[Brainer]

Hi all:

I'm downsizing to a condo in the next few months. In order to estimate how much my condo will be worth in, say, 20-25 years, I've asked a number of real estate "experts" to give me ballpark estimates, or even guesses, as to how much the value might appreciate over, say, 20-25 years. Every person I ask gives me a different answer.

I know RE, like markets, don't go up forever. I also know that RE doesn't go down and stay far in the long run in Toronto. Is there some way I can ballpark how much price appreciation there might be for a plain 1-bdrm. condo in, let's say, the Allen Rd. and Sheppard area of Toronto?


Thanks

 

[Just a Guy]

25 years out is pretty much unpredictable, there are just too many variables.

 

[OnlyMyOpinion]

Ah, no. You might assume inflation as a base - in other words no increase in real dollars. But the RE market in 20yrs may add or subtract from that, as could the maintenance and condition of your unit and the building....

I'm interested in why it even matters? I mean this is to live in right, its not an investment as such. Are you trying to compare the benefits of renting vs owning?

 

[doctrine]

Why don't you look for the price of a 25 year old condo in your neighbourhood? I have done this. They are usually substantially cheaper than the new ones on the market, usually at least 50% cheaper. Ones that are 35 years old are usually 30-40% of the price of a new one. Not as new and shiny, obviously. However, my point is, if you have a condo and hold it for 25 years, it won't be nearly worth enough to sell and buy anything new without taking out a substantial new mortgage. That, I think, is the essence of real estate value over time - it is relative to everything else, and real estate depreciates, but it is hard if you just compare it to itself - the value of *your* condo will go up in absolute dollars (+X%/yr), but will go down relative to new construction (i.e. inflation). With a house, sometimes you can renovate your way into restoring some value, but it's hard to do with an old condo building. But sometimes once a house gets old enough, it too is a tear-down and start-over.

 

[Brainer]

OnlyMyOpinion

Interesting. That was along the lines of what I was guessing. Glad I wasn't completely in left field.

Doctrine:

I don't get your point. You're suggesting I look at cheaper condos, or look at condos and then trace back to see their purchase
price 25 years ago to estimate appreciation or ? Please clarify for me.

BTW, I won't be upgrading at any point. Life circumstances will almost certainly force me to keep this condo for the rest of my life.

 

[Mukhang pera]

That, I think, is the essence of real estate value over time - it is relative to everything else, and real estate depreciates, but it is hard if you just compare it to itself - the value of *your* condo will go up in absolute dollars (+X%/yr), but will go down relative to new construction (i.e. inflation). With a house, sometimes you can renovate your way into restoring some value, but it's hard to do with an old condo building. But sometimes once a house gets old enough, it too is a tear-down and start-over.

I disagree that RE depreciates, although that is often said. If that were true, all the real estate on the planet should be fully depreciated by now, with a net book value of nil, with no prospect of recaptured depreciation. What gets built on the real estate, yes, for sure, that depreciates and will become worthless over time.

To speculate on what any condo in any market might be worth 25 years out? Might do well to invest in a good quality crystal ball (with a warranty of at least 25 years) and/or tarot cards.

 

[My Own Advisor]

I would assume inflation to be safe, say 2-3% per year. Anything more is a nice bonus!!

 

[Just a Guy]

Unless the condo board mismanaged it, or the market corrects, or the government policies destroy the economy, there is a major building flaw discovered, the neighbourhood becomes a "bad area", etc.

You can't even count on inflation.

 

[AltaRed]

I disagree that RE depreciates, although that is often said. If that were true, all the real estate on the planet should be fully depreciated by now, with a net book value of nil, with no prospect of recaptured depreciation. What gets built on the real estate, yes, for sure, that depreciates and will become worthless over time.

To speculate on what any condo in any market might be worth 25 years out? Might do well to invest in a good quality crystal ball (with a warranty of at least 25 years) and/or tarot cards.

