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Real Property: Description and Context in Canada

Description

According to the Federal Real Property and Federal Immovables Act, real property is lands, including mines and minerals, and buildings, structures, improvements, and other fixtures on, above, or below the surface of the land and includes an interest therein. The Act has application within and outside Canada (e.g., embassy lands and buildings). In the Province of Quebec, real property is referred to as an "immovable."

Real property is often referred to informally as "realty" or as real property "assets." It is clear that mines, minerals, buildings, land, and so on are assets that have value that can be quantified. Proper management of these assets is therefore as important as the proper management of other resources, including financial, that are administered by the federal government in the service of all Canadians.

For the purpose of Treasury Board policy and consequently this guide, consistent with the legislation just described, "real property" refers to any right, interest, or benefit in land, which includes mines, minerals, and improvements on, above, or below the surface of the land.

However, unlike the legal framework, the policy framework and this guide consider that any real property under a minister's administration or real property used by a tenant should be subject to the same management objectives and principles. The legal interest in the land, for policy purposes, is not the determinant factor in its stewardship.

Federal real property holdings

In Canada, the provincial and federal Crown holds 89 per cent of all land. Land management is primarily a provincial responsibility, with federal responsibility limited to lands required for Government of Canada operations and to public domain lands such as the territories, certain offshore interests, and land held under the Indian Act. Federal and provincial governments are responsible for lands under their respective jurisdictions and are generally not subject to each other's authority. This constitutional exclusion has required the federal Crown to self-regulate lands under its administration and control through a variety of statutes, regulations, and policies. Canada's federal real property inventory is extremely diverse. It encompasses a variety of real property types, including land, buildings, bridges, marine navigation equipment, wharves, and monuments, among many others. For more information on the administration of various categories of federal real property, see the guide titled Understanding Federal Real Property Management. This document provides a comprehensive overview of the federal real property management regimes. In addition, the Directory of Federal Real Property, the central record and only complete listing of real property holdings of the Government of Canada, provides easy access to maps of and information on federal real property. 2.3 Federal government structure The Treasury Board, the Treasury Board of Canada Secretariat, federal departments, and common service agencies are the key structural components of the management regime for departmental real property. Departmental real property is the realty assets required by departments to carry out the Government of Canada's day-to-day operations. For the purpose of Treasury Board policy and this guide, a department is defined as in section 2 of the Financial Administration Act and includes agencies. 2.3.1 Treasury Board The Financial Administration Act (FAA) authorizes the Treasury Board to act on all matters relating to the management and development of lands by departments, other than Canada Lands as defined in the Canada Lands Surveys Act. The president of the Treasury Board is the designated member of Cabinet responsible for departmental real property and as such is the individual who speaks for the federal government on issues of corporate interest that cross departmental lines. While departments retain authority over real property required for departmental programs, the president is seen as a focal point for the coordination of departmental activities relating to specific real property issues. A key element of the Treasury Board's role is the review and approval of departmental investment plans, including assessment of the performance and cost of assets and acquired services from government-wide, horizontal, portfolio, departmental, and program perspectives. 2.3.2 Treasury Board of Canada Secretariat The Secretariat is responsible for providing appropriate policies, directives, tools, and guidance necessary to support the government's policy direction and government-wide learning relating to real property and other administrative matters. The Secretariat monitors the implementation of Treasury Board policies in and across departments. It also performs a community leadership role by sharing information and fostering best practices. The Treasury Board of Canada Secretariat's Assets and Acquired Services Directorate provides leadership for the overall management of departmental assets and acquired services. This involves giving direction, guidance, and advice to departments on investment planning, managing procurements, the management of real property and projects, fire protection, materiel management, and the provision of common services. Aside from the relevant policy instruments under the Assets and Acquired Services policy framework, managers also have to be aware of and compliant with related Treasury Board policies in the areas of financial management, official languages, and occupational health and safety, to name a few. The aim of the ensemble of policy instruments related to the management of real property is to ensure that real property supports the economic, effective, and efficient delivery of government programs through ethical, transparent, and sustainable life cycle management. The Directorate also has responsibility for maintaining two data banks: the Directory of Federal Real Property (DFRP) that holds data on over 26,000 owned and leased federal properties across the country—its purpose is to maintain a contemporary record of basic information concerning the real property holdings of the Government of Canada; the Directory provides useful information to ministers, members of Parliament, and the general public concerning a specific property, or group of properties, within a particular geographic area. The Federal Contaminated Sites Inventory (FCSI) that contains information on all known or suspected contaminated sites, their location, and how they are being managed. Information in the FCSI forms the basis for reporting in the Public Accounts of Canada on the government's liabilities related to the contaminated sites. It also supports reporting on the implementation of the Federal Contaminated Sites Action Plan and government-wide progress in managing known contaminated sites, including remediation. Both the DFRP and the FCSI provide useful information to parliamentarians, the media, and the general public concerning federal real property, as well as known or suspected contaminated sites for which departments and consolidated Crown corporations assume partial or full responsibility. 