The “BC Speculation Tax” on the Ground with Randy Trapp

About Randy:

Randy has been involved in construction, development, sales, and management of resort real estate and rentals for 14 years. He did commercial and retail construction before that. Randy is married with two kids and lives in Radium Hot Springs, BC. He enjoys what he does and interacting with his customers— it’s great because his customers and guests are on resorts, happy and having a good time.

On what attracted him to the luxury resort market:

Randy started out as a customer. He and his wife had a vacation property in the Columbia Valley, when they lived in Edmonton. They made it available for short-term vacation rentals, and Randy got to know the principal of a rental company they used. His company started construction of a project in Radium and Randy did some consulting work for him. They eventually became partners and their company grew from there. Since 2005, they’ve built three resorts and manage eight properties throughout BC. They’re now in the fishing lodge business, and they manage golf courses.

On how ownership of the resorts works:

They are mixed-use resorts of stratified properties which include multi-story, higher density condos, and townhouses. Customers buy them just as they would a condo in Vancouver. All resorts have an onsite management company that looks after things like short-term vacation rentals, maintenance and repairs, concierge to book activities, and grocery delivery service. It’s a hybrid model of owning a vacation home but with all the services and amenities you’d expect at a resort.

On if there are rental restrictions or requirements and how they work:

The model is more owner-focused than hospitality business-focused. If you buy a property, you should be able to use it any way you want. There is no obligation to make your unit available for rent. A number of owners don’t do this at all, and some owners are really active renters.

On how the services are charged and if owners can choose à la carte:

Like any stratified property, there is an elected strata board with a council of owners. If owners would like extra services, that gets arranged and charged per service.

On how the general recreational market in BC has performed over the past 5-10 years:

They have been mindful that second homes and recreational properties are a discretionary purchase that nobody has to buy.

When the market is good and consumer confidence is high, their business is very active. When consumer confidence is down and the economy is sluggish, they are one of the first things people stop looking at. BC is a very desirable destination and they operate in a number of markets within BC that have different climates, so their traffic is dictated by what’s attractive in a specific area.

For instance, in Parksville on Vancouver Island they have two types of owners: the typical summertime beachgoers, and the snowbirds. There are many owners from Alberta, BC, and Manitoba who come there in the late fall to spend the winter and then head home in March. They might make their property available to rent in the summer. The beachgoers do the opposite, and make their properties available in the wintertime. Business has been good; they deliver quality product that’s of good value. People value and appreciate that. Once they sell a second home to an owner, it’s the beginning of their relationship because they own the property management and hospitality companies onsite. Randy sees his customers from ten years ago on a regular basis. This means they must manage expectations during the sales process and, more importantly, deliver on all their promises.

On who drives the recreational property market right now:

There are three main categories of customers. The first is active pre-senior empty nesters. Their families have grown and moved out of the house. They are typically in their early-50s and very active, doing things like biking, hiking, and golfing. The location of their properties allows them to enjoy these activities. They also spend time with extended family, including grandkids, so can rent a nearby unit, as needed. Another group is the young aspirational families, about 35-45 years old with one or two kids age 4 or 5, up to teenagers. There are many amenities for kids at the properties. The third group is the snowbirds. They want to go somewhere nicer in the winter that they can drive to and still be in Canada, with the benefits of their health care. There is a snowbird community of the same 25-30 couples who know each other and do regular activities together, like wine and cheese, golf, and card games.

On approximate price points of Randy’s projects:

In Parksville, they have a ten-acre property on Resort Drive with beach frontage onto Craig Bay. There are 42 condo units and a lodge with meeting rooms, an owner’s lounge, a pool and fitness facility, and a spa. They’ve almost started on the next phase of townhomes: 1,100 square feet, two-bedrooms, two-bathrooms, with ground-level entrance and patio. These will start at $429,000 and could generate rental income of more than $20,000, while the owner uses the space for part of the year. Rental income is relative to the amount of time the owner uses it themselves—some are very conscientious about making their unit available at prime holiday and long weekend times.

On the most popular types of properties:

15 years ago, they were building 3-4 story, 16 and 18-plexes of one, two, and three-bedroom condos. Over time, almost every other developer in western Canada was doing the same. So, they’ve changed and found duplexes and townhomes have more appeal and are maybe different from what people regularly live in. They sell very fast and are pre-selling into their 12^th phase in Radium.

