So this weekend we learned that condos are bizarre and pretty much guaranteed to cause problems in the longrun, when maintenance bills skyrocket, the buildings are out of date, and the land beneath them appreciates, but you can’t redevelop the property because all the owners will never agree.
You guys posted some great comments, but I wanted to highlight a few.
This weekend we learned that Singapore has a method called “en bloc” redevelopment, whereby a condo building can be sold in its entirety to a single developer, with the idea that he’ll soon tear it down, if 90 (now 80) percent of the building agrees. Canada, on the other hand, is just starting to deal with the issue, but so far the only option for redevelopment is going to court – much messier compared to how it’s done in Singapore.
And today, Japan and Israel! Turns out they’re dealing with the issue of aging condos pretty much the same way as Singapore.
First comes Philip Brasor’s comment about Japan. Philip has a great blog and writes a column for the Japan Times about real estate in the country. In his comment he sums up a JT article he wrote on the topic which covers pretty much everything you wanna know about redeveloping condos in Japan:
The problem is that many of the condos built in the 60s and 70s are now quite old, and unlike in the West, where it’s expected that property values will always increase over time, many in Japan are not worth much of anything unless they’re in the center of major cities. Until 2002, there was no specific law dealing with redevelopment of resident-owned condominium buildings, so if residents wanted to tear their building down and put up something new they had to gain 100% approval in accordance with the Civil Code.
But in 2002 the government passed a law allowing for redevelopment if four-fifths of the owners approved. Some believe the law was pushed by the construction and real estate industries to spur more development. As pointed out in the Market Urbanism article, Asians seem to prefer new buildings, and in Japan there is virtually no incentive to buy used condos. Though there have only been about 160 such redevelopment projects carried out on old condo buildings in Japan, the number may increase as more buildings become superannuated.
Israel is much more densely populated that the US but is not as dense as Singapore. Israeli urban areas mainly consist of 3-4 story condo buildings constructed as far back as the 1930s. Recently an “en bloc” type law was passed (called “pinui-binui”, i.e. evacuation-building) requiring just 75% of owners to agree in order for a building to be destroyed and a new, taller building built on the site. I think all original owners are guaranteed ownership of a unit in the new development once it is finished. This has been used to replace many decaying buildings in central areas which where wholly unsuited for the current high property value of the site.
Here’s Levin Law Offices, an Israel real estate law firm, explaining “pinui binui” in further detail:
“Pinui Binui” projects are ones in which apartment owners are temporarily evacuated from their apartments, so that the buildings may be demolished and rebuilt. The owners then return to new apartments in the new building. The contractor pays all costs for demolition, construction, relocating apartment owners and renting their temporary homes during construction. In exchange, the contractor adds new apartments in the building which he can sell in order to make his profit. As with “Tama 38”, the value of the apartments in the building is increased and the owners receive a new, larger and safer apartment than what they previously had. This beautifies the city and adds more apartments to the market.
I suppose it’s only a matter of time before something similar comes to Canada – judicial resolution doesn’t seem like it would scale very well – and eventually the US. The Singapore en bloc method (of just giving you cash) seems much more efficient than the Israeli method (where they have to give you an apartment and pay for you to stay somewhere in the meantime).