off the price to get the work done ourselves. The risks of the strata scared us off though.

With more and more of these bare-land strata's being developed and municipal councils seeming to favour this style of development over others, it's safe to assume that first-time buyers like ourselves may have to go this route to get into a home. We'd love to hear your thoughts on this issue. Are we reading too much into it? Should we just accept this is a new reality in the RE market and budget accordingly? Or should these bare-land strata's be avoided at all costs?

12 comments:

Aleks said...

I don't think they should be avoided at all costs, but I do think it detracts from the attractiveness of a detached home. If you're going to have a tiny yard and have to deal with a strata, you might as well buy a townhouse and save some money, or live in a co-op and save a lot of money.

To me the risk vastly outweighs the reward. I can easily foresee a situation similar to the leaky condo crisis 10 years down the road with strata owners on the hook for poorly constructed roads and infrastructure. The chances of a strata charging itself enough to build up the contingency fund to deal with those kind of expenses is virtually nil, because not only do people tend to be overly optimistic and put off preparations, a lot of owners who buy now will sell before the bill comes due. Why would they pay $200 a month into a contingency fund for repairs they will never see?

It's the same reason I'm very leary of brand-new condos; you have no idea how the strata is going to be run. Neither the building nor the strata council has any track record.

hhv said...

Aleks,

the best piece of advice I've ever heard about stratas is take the time to get involved, talk to people and get elected to the board. That way, you have first hand knowledge and can potentially influence the management and protect your investment. Definitely not for everyone, but should be easier to do in a new strata than an established one.

Anonymous said...

We moved from a different province and were renters in a strata. NOT a nice experience. Some owners were condescending, thinking they could push everybody around, and that they owned the entire place, and the president was a dictatorial meanie.

Parking was impossible. Visitors were frowned-upon, although we scarcely entertained. Some owners made other owners' lives quite miserable.

I would NEVER buy in one of those. You just said they cost about $400k. Why would you spend that same amount for a strata, plus monthly dues, to get little or no say? I didn't even trust that the utility bills were being divvied up honestly!

Save yourself a nightmare. There are houses in this price-range that are headache-free. I heard that you don't even own your land freehold in some/all stratas? Look at Blackberry hill, for instance, it all looks like a big slum, with houses perched over each other on the hill. VERY unattractive, claustrophobic.

As far as the contingency fund, where do we cross the line? It seems strange that I should have to pay into this big fund during the time I live there, and during which NO repairs, maintenance are needed.

If I sell, my money is gone, and those repairs may not be needed for another 10 years. But on the other hand, to be fair, pity the poor soul who JUST bought in, and 3 months later, an unexpected BIG repair pops up. So, he has to find his share of thousands of $$$ to pitch in. LOSE-LOSE situation.

hhv said...

I've heard that strata's with contingency funds are easier to sell, and thus get better prices, than those without. People want to know there is minimal personal financial risk when they buy into strata's.

olives said...

The water mains and sewer mains are also usually part of the strata.

Aleks said...

"Save yourself a nightmare. There are houses in this price-range that are headache-free."

That's pretty much where I was going. If you're going to spend the money to buy a house, buy a real house and not what amounts to a detached townhouse. If you can't afford a house then dealing with a strata is a necessary evil, but when you're already paying $400K+ and property tax and maintenance on your own home, you shouldn't saddle yourself with a strata on top of it all.

hhv said...

so are we saying then that people who buy into these places didn't think thigs through and come to the same conclusions?

I'm thinking that within a few years, there will be more bare-land stratas... and if you want a new home, then you won't have much choice.

Aleks said...

A lot of new subdivisions will probably be stratas, maybe even all of them. But there will always be new houses built on old lots for people who want it both ways.

Personally, I don't want a new house. I want something in good shape that was built before the nailgun was invented.

Anonymous said...

We live in a beautiful bare land strata with a complete, expensive central activity centre that contains a swimming pool, 35 piece gym with circuit equipment, games room, tennis court and auditorium. Our strata abuts two golf courses. The problem is there are no rules governing rentals - even short term i.e. by the week-end, week, month or any period. A minority of owners prevent the majority from establishing any type of restrictions against rentals in the council bylaws. The Province requires 75% for any resolutions to pass, that is, 26 out of a 100 people can shut down any resolutions. As a result, short term renters rule, while their absentee owners bask in their other home(s) elsewhere, leaving the rest of the owners to put up with transient renters, who have no accountability towards the upkeep, repairs or purchase of replacement equipment, the maintenance of the parkettes, services or insuring the central activity facilities. All owners face ever increasing annual fees to cover the facilities while the absentee landlords cover these fees with part of their rental dollars. I can imagine a long term rental policy but not short term vacationing, stay and play, renters. I cannot imagine how a few of our neighbours can vote against rental restriction, who are not landlords, can not foresee themselves be surrounded by short term renters. A bare land strata can turn into a very un-democratic situation where minority's rule, where 26% can control the living standard of an entire community.

Paula Switzer said...

I am part of a bare land strata and have been for 6 years. The rules are simple, we share water costs, (which reduces total billing overall) and have the common area insured. There are five homes, and we meet annually to ensure the fees are inline with the costs. Our contingency is adequate for expected future costs, and is growing at a steady, but not excessive rate.
It has been a positive way of getting to know the neighbors, and we have not had any issues, other than snow removal - who is capable and willing... also a positive, get-to-know-your neighbor experience.

Paula Switzer said...

I am part of a bare land strata and have been for 6 years. The rules are simple, we share water costs, (which reduces total billing overall) and have the common area insured. There are five homes, and we meet annually to ensure the fees are inline with the costs. Our contingency is adequate for expected future costs, and is growing at a steady, but not excessive rate.
It has been a positive way of getting to know the neighbors, and we have not had any issues, other than snow removal - who is capable and willing... also a positive, get-to-know-your neighbor experience.

RenataVeritas said...

I am in my 4th condo now after having owned my own houses with land in Alberta. The current condo is older and a nightmare. Very low contingency fund, mismanaged by Property Mgt.Co (aka. Mafia), Council comparable to a Gestapo organization. Floodings, fires, old plumbing you name it. I want out, in 4 years spent 30,000 repairs & reno's out of my pocket. Warning - this entire condo concept should be avoided.