Not true. It depreciates relative to new construction since the building itself deteriorates and materials, function, personal taste, etc. are quite different in a period of 25 years. It is a fantasy to believe the average house or condo keeps pace with newer comparables.

A 25 year old dwelling may need $150k in internal renovations to bring it up to 'today', never mind the exterior, e.g. windows, doors, roof, facade, etc. I can assure you without looking at the 1973 duplex I owned in Burlington for 5 years would not fetch the same price today as a brand new duplex of equivalent square footage. Just windows alone, never mind a fuse box and aluminum wiring, would result in a significant discount.

The only rule of thumb one might assume is keeping up with the pace of inflation, and only then if timely upgrades and maintenance have been done to the property. There could be huge discounts, or premiums, to that depending on the state of the local (regional) market, and the specific neighbourhood, at the time.

 

[Mukhang pera]

Not true. It depreciates relative to new construction since the building itself deteriorates and materials, function, personal taste, etc. are quite different in a period of 25 years. It is a fantasy to believe the average house or condo keeps pace with newer comparables.

I think you missed my point entirely. I did not think it was couched in such opaque language, but I'll try again.

My point is that land does not depreciate. That which is built on the land certainly does. To counter my point, you yourself right away mention deterioration of the building. I never suggested anything of the sort that "the average house or condo keeps pace with newer comparables". I am not living in fantasyland. I made the point that: "What gets built on the real estate, yes, for sure, that depreciates and will become worthless over time."

I just find it too trite (and incorrect) to make the bald statement that "real estate depreciates over time". What gets built on it will certainly depreciate. For residential real estate, one sees various depreciation rates bandied about, but I'll accept one oft-cited figure of 60 years as the useful life of an average house. So, if you buy a lot today for $100,000 and spend $100,000 to put a house on it, in about 60 years the house will have little or no value. But the land will not have declined to nil.

In 1979 I bought a house in Vancouver for $110,000. It had a 1914 bungalow on it, that had undergone few upgrades. I considered that $110,000 was for the land, nothing for the building. I did not bother with a home inspection. Of course it would have turned up a host of deficiencies. If I went back to the vendor and said "I'll only pay $90,000 because the house needs a lot of work" he would have told me to pound sand because I was paying nothing for the old house. I sold that house in 1989 for $525,000. I sold then because I had spent no money on that 1914 house and it was by that time in need of extensive repairs and it made more sense to demolish, which is what the new owner did. None of that $525,000 was paid for the building. But the underlying real estate had not depreciated at all. Today that lot is assessed at about $3 million and the newer building on it at $2 million. Probably in 50 years the lot will be worth $20 million and the house worth zip.

Some of us own real estate with nothing built on it. Imagine that! I own some forest lands. I own it for the wood fibre it produces. But it is still real estate and I reject the notion that it is depreciating. In fact, even if the land value remains static over time, or declines, well-managed forest land in these parts should see an increase in volume of merchantable timber getting close to 8% per year. Of course, the value of that timber fluctuates. U.S. duty on softwood imports has some impact on what my trees are worth at any time. I don't think they are depreciating, however.

In the end, I'd say this is a debate over nothing. Looking back, I do not think doctrine meant to suggest that land is a depreciating asset. He spoke in broad terms in saying "real estate" depreciates, but the overall import of the post seems to recognize that what is depreciating is the improvements on the land. But I could not allow AltaRed's comment that my words were "untrue" to stand uncontradicted.

 

[AltaRed]

But I could not allow AltaRed's comment that my words were "untrue" to stand uncontradicted.

Because you started off with the assertion RE does not depreciate. It can, although maybe not in GTA or GVR over the longer term. There are many places of the country where RE in total (land plus building) becomes worth much less than one has paid for it in the first place. People have walked away from such real estate in any number of mining or forestry towns as an example, and from outports in NF. However, I see now I should have qualified how I responded and for that, I apologize.

 

[Mukhang pera]

Because you started off with the assertion RE does not depreciate. It can, although maybe not in GTA or GVR over the longer term. There are many places of the country where RE in total (land plus building) becomes worth much less than one has paid for it in the first place. People have walked away from such real estate in any number of mining or forestry towns as an example, and from outports in NF. However, I see now I should have qualified how I responded and for that, I apologize.

