You can lead a country to value, but you can't make it tax

February’s post comes to us from Gary Laughton, an individual well known locally and in Latin America for high quality and high profile valuation assignments.  I have known Gary for over 17 years.  During this time he has become a friend, a mentor and a colleague.  I have also been on a trip to Belize with Gary.  That however, is another story. 

Consistent with our theme, ‘Real Estate in a Canadian Context’, this post follows KimberleyPlayer’s article on Honduras, and how Canadians are having an impact on it’s real estate environment. Gary takes us right next door to Belize where he was instrumental in improving their real property assessment program.  

I have titled this post ‘you can lead a country to value, but you can’t make it tax’.  A future post will expand on our property taxation system and compare it with countries you would expect to be much more similar to Canada than Belize.  Look for that article later this year.  And now a word from Gary…

I have been actively involved in Belize since the early 1990s. In the early days my trips were purely for vacation.  At some point on these trips however, I would find myself visiting with the assessors at the local property assessment offices.  For personal and professional reasons, and like a busman's holiday, I would talk shop largely about the valuation profession and the state of valuation in Belize, while comparing methodologies from British Columbia.  I guess when you like real estate and its valuation, you take it with you wherever you go.

Belize is a former British colony and is currently a British protectorate.  Like Canada, a significant level of Belize’s legal system (British Common Law), commerce and real estate was founded predominantly on English precedents and systems. British Columbia and Belize both utilize the Robert Torrens land registry system. Although developed in Australia, the British adopted the Torrens system of land registration and either implemented it or influenced its use in many nations.

In the 1990’s there was very little in the form of formal valuation training or real estate education in Belize - most assessors who worked for the Lands Department had some sort of construction experience.  A great background if you are undertaking a quantity survey for a property but not very helpful from an overall valuation perspective.

My relationship with the local assessors grew to the point that each year I went down to Belize I would bring basic valuation textbooks with me and provide them to those that seemed most interested.  On each of my subsequent visits however, I would find that the books that I had given in the previous year had moved to Belmopan (Belize’s capital city). Most often this was due to a court case or a serious valuation issue where the texts were required for sourcing or references.  This was definitely an eye opener as to the state of their educational resources….

After a few years of replacing the books, and many holidays later, I finally realized that the assessors needed something more than textbooks. I ended up discussing the need for more in-depth training with the assessment management.  Having caught an enthusiastic ear, I was asked to develop a valuation-training program for the Government of Belize to consider. 

Being delighted with the opportunity, I spent the next month working with the University of British Columbia’s Real EstateDivision at the Sauder School of Business, and the Appraisal Institute of Canada to develop a modest nine-day programme that would provide a basic valuation framework for the Lands Department.

After presenting the proposal - I waited - first one month, then two months, without response. A ‘tardy’ response is not unusual in this part of the world. Nonetheless, I contacted a senior person within the Lands Department only to be told that although our program had been budgeted, they no longer had the money to proceed.  Not wanting to hurt my feelings given the efforts we had gone to, they had continued to ‘consider my proposal’ rather than advise that they did not have the funds - an interesting and valuable lesson in Belizean philosophy and diplomacy!

Three years later, I was asked to reactivate the training programme.  They had received some funding from the Inter-American development bank and our training program commenced.  We trained not only all the assessors in the Lands Department, but were also able to train five representatives from local banks as well.

Our training complete, we left Belize knowing we had made a strong contribution to their real property assessment program.  Unfortunately, a tool is only as effective as the person who wields it.  While we knew that information with respect to real estate values should now be more effective and market based, we did not know how this information was to be used. 

Our real property assessment efforts here in British Columbia are principally used to create an efficient platform for fair property taxation and to derive revenues for government services.  As an appraiser our interest is in seeing real estate valuations being conducted according to generally accepted principles, and of course in reaching a value conclusion that is market based.  The next step of the process is the processing of actually levying taxes. We provided Belize the ability to more accurately assess their taxable assets, but did it help?

Belize has an incredibly low rate of taxation for real property.  Often when talking to expats about their properties in Belize, the running joke at dinner is that the evening’s bar tab will far exceed the annual tax for a property in Belize. Comparing the taxes for a $500,000 home in Vancouver relative to a similarly valued property in Belize is pointless.  Property taxes in Belize might as well be non-existent.  I guess you get what you pay for. Very low taxation, very limited services.  Which is precisely what you get in Belize.