2.3.3 Departments Under the Federal Real Property and Federal Immovables Act, administration of real property is assigned to individual ministers for the use of their departments, which are viewed as custodians. Deputy heads are accountable to their respective ministers and to the Treasury Board for the management of realty assets and acquired services in their departments. A department can be a custodian of either Crown-owned property, property in which the Crown has a leasehold (or other legal interest), or property it uses for program purposes by other means, such as a licence. A department can also be a tenant of another government department with responsibilities for the space it occupies. There are several custodian departments that have other departments as tenants; however, Public Works and Government Services Canada, under its office accommodation program, and Foreign Affairs and International Trade Canada, under its diplomatic and consular programs, administer the vast majority of tenant arrangements. Whether custodian or tenant, the deputy head of departments using real property are responsible for managing real property in accordance with Treasury Board policy direction. While the Treasury Board of Canada Secretariat oversees government-wide management performance, deputy heads are responsible for tracking and reporting on departmental performance and compliance for the management of real property. 2.3.4 Common service organizations Common service organizations provide services to departments that support the effective management of real property. These organizations are responsible for contributing to the achievement of value for money for Canadians by providing professional services that are responsive to the needs of client departments in the most cost-effective way possible. 2.4 Parliamentary context In addition to the oversight provided by the Treasury Board within the government itself, officers of the Parliament of Canada such as the Auditor General of Canada, the Information Commissioner, and the Commissioner of Official Languages provide review functions that are reported upon directly to Parliament. Committees of Parliament have roles that include oversight but extend as well to a review of the adequacy of government laws, programs, and policies. For example, the House of Commons Standing Committee on Public Accounts focusses on the economy, efficiency, and effectiveness of government administration, as well as the quality of administrative practices in the delivery of federal programs and the government's accountability to Parliament with regard to federal spending. 2.5 Highlights of this section As a valuable asset that enables the delivery of federal programs and benefits to Canadians, real property must be carefully managed to protect its value. The management of departmental real property is achieved within a government structure that features the Treasury Board, the Treasury Board of Canada Secretariat, custodian and tenant departments, and common service organizations as key components. Treasury Board ministers, in their role of establishing a government-wide system of management and control for federal assets, have a particular interest in the effective stewardship of real property and are supported by the Treasury Board of Canada Secretariat for this purpose. While ministers have legal administration of real property, how deputy heads of departments manage valuable realty assets is guided by laws and by policies established by the Treasury Board and administered by its Secretariat. In addition to oversight of real property administration and management by the Government of Canada, through ministers of the Treasury Board supported by the Treasury Board of Canada Secretariat, parliamentary oversight is provided by agents of Parliament and by parliamentarians through the committee system of the House of Commons. 3. Objectives and Principles of Real Property Management It is impossible to fully understand policy direction with respect to the management of real property without reference to the fundamental notion that the government exists to serve the public. Serving the public means addressing the needs and expectations of citizens, clients, and taxpayers in a balanced way. The concepts in this section build on key objectives and management principles outlined in the Policy Framework for the Management of Assets and Acquired Services. The Framework consists of three major components: the public, the government, and departmental real property. The public represents Canadians, defined as citizens, clients, and taxpayers, as well as their needs and expectations. Public needs and expectations are extremely diverse and often conflicting; they range from safety and security concerns, preservation of democratic values and our heritage to the amount of time citizens are willing to wait for service. The needs and expectations of Canadians find their way to the Government of Canada’s overarching goals and priorities. For implementation purposes, these goals and priorities are in turn translated into government programs, as well as management and administrative policies. In this context, the role of government departments can be seen as delivering programs and services in a manner that respects government policy direction. In their basic form, the principles and objectives contained in Treasury Board policies fall into one of two broad categories or types: those concerned with how efficiently real property is managed in support of departmental programs—they include such management constructs as for example the value-for-money principle, life cycle costing, a portfolio-based approach, and the integration of real property management and planning with broader departmental management and planning frameworks; and those whose primary focus is on government objectives such as security, health and safety, environmental protection, heritage conservation, accessibility, and Aboriginal matters that relate to public interests that are broader than departmental program objectives. The management of real property is therefore very much a balancing act. It requires departments to fulfil program objectives while balancing financial and efficiency-related asset considerations with broader public interest considerations. This may and in fact often does create tensions. These tensions are inevitable in that they reflect existing pressures within the public sphere, where the interests of taxpayers do not necessarily align with those of clients and/or citizens. The current real property policy direction is premised on departments managing real property in support of efficient and effective program and service delivery. While supporting programs and services, real property must be managed in a manner that achieves value for money and demonstrates sound stewardship. In this context, high-level objectives of federal real property management can be summarized as follows: supporting programs; achieving value for money and demonstrating sound stewardship; and fulfilling other government objectives. 3.1 Supporting programs Departments hold and use real property only to support their department’s program objectives. This fundamental notion and underlying assumption forms the basis for the real property management regime and applies to every stage of real property life cycle management. Accordingly, departments: acquire or occupy real property only if it is required to support the achievement of departmental objectives; maintain real property in a state that does not jeopardize their capacity to deliver programs and services; and dispose of or vacate real property that no longer fulfils program objectives. 3.2 Value for money and sound stewardship To achieve best value for Canadians, departments have to exercise due diligence in managing their real property assets, having regard for the principle of value for money. Key elements of sound stewardship and value for money in the management of real property include: a life cycle management approach reflecting the whole life cost of real property; integration of real property investment strategies with department-wide decision making, and strategic management and planning; a portfolio management approach to achieve efficiencies from a program and management perspective; effective governance, involving clear delegations of authority based on need, capacity, and a supporting regime of accountabilities and responsibilities; performance information and reporting; and risk management. The three main elements of achieving value for money are economy, efficiency, and effectiveness.
3.2.1 Life cycle management

