Last week, the BC Financial Services Authority (BCFSA) enacted a trio of amendments to the Province of British Columbia's Real Estate Development Marketing Act (REDMA), legislation governing the marketing of new development projects.
Previously, developers were allowed to begin early marketing of a development project before it had obtained final approval to construct the project, so long as the developer has received "approval in principle." But a new amendment to Policy Statement 5, which governs the early marketing of development projects, now more precisely defines "approval in principle" as the project having been granted a third reading by the municipality (or an equivalent stage, for those with a different process).
Changes also came to Policy Statement 6, which focuses on the financing commitments that are required for a project, including those associated with the cost of utilities and other services required for the development, before the developer can begin in the early marketing allowed under Policy Statement 5. The new amendment updates the existing definition of "satisfactory financing commitment" to clarify that developers have to obtain a commitment of funds from a lender that is not conditional on a certain amount of presale purchase agreements or a certain amount of sales value.
Additionally, new wording added to both Policy Statement 5 and 6 now specifies that when it comes to phased strata plans or multi-part strata plans, the policies "apply to each individual phase of a development property."
Requirements for the disclosure statement, governed under Policy Statement 13, were also amended, with the BCFSA saying the changes now "set out specific disclosure requirements for real estate securities offerings under REDMA and replace the real estate securities disclosure content previously contained in the BC Securities Commission's Form 45-906F."
All of these changes came following BCFSA's public consultations in fall 2022, where over 800 stakeholders were invited to participate and submit feedback. "The majority of the responses were supportive of the proposed amendments and their purpose, with no major issues identified," says the BCFSA. All of the above changes are effective as of Wednesday, March 8.
To make sense of what these changes will look like for developers, STOREYS spoke to Cameron McNeill, the Executive Director of MLA Canada, a Metro Vancouver-based real estate marketing and sales firm.
Can you provide a sense of how developers typically go about marketing their projects in terms of the timing? What is a standard marketing timeline for a project?
Prior to the policy amendment, developers were able to market and sell homes within a project at fourth reading/issuance of development permit. And they have 12 months from the commencement of sales (as defined by filing of a disclosure statement) to achieve a building permit and construction financing, which would allow for construction to begin. The new amendment still respects the 12 months window.
How is "marketing" defined? What is allowed and what isn't?
Marketing in this case is defined as having filed the disclosure statement, actively seeking sales contracts, and quoting specific prices for homes. This is not to be confused with early promotional efforts where a developer is attempting to generate awareness and interest in a project.
How do you think developers feel about the change?
MLA has spoken to many developers and most welcome the policy amendment. It is possible that the update could shorten the lifecycle of a development by some months as sales could potentially commence some four, six, or eight months earlier in the process.
What kind of difference does it make for developers, financially?
Developers typically require a large portion of a project to be sold prior to obtaining construction financing and the commencement of construction. This can be 50% to 70% of the project needing to be "pre-sold."
In most municipalities developers are required to pay huge municipal CAC's / DCC's in order to receive a development permit. Therefore, previously, a developer would pay this fee, often in the millions of dollars, without yet knowing how the project was going to be received in the marketplace. This added another layer of risk and financial exposure. With these changes, the fees still need to be paid to the municipality at issuance of a development permit. However, the developer can commence sales and attempt to satisfy the requirements for construction financing prior to these fees being paid.
Nevertheless, there are some potential pitfalls to be aware of. Developers must have a very accurate estimate of all development costs and construction costs prior to sales, but it may be difficult to estimate these costs at the time of the third reading. And secondly, it takes significant coordinated effort of the developer, consultants, and the municipality to work through all the details from the third reading through to the development permit stage, so there is some risk that a project may not be able to achieve a building permit within the 12 month allowable window.
What about for marketing and sales firms such as MLA Canada? What does this change for you guys?
For MLA Canada, we continue to work closely with our partners to deliver new housing supply into the marketplace. This amendment certainly is positive as it provides some timeline flexibility or potentially moves up the sales timeline for a project by a few months. Ultimately, unless the market conditions and costs to build and deliver a project make economic sense, then a project will not move forward.
The Policy Statement 6 amendment involves securing lenders, which has obviously gotten tougher in the past year. Does the updated definition of "satisfactory financing commitment" make securing project funding easier or harder for developers?
Construction lenders are generally very conservative and strict in their underwriting requirements. And in the past 12 months this has become increasingly difficult. Going forward, developers will still be required to show strong sales support and have an accurate budget of all construction and development costs,[but] we do not see financing underwriting becoming any more lenient.
What do you think was the rationale behind this amendment?
The Provincial Government is looking for ways to help the development community increase the supply of housing. This amendment serves to give more flexibility at a critical stage, yet will unlikely reduce the cost of housing or add additional supply. Ultimately, all levels of governments need to figure out ways to expedite the cumbersome and uncertain approval process, encourage increased density, and encourage all forms of housing construction and ownership.
Do the Policy Statement 5 and 6 amendments change anything for consumers, either directly or indirectly?
These changes really don't have a significant impact [on] consumers. Buyer interests will still be protected and the timeline for project completion (from sales date to delivery date) should remain the same, [but] it will be years before we can see if this actually reduces the cost of housing in any meaningful way.
Responses have been edited for length and clarity.