But is that of which you speak truly an example of "depreciation"? Dictionary definitions (and the way the term was used when I worked as an accountant in another life) suggest that depreciation, in common parlance, refers to a reduction in the value of an asset with the passage of time, due in particular to wear and tear.

Yes, I am aware of real estate being abandoned, such as the townsite of Ocean Falls, up island from where I live. I have never really thought of what happened there as an example of depreciation, although essentially the whole place became worthless. I doubt the CRA sees depreciation in that light either. Take, for eg., a rental property. One may claim an allowance for depreciation for the improvements on the land, but I do not think the CRA accepts the cost of the land being written off over time. I suspect the reason for that is that it is widely regarded that buildings almost universally wear out and become devalued over time, but with land, not really.

It is perhaps a matter of semantics, but I continue to not see depreciation as a concept applying to land. Perhaps my accounting background is at fault. It see it as a term of art. Land can decline in value. That happens all the time. Usually, it recovers. But I think it rare for a 100-year-old house, that is regarded at at the end of its useful life and all agree it's a tear-down, to miraculously recover its value as is oft the case with land.

AltaR, I appreciate (not depreciate) your apology for the lack of a qualifier, whether required or not. And I apologize for ever having penned my initial post to this thread. Ill-advised indeed.

 

[Just a Guy]

I remember one time when I used to rent office space in a city owned building. City building are "tax-exempt" but I was considered a commercial business and thus subject to property tax in their opinion. Not only that, but they tried hitting me with a 60% BOMA rate because the building had too much common area and a good chunk of land as it sat on a huge parcel.

Needless to say, I appealed my property taxes and mentioned several things like I had no signage rights, no control over anything but my interior office, the building was not in proper repair, etc. I won my appeal. Part of that ruling included the part that the land had no value as it was city run (I did have to pay for my actual office space, but no boma and no land).

The city contacted me soon after, it appears their computer couldn't handle a zero value for land as they were ordered to do, so they had to adjust a land value to a non-zero amount and decrease he tax on my office space.

So, I'd say mukhang has a point, the government never considers land to have no value.

 

[kcowan]

I always thought that appraisals counted the land plus the cost of replacing the building. Then depreciation is applied to that construction number to account for older style finishing. I know that the land value has swamped the other calculations lately.

When we sold MILs townhouse in Richmond in 2008, the realtor said she had a buyer who wanted the older style finishing. She wanted to replace the shag carpets with her choice of flooring. I suppose the answer is "it depends..."

 

[lonewolf :)]

Can not really own real estate in Canada only rent it from the Canadian landlords.

Appreciation of real estate is not a sure thing. There was a time in history when gold was worth less US dollars 100 years latter from an historic high.

 

[Just a Guy]

Technically, now that you bring it up, I don't think Canada has any property rights to begin with. Even landlords and homeowners technically don't own land in Canada. Maybe mukhanng could clarify.

 

[Mukhang pera]

JAG is right.

When the Canadian Charter of Rights and Freedoms was being drafted and promulgated in 1982, property rights were deliberately excluded. One owning real property in Canada technically owns the freehold, but subject to superior rights of the Crown, including divestiture, in a variety of circumstances. It is not wholly unrealistic to say that, in Canada, no one truly owns land. Try not paying property tax and see how long you get to keep "your"land.

 

[Just a Guy]

It begs the question, if it's not our land why are we paying taxes on it? Isn't that the owner's responsibility?

 

[Mukhang pera]

It begs the question, if it's not our land why are we paying taxes on it? Isn't that the owner's responsibility?

Maybe we can organize a strike. All Canadian landowners stop paying property tax. But we must ALL agree and act together.

 

[Just a Guy]

Being a lawyer, I'd have thought you'd suggest a class action lawsuit. Just think 33%+ commission on all property taxes ever collected since 1982....