The inherent feature of real property that distinguishes it from other asset types is its extended lifespan, which can reach a few decades and in some instances, such as in the case of heritage buildings, even a few centuries.
Traditionally, the physical life cycle of real property has been divided into three distinct phases: acquisition; use and operation; and disposal. For management purposes, however, a fourth phase is added: investment planning, which is a continuous process wherein the information outputs from each of the other three phases are used as inputs to planning. Investment planning processes thus apply during all other phases in the real property management life cycle. In addition, managing effectively requires that an appropriate level of management oversight and control be maintained through all phases in the property life cycle. Monitoring and reporting, while not associated with an asset's physical life, are key management functions to achieve continuous improvement.

10 tips for getting started in property investment

When it comes to building a retirement nest egg for the future, property is still regarded as one of the safest long-term investments.

While some investors may want to buy a property and rent it out straight away, others may choose to live in the home while they renovate it. Investing in bricks and mortar can be a great way to create wealth, but there are some golden rules to consider before taking the plunge into property investment

1. Know your budget
Before investing in property it’s vital to have a thorough understanding of your cash flow. Also, ask your bank for a pre-approval of your investment loan, so you know how much you’re able to borrow before you start hunting for properties.

2. Don’t underestimate ongoing costs
Make sure you budget enough for rates, insurance and general repairs. And when you have purchased your ideal investment property do what you can to prevent costly maintenance issues arising, such as replace ageing taps.

3. Buy in a growth area
Try to choose an investment property in an area where there is strong demand for rental accommodation. Buying a property close to transport, universities and schools will make it more attractive to renters.

4. Be realistic about your investment goals
Are you looking for fast capital growth or wanting to hold the property long-term? During boom periods, it’s much easier to renovate properties and turn them over for a quick profit. In slower economic times, it may take many years to achieve the same growth. While a home on a steep block may have a stunning view, it could be a nightmare to renovate due to retaining or excavation costs

5. Build sweat equity
Paying tradesmen to renovate your investment property is costly. If you’re prepared to get your hands dirty you can save money and increase your profit margin by doing the work yourself.

6. Look for liveable not luxury Remember a rental property only has to be clean and functional. Don’t get sucked into buying a property simply because it has a stylish interior. 7. Buy with your head not your heart When house hunting it’s very easy to get caught up in emotions. While a home on a steep block may have a stunning view, it could be a nightmare to renovate due to retaining or excavation costs. Be sure you weigh up the pros and cons. investment2

8. Think carefully before negative gearing
If your repayments on the investment loan won’t be fully covered by the rent, your property will be negatively geared. While this can have tax advantages, it can also lead to financial stress if you don’t have enough cash flow to cover the loan repayments, rates or body corporate fees, so consider your budget carefully before buying

9. Still paying off your own home?
It isn’t necessary to have your own home fully paid off before buying an investment property, however it is important to be comfortable with your current debt levels. Ideally you’d want to have a large portion of your own home paid off and other debts, such as credit cards, under control.
10. Get a building inspection
Before signing a purchase contract, take the time to understand the building report to avoid expensive repairs down the track. Termites are one potential problem to watch out for.
Common mistakes to avoid when investing for the first time
Everyone wants to be a property investor, but the reality is you need to be informed, crunch the numbers and stay calm before taking the leap.
Here are some key mistakes people make when investing in property for the first time:
jump right in, before doing thorough due diligence
make decisions based on emotions not facts
borrow to their limit and don’t consider future changes in the lending market take too much risk; for example, they take out interest-only loans with no safety buffer
choose the wrong location or asset
rely on rental income to pay expenses
don’t all the possible tax deductions
don’t think about the long-term strategy.

 

Tony Rigby, The author

*AMP financial planner Tony Rigby is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.
Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.