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“You may not realize it when it happens, but a kick in the teeth can be the best thing in the world for you.” -Walt Disney

  • Inflation Thru Cheap Money Settles Results In Higher Real Estate Prices Everywhere … It Goes To The Rich Money … To The Rest Of Us Later …
  • Interest Rates
  • Other US Real Estate News
  • Get Ready For The Big Housing Rally?
  • Chinese Buyers: Expect ‘Quantum Leap’ Forward
  • China Buyers Discovering BC Recreation Market
  • Why Is Boardwalk Pulling Out Of BC? Hard To Make A Return Here?
  • Poet Cove Apparently Sold
  • Eyebrow Raiser
  • Late News
  • Plots Of The Week
  • Best Mortgages Rates

I N T E R N A T I O N A L: Chinese Buyers Flock To Victoria

Well, surprised? You should be, if it were our Victoria but it is in Australia where there is much turmoil about Chinese buying. Writes the Herald:


“Is it racist – or merely realistic – to talk about the influx of Chinese property buyers in Victoria? There is no doubt that Chinese property buyers
are flocking to suburbs such as Balwyn, Balwyn North, Glen Waverley, Doncaster, Box Hill and Ashburton.
There is plenty of evidence to show the tree-lined streets, big blocks, older houses and good schools in such areas are a huge draw for cashed-up
foreigners.”

I
like the word “cashed-up”. Certainly we have our own “cashed-up” foreign buyers here. Writes Ms. O’Brien in the HERALD SUN: “But not all of these property buyers want to live here; for many, our suburbs are little more than investment opportunities, not a place to live. I
live in one of the most affected areas and I see Chinese buyers with unlimited chequebooks trumping locals at auctions time after time. It is primarily
why prices in my suburb have gone up 48 per cent in the past 12 months.”


(In Australia most properties are sold via auction.) 48 PERCENT?!

Major Point:
Australia has foreign investment restrictions. Amazing how buyers can get around these. This points perhaps to Canada as well. JREI remains of the view
that there will be some form of foreign investment restriction/taxation – but if Australia is any example … rules can be circumvented. Oh and by the
way, we hear that our government will re-new the Investor program it cancelled last month as early as this fall … in a new revised (say money making)
format. Ok, I’ m going to revisit learning to speak Mandarin. (I did once before and failed … alas.)

Inflation Thru Cheap Money Settles Results In Higher Real Estate Prices Everywhere… It Goes To The Rich Money … To The Rest Of Us Later …

1. LONDON REMAINS ON FIRE

Foreign buyers are snapping up central London homes, distorting prices and forcing policymakers to levy new taxes in an attempt to control the
market. London real estate is among the most desirable in the world, attracting wealthy investors looking for high returns – often at the expense of city
natives who are being priced out of many
neighborhoods. Foreign money so dominates that nearly 70% of newly built properties in prime areas of central London were bought by foreign nationals
between 2011 and 2013.

2. CHINESE BUYERS IN HONG KONG BUY US, BRITISH AND VANCOUVER REAL ESTATE SIGHT UNSEEN

Why Chinese are buying U.S. real estate? According to CNN
130 to 140 potential investors come through the doors on a typical weekend at the Mandarin. The would-be buyers are met with floor plans, view books with
glossy images of Buckingham Palace, as well as a sizable supply of dim sum, croissants and coffee. Buying at the Mandarin is a full-service experience. As
a deal is signed, investors can meet with lawyers or discuss furniture options with interior designers.

Some investors hope to rent out the property to tenants. Others buy for their children studying at boarding schools and universities across the UK. Most
sign up for developments that won’t be completed for years.

3. Like in Canada,

Rich Chinese overwhelm U.S. visa program

Some developers fear the appetite for London properties
may slow as the government prepares to tax future investment gains made by non-residents. Currently, only UK residents are subject to capital gains tax on their second homes – a tax that is usually levied at 28%.


The capital gains tax change, due to take effect in April 2015, will require overseas buyers to surrender some of the profits they make on UK property.
(A measure we have been predicting for Canada.)

Some foreign buyers will be affected by another tax change.

From this month, the government is applying stamp duty at a rate of 15% to any purchase of residential property worth 500,000 pounds or more made
through a company.

And pressure is building for measures to prevent foreign investors being offered first refusal on prime London real estate. The city’s
mayor has urged developers to stop marketing new homes to overseas buyers before they’ve been made available to Londoners.

