In a city where waterfront property is considered the domain of the rich, there is a two-level townhouse with a front door that opens onto the seawall currently listed for well under $1-million.
It is 1,554 square feet with a private back yard, deck, wood-burning fireplace, garage, and ensuite laundry, all within the heart of Vancouver’s central west side neighbourhood of False Creek. It has one of the best views in the city and is mere steps to Granville Island.
Price tag: $795,000.
The catch? It is owned by the City of Vancouver, and is leased until 2036. Whoever buys the property is buying the prepaid lease and the right to live there until that time. Almost all of False Creek is comprised of leasehold properties owned by the city and all are priced well below market value.
Would-be buyer Ryan Walters recently considered a 1,000-square-foot leasehold property in False Creek priced at $300,000. The townhouse also had a water view and was a stone’s throw to Granville Island. It sold a few days ago, and Mr. Walters, who was hesitant to dive into leasehold ownership, wonders if he missed out on a deal or a nightmare.
“If you were looking at a freehold condo, it easily would be $1.2[-million] or $1.5-million for that,” he says. “If you’re just looking for lifestyle, it’s probably something to look into for sure, because that’s one of the best neighbourhoods in the city.”
Mr. Walters, a 30-year-old machinist from Ontario, rents an apartment on Main Street. He is one a growing group of Vancouver residents who’ve decided that renting and investing money elsewhere may be a better option than depending on a home for equity. Because Vancouver house prices are still high and the market is uncertain, a leasehold property may work for someone like Mr. Walters. Leaseholds are generally spacious and located in central, desirable locations.
“If you do the math, that works out to some ridiculously low rent …,” he says.
“The big question in my mind is, is it going to be a crazy awesome deal or is everyone going to get shafted?’
In Vancouver, there are hundreds of leasehold condos in the West End, and leasehold townhouses and detached houses in False Creek, Fairview Slopes and Point Grey. They are either owned by the city, the federal government, the UBC Properties Trust, the Musqueam native band or private individuals. Leasehold ownership means the tenant owns the right to use the property for a given amount of time, which is usually 99 years.
As to whether leasehold ownership is a good deal depends on whom you ask. There are risks, such as if it’s not prepaid for the term, there are regular lease payments on top of mortgage payments. Those payments could come up for renewal that is based on a much higher market value than when the property was purchased.
The most famous example of a hike in lease payments was in 1995, when Musqueam Park leases came up for renewal after 30 years. The Musqueam band raised the payments in accordance with then-current market values on the tony west side properties. It meant average lease payments went from about $400 to more than $2,000 a month.
Senior mortgage consultant Rob Regan-Pollock helped several devastated clients through the price hike and ensuing court battle, including one who was forced to declare bankruptcy. That client emerged from the crisis and went on to purchase land again – freehold.
“Their lease payments were in some cases higher than their mortgage payments,” Mr. Regan-Pollock says.