So how does our property taxation system work?  According to some, not as well as it should.

According to the Federation of Canadian Municipalities:

“Unfortunately, much of the way forward is uphill. Canada’s tax system takes too much from our communities, and puts too little back. Without access to revenues that grow with the economy, and without long-term investment from other levels of government, municipalities continue to face a gap between their responsibilities and their ability to pay.

Our current system, in which municipalities collect just eight cents of every tax dollar, is not sustainable. Nor is it realistic in a world where cities function as economic engines and centers of innovation.

This fiscal imbalance erodes Canada’s competitiveness, while placing a growing burden on property taxpayers, straining local services, and forcing municipalities to delay essential infrastructure projects.”

Did you see that? Eight percent (8%) of your property tax actually goes to the municipality in which you live. 

If this is true in Canada – it has even more impact in Belize where the very low level of property taxation constrains and restricts the development of a reasonable service base for the residents in municipalities. It also makes municipalities more vulnerable to possible political manipulation by more senior governments due to the lack of independent revenue sources, particularly in a country where that type of action has historically been more prevalent.

While it is acknowledged that the Government of Belize has had considerable financial difficulties of its own recently (with the renegotiation of the 550 million dollar Superbond with the bond holders) now that this is resolved – it may provide an opportunity for municipalities to enter into fresh negotiations with the senior government. An affiliation with the Federation of Canadian Municipalities could provide considerable technical and moral support to Belizean municipalizes in their search for more permanent and stable tax revenues.  

While a larger share of tax revenue might be appropriate for municipalities, we must also consider that a balanced tax base ideally leads to more balanced communities as opposed to communities that receive a significantly greater level of services vis-à-vis others with lower property values, and a lower ability to pay. 

Real Property Assessment is an extremely important component of our everyday lives here in Canada, impacting our education, infrastructure, and community services.  Belize now has a much stronger system to assess real estate, which might one day lead to a refined property tax system.  With so many wealthy non-resident owners (by comparison), Belize has an excellent opportunity to increase their standard of living.  Thanks to Gary Laughton, Belize now has the right tools; they just need to expand the process accordingly.

Squamish LNG Plant

February's post is somewhat tardy, but it is still in the works.  It's a great piece about Belize and how one man from Vancouver put the tiny Caribbean nation of Belize on the track to effective Real Property Assessment. Exciting stuff indeed!  Before that however, I wanted to discuss the recently reported proposed LNG Plant at Western Forest Products' former Woodfibre mill.

A prominent feature in Howe Sound, the former Woodfibre mill sits on a 200+ acre waterfront site just west of Squamish.  The mill is easily visible from the Sea-to-Sky highway, occupying this location for over 100 years (well before the highway was built).  Owned by Western Forest Products, the former pulp mill was an integral part of the Squamish community and economy with over 750 employees at its peak operation back in the 50's.  Like many operations of its kind, the mill property was its own town with housing, recreational facilities, and the like.  It was so big, the mill had its own version of a small BC Ferry to service it, the MV Garibaldi II. 

Unfortunately pulp mills have not done so well over the last 20 years.  Increasing production overseas, higher local costs, and much needed capital requirements and upgrades (these are old facilities remember) have forced a lot of these facilities to close.  WFP closed Woodfibre in 2006.  

Catalyst Paper's Elk Falls mill in Campbell River was finally closed in 2009/2010 after experiencing a number of production level changes over the years.  Opened in 1952, this property sits on 400 acres and is one of the reasons Campbell River exists (Forestry did indeed build most of the communities on the coast).  Although there have been success stories like Nanaimo's Harmac mill which was purchased out of financial distress by an employee group a few years ago, most of these large industrial properties are lying vacant and are in some sort of limbo waiting to be reborn. These are large (100 acre plus) sites that are typically located in regions where industrial demand is considerably more limited than we have here in Vancouver. Absorption of these properties is only really feasible with one or two large industrial users.  Anyone who comes along and tells you they have a master plan for these sites (like Harold Jahn), is fooling themselves and everyone else who listens.  These properties need a similar use to the one that preceded them. 

Liquefied Natural Gas is one of these uses and the Woodfibre mill is one of these sites.  A former industrial property that lay vacant and will now be reborn.  And reborn clean.  Part of the deal between WFP and the new purchaser is that the site must be delivered with a clean environmental status.  Remediation is currently being undertaken, a task that is very welcome news to anyone.  

