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The Ups and Downs of Prince George Property Values

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Now that most of us have had a chance to look at our yearly property assessment values, provided to us by the British Columbia Assessment Authority, let’s take a look at the possible positive and negative consequences that may result. 

The first thought most people, including business owners, have when they encounter an increase in their assessed property value, is that their property taxes are going to increase. While the potential of tax increases is almost a certainty, the key issues are two fold. 

First, property owners need to consider whether the increase in taxes is actually reflective of what has happened in the economy of Prince George. Such as, is the inflation rate and the percentage of tax increases comparable? If the tax increase is larger then the rate of inflation, there must be an explanation for this. While your property taxes have two main components, one controlled by the City of Prince George and the other by the Province of British Columbia, you need to be aware of just who is increasing the property tax rates and by how much. As a side note, school taxes fall under the Province while the municipal tax component falls under the City. 

Unfortunately we seem to live in an era where politicians believe tax increases need to be at least the same as the inflation rate. However, a better measure may actually be whether the tax payer has seen an increase in services. Increasing taxes just to keep up with inflation is not an acceptable explanation. It is however at the root of the self-fulfilling prophesy which influences inflation rates.

The second issue revolves around paying your fair share of taxes as a business owner. While our society is based on a democratic process backed up by taxation, businesses are required to pay taxes but don’t have a vote. Unfortunately this means they are easy prey when it comes to paying to keep our beloved democratic process functioning. 

My suggestion is that you compare your taxes and assessments from last year to this year to ensure you are not paying more for the same services. If you are, there must be a reason. It could be that your business property is located in an area of Prince George that has seen growth and development. In this case, your accountant should be congratulating you on the significant increase in sales compared to last year. Also, if you find that your assessment has increased more than the average, this could be an indication that your business property is ripe for selling. Obviously, as previously mentioned, you are located in a very marketable area and if you are thinking of retiring or selling, this is a great time to do so. 

However, if your property isn’t located in an area that is seeing increasing growth or development, or your sales volumes haven’t seen an increase, then you may want to question why your property assessment has seen an increase, and why your taxes also increased. What this means is that you are paying for a larger piece of the pie without seeing any of the benefits. You need to be prepared to ask why you are paying more.

Of course, some good news does come out of these higher assessment values. Namely, you now have new equity in your business property. This is positive for a couple of reasons, especially if you are working with a financial institution. 

First of all, you may be able to leverage this equity into a new loan, line of credit, mortgage, or better rates for existing borrowing. Financial institutions always prefer to use either cash or mortgage-backed security to secure loans and credit lines. This type of security is also likely to get you the lowest possible interest rate. For example, if you have a credit line which must be margined on a monthly basis, either using inventory or receivables, or both, this equity can be borrowed against or can replace or reduce the margined items. 

The other issue relating to this topic is the increase in equity your business is now seeing. With the increase in equity you will now realize an improving debt to equity ratio, with all other items being equal. Of course your financial institution may want you to have an independent appraisal. However, they will likely look at your business in a more positive light seeing that the equity in your property has increased by 10 to 20%.

While all the media attention around this issue seems to get everyone in the City excited, you need to be cautious. This is the first time in a number of years that Prince George property values have seen a significant increase. We can certainly say that this is a reflection of the growing economy in this city and region. However, what we actually need to see is a steady increase over a number of years, such as a rate of 5% per year. This would signal that Prince George is experiencing a growing, healthy and stable economy. Unfortunately, sharp property value increases such as we have seen this previous year is an indicator of a boom and bust economy, something we hope Prince George has moved beyond. 

-Myron Gordon owns TMSG Management Services Group, which provides management and financial services to growing businesses.



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