On how the speculation tax announced in February has impacted Randy’s market:

Randy’s project in Radium was identified as being in an area not subject to the speculation tax. They also had a project in Parksville, as part of the Regional District of Nanaimo which was going to be subject to it. This tax would have stopped the project—it’s a unique situation because the resort in Parksville is zoned as tourist-commercial. This zoning comes with a bylaw that says you can’t occupy those units for more than 180 days per year. The tax was to help make more housing stock available in the market, and there was no possible way the Parksville properties would be available for long-term rentals as the bylaw prohibits this. Randy, along with the Parksville mayor, the MLA for Parksville-Qualicum, and many other businesspeople, was active in communicating to the Finance Minister that this was a problem. The message got through and the Minister clarified in March that Parksville and Qualicum would not be subject to the tax. However, the customers they sell to don’t live in their operating area and many were put off as the general thinking was if you own a second home in BC, you will be subject to the tax. Now, they may not even get the chance to advise potential customers otherwise.

On if the issue has hurt sales or added more buyers looking for Parksville-Qualicum:

They want to reach a pre-sale threshold before commencing construction. Just before the tax was announced, they had reached this threshold; however, within 72-hours of the tax being announced, they lost half their deals (within the rescission period). Subsequently, they recovered some of the deals once the Minister clarified the tax rules. However, some people are now hesitant about a second home in BC, period.

In Radium, 92% of their rental or real estate customers are from Alberta, due to its proximity. They are not happy with BC for many reasons and they are still under the impression a speculation tax applies. It is difficult to get the message out and have a conversation with them on this and to gain their confidence in our current political situation. There is a lack of certainty and this affects people’s confidence to invest in BC.

On Randy’s overall perspective of the speculation tax and the policy behind it:

The intention is good. They employ about 250 people in their operations during peak season, most of whom are in entry or mid-level jobs. So, there is concern that these people have access to affordable housing near their workplace. Philosophically, Randy is not in favour of controlling a free market by restricting demand. He prefers the supply side. A challenge in the development business is the process and timeline of developing. For instance, if Randy was going to make a 12-plex and bought a $3 million property and started the development permit process, he’d be facing 21-months before a permit is in place. Then, he must put the project out to tender and get a building permit, which could take another 12 weeks. So that’s two years with $3 million tied up in land, plus holding costs. Streamlining this process to be more reactionary to the market would help address the issues that have brought us to this housing affordability problem. If the government focused on this, rather than de-valuing property and penalizing owners, they would have more success, be able to address the problem quicker, and not offend and scare people off. Why would people invest knowing their property will be de-valued next year? From a developer’s point of view, are they really motivated and excited to go through this process? There is no win here.

On if the foreign buyers’ tax has played a role in Randy’s market:

They don’t actively market outside of Canada, and so they don’t have many non-Canadian owners (maybe two or three out of 1,800 owners).

On the NDP caucus meetings when Parksville was part of the speculation tax, and the development community’s sense of urgency and worry about the future:

Randy’s product facilitates tourism traffic and provides business to the community. Parksville is a tourist town: 40% of their economy and $130,000,000 per year is tourist-related activity. If their project was a conventional, residential project it wouldn’t be built. If you’re a short-term renter or an owner at a resort, you spend your money the same way, which is important for the local economy. They want to be good neighbours; they want to employ local tradespeople and be a part of the community.

The meetings had tourism, hospitality, labour, construction, transportation, lumber, and other industry representation there. Randy hopes the NDP representative saw that putting a speculation tax in place on a second property has a negative impact and ripple effect on all of these operators in other sectors. It’s unfortunate the government didn’t take the time to understand the effects in various communities where something like this would happen.

On where the future of this industry is going:

There are a couple of speed bumps and they need clarity on the speculation tax; [the government] needs to resolve disagreements with Alberta and Saskatchewan. Once we’re back to business instead of politics, they’ll be fine. People will always want to take a vacation and BC is beautiful. It will work itself out.

• Luxury Resorts West
• Sunrise Resort Parksville
• Bighorn Meadows