If an LNG facility is built at Woodfibre, the major benefit is that Squamish is going to gain an incredible amount of jobs for its community.  A community that seems to be developing more and more into a bedroom community of Vancouver for people escaping the high housing costs here.  Of course, not everyone will share this sentiment.  

There are at least a dozen planned LNG facilities in BC.  This is a natural resource that, unlike trees, you can't really add value to.  As far as I know, there really isn't much in the way of secondary processing that can take place to create, say a 2x4, versus exporting the raw log, with respect to natural gas.  Natural gas is natural gas.  Furthermore,  an LNG plant is a far cleaner option for the site than a pulp mill, particularly if it is using technology from 1954.  

New industrial developments are being built with technology and processes that give much more consideration to the environment than ever before.  Furthermore, an LNG plant in Canada will be that much better for the planet than any comparable facility built outside of the western world, in a country such as Indonesia, China etc.

Woodfibre will likely always be known as Woodfibre.  As far as industrial development, economic revitalization and this former industrial site's environmental condition are concerned, an LNG plant at this location is good news as it breathes new life into Squamish, facilitates the remediation of a former industrial use property, and bring with it jobs and opportunity.  On the global environmental side, natural gas is a far better energy alternative to most other fossil fuels.  Even with the production of LNG and its transportation to Asian markets, there is a net reduction in emissions as it reduces the use of coal for energy production. While greenhouse gas production is greenhouse gas production, less greenhouse gas production is, in my opinion, a benefit.  

Some links regarding the WFP sale:

Province

Global news

Woodfibre.ca

Squamish Chief

January's Article announcing sale

Canada's Influence on Development in Honduras

This blog looks at real estate related issues from a Canadian perspective.  It's a theme that will continue to play out this year while we look at a variety of topics such as: Belize's real property assessment program; large format development sites in BC; Appraisal pitfalls; title and ownership in Canada vs. the United States and more.  Our previous entry examined foreign ownership of land restrictions internationally and here in Canada, particularly with respect to agricultural land.  

This month we look south to Honduras where Canadians are having a marked effect on that country's development.  This entry has been kindly brought to us by Kimberley Player, an economic and real estate consultant currently calling Seattle home.  Kimberley's website is:

http://kimberleyplayer.com

Canadians faced with mixed signals and varied investment prospects within domestic real estate markets have increasingly been looking outside their borders for international opportunities. In some cases, this demand is having a significant impact on landscapes in other countries. It might be surprising to some that a nation known as one of the world’s most peaceful has had considerable influence on the development of a country notorious for its drug trade and homicide rate, Honduras.

Background

Canadian interest in Honduras predates recent headlines around corruption, enforcement issues and violence, which often belie the beautiful places and people found outside of a few big city hot spots. Roatan, one of the Islas de la Bahia off of Honduras’ north coast, was the initial draw. This idyllic island, best known for its world-class scuba diving, offered something that many more-established Caribbean destinations could not –inexpensive real estate and a lack of foreign ownership and development restrictions. It’s true that being somewhat off the beaten track came with its challenges, such as a less-than-optimal infrastructure and a bit of a “wild west” mentality, but in some ways, these quirks also served as attractions for more adventurous investors seeking authenticity and a unique environment, not to mention substantial appreciation prospects.

Over the last decade, Canadian tourism and real estate investment on Roatan has skyrocketed, driven in part by growth in cruise ship visits and flights. Sunwing, CanJet, and Air Transat all offer direct flights from Toronto and Montreal (in some cases, seasonally). Developers and vacation home buyers have jumped at the opportunity to invest in what has been advertised as an “undiscovered, relaxed, and inexpensive alternative to other Caribbean islands”. Canadian-operated resorts, restaurants, bars, and dive shops have also proliferated. This growth has spread to the Honduran mainland, most notably the north coast cities of La Ceiba, Trujillo and Tela along the “Emerald Coastline”. Additional flights to La Ceiba are fueling occupancy at Canadian-owned resorts and delivering a prospective buyer pool to the doors of real estate developers.

Looking forward, one of the most controversial examples of the potential for Canada to shape development in Honduras is its prospective role in the proposed Honduran “Charter City”.[1] In theory, Canada would provide a governance model and expertise in a variety of sectors within a specially designated zone – essentially a newly-created city – in Honduras. Whether this improbable experiment will materialize has yet to be determined; however, the fact that Canada has been held up as an ideal partner for the venture speaks to an already strong connection and degree of influence.

Why Honduras?

Why is it that Canadians are driving a large proportion of Honduras’ tourism and development? The country is certainly not devoid of Australians, Americans, Europeans and visitors from other countries. However, one doesn’t often see American flags flying off a floating bar or dive boat, or rousing games of cricket being played on the beach. Instead, “Hockey Night in Canada” is on TV in bars like Sundowners (Roatan) and Expatriates (La Ceiba). West End, Roatan has even hosted several road (or rather sand) hockey tournaments.

·       Perhaps most importantly, the Canadian economy and housing markets have remained relatively robust during the recent US recession. While the pool of potential US homeowners has dwindled in the face of the financial pain associated with overleveraged, speculative second (and third and fourth) home investments, a larger percentage of Canadians remain in the vacation home market. 

·       Although it’s true that a relatively low price point has driven interest from all nationalities, marketing of Honduran property in Canada has been particularly aggressive. RE/MAX Bay Islands claims that 50 additional RE/MAX agents are promoting Roatan’s Canadian-funded Oceano project across the Great White North. Canadian company Life Vision Properties holds events across the country (often during the cold winter months) and lures prospects with dreams of sun, sand and sea, as well as dramatic forecasted price gains for their Trujillo developments. Incredibly, over two-thirds of Life Vision’s buyers reportedly invest sight unseen, without ever setting foot in Honduras.

·       The seemingly contradictory draws of familiarity and adventure also play roles in drawing Canadians. On one hand, there’s a level of comfort associated with having Canadian company in a foreign land; on the other, Canadians seem more willing to travel to places that have an element of risk, perhaps because they are subject to fewer over-hyped State Department-type warnings than their American neighbours.

For Better or Worse?

As a Canadian who has spent a fair amount of time in Honduras, I’ve developed my own strong connection with this wonderful but often misunderstood nation. I also have mixed feelings about the larger influence of my home country in a foreign land. On one hand, the economic benefits of tourism and development are clear. Expanded employment opportunities for Hondurans have translated into improved education and healthcare, as well as other positive community impacts. There’s also no question that the provision of Canadian aid in the form of regulatory, infrastructure and public service expertise could help Honduras deal with their very real issues of weak governance, corruption, and poverty.

The caveat is that we need to make sure to export the best of Canada and not treat Honduras as an inexpensive vacation playground. Cultures, communities, landscapes, shorelines and reefs must be respected. The downside to limited ownership and development restrictions can be land rights conflicts, poor planning, and environmental damage. Life Vision Properties’ Trujillo projects are the subject of indigenous Garifuna land claims; land title issues and questionable environmental practices are also too-prevalent in projects where Canadians have been prime demand drivers.  Construction and expansion of cruise ship terminals in Roatan have not only damaged a reef that is the island’s main attraction, but violated the environmental provisions of international free trade agreements. Perhaps even more concerning are the effects of a growing social inequity problem – in the form of crime - which tourism can exacerbate.

A sound economic business case can be made for planning that facilitates smart, sustainable land use and development, something Canadians do relatively well at home. This expertise is sorely needed in developing countries like Honduras. Tourists and second home owners don’t have to be real estate experts; however, awareness and support of projects that encourage community cohesion; environmental standards and green building; local business retention and jobs; and equitable rights and services can ensure that their favourite vacation spots continue to be vibrant, healthy, beautiful places to visit and live.

Kimberley is an economic and real estate consultant with experience in strategic planning for developers, landowners, investors, public sector agencies, NGOs and corporations. She has an extensive market research background and expertise in development and feasibility analysis; demand forecasting; and market assessments. Her previous work experience includes assignments ranging from the benchmarking and optimization of real estate portfolios, to community and resort planning, and public-private strategies for economic growth. A member of various professional organizations including the Urban Land Institute, Kimberley has a Finance degree from the University of British Columbia and a Certificate in Sustainable Tourism Destination Management from The George Washington University.

Kimberley’s passion for travel has led to a strong interest in tourism and related development. Her goal is to ensure sustainable growth that celebrates local character while promoting holistic community planning.

---

[1] Fuller and Romer, Success and the City, How charter cities could transform the developing world (Macdonald-Laurier Institute, April 2012)