4. Vancouver
is also being bought in Hong Kong – long distance. See below.

Major Point:
Years ago we argued that the money ‘created out of thin air’ would go to the rich first, who then bought resorts in Marabella, Spain or Whistler and Aspen
and then all of us would get the cheap easy money too. It’s happening again … brace for an increase in values in major Canadian cities again!

Interest Rates

The new FED chairman scared market with her new interest rate outlook. The effect was moderate in the general market but real estate stocks reacted
immediately – as in down. Especially the press conference of Janet Yellen is what sent stocks lower and the banks
higher.

To be specific, when the Fed discusses the topic of “raising interest rates” it is referring to the Federal Funds Rate, which is the interest rate at
which institutions lend funds maintained at the Federal Reserve to other institutions. The Federal Funds Rate is often looked at as a benchmark for
other interest rates and has a profound influence on overall economic activity as its level can either help to stimulate the economy or control
inflationary pressures.

Within its economic projections, the Fed sees a higher Fed Funds Rate
in 2015. Once the Fed begins to raise interest rates they are likely to use the 2004-2006 timeframe as a blueprint for the tightening program. During this
previous time period, the Rate was gradually

raised on 17 different occasions over a three-year time period – specifically from July 2004 – June 2006, in equal increments of 25 Basis Points (i.e.
0.25%) each time.

However, even if the Fed does not begin to raise interest rates until 2015, that does not mean that bond yields cannot further increase in 2014. (Long-term mortgage rates are tied to bond rates.) During last year it was clear how
yields can rise when the perception of rising interest rates change – even though the Fed actually did not take any action with respect to the tapering or raising interest rates in 2013. In fact, yields on 10-year
U.S. Treasuries went from 1.66% on May 2, 2013 to 3.04% on December 31, 2013 – a relative increase of over 45%. The realization that the party is finally
going to end for free money served as a wakeup call to investors. In any case, we can see how vulnerable we can be with even the slightest hint of higher
interest rates. Stay vigilant. This week in Canada interest rates actually headed lower with the best 4-year rate clocking in at 2.84% and the best 5-year
rate at 3.09% – still life time lows.

Major Point: So, stay clearly and firmly pre-approved if you are a buyer and make sure you have financing available when it comes time to renew.
Investors are not the favorite clients of financial institutions right now, which will put all sorts of nasty roadblocks in your way. Start your renewal
process early!

Other US Real Estate News

February Housing Starts
data did not impress (http://www.census.gov/construction/nrc/) but permit issuance for new
construction did pick up. Starts ran at an annual pace of 907,000 short of expectations (weather?) but permits improved to a rate of 1.018 million from
945,000 in January.

Major Point:
In the markets we picked in The US we anticipate the spring selling season to be strong. It will be partly fueled by the impact of a harsh winter and
partly on the continued recovery. We remain buyers in Phoenix and Houston and still like Austin, Seattle and Las Vegas.

C A N A D A: Get Ready For The Big Housing Rally?

The stodgy Conference Board of Canada says that there is no housing bubble and that even Toronto and Vancouver have nothing to fear. Well,
I did not fear ONE but if the CBoC says do not fear … I worry!

Ok, it is true. B.C. is recovering (strongly in the Lower Mainland not so strong in rest of BC). There is plenty of evidence in Metro
Vancouver. As we reported two weeks ago MLS housing sales in February were up 40% from a year ago (although still behind February 2011 by over 500 sales);
detached sales are up 46% and condo apartment sales up 36%. Prices are also up from a year ago and there is some news of bidding wars, even on the
Eastside.

Fraser Valley
sales are up 21% from a year and prices have edged up about 3.5%.

Then look at Kelowna. Some scoffed when we called a rally there last month, but the Central Okanagan has suddenly caught
fire.

For five years, the average price of detached house in Kelowna was around $440,000. But in February the average price jumped to $554,700, up 30% from a
year earlier and well above the peak price of $552,000 in April of 2008. Overall MLS sales are up 16.5% from February 2013. Why? Well,
eight homes sold last month for more than $1 million each and there was also substantial sales of homes priced above $600,000, some of which had been on
the market for months.

There are plenty of good deals in the Kelowna. You can still find family homes with lake views for under $600,000, including MLS 10073857, a three-bedroom
on bare land strata on a golf course with lake views for $509,000. This week we found 66 detached houses, all freehold, priced between $425,000 and
$500,000.

The average for condominiums is $227,000, up 9% from February 2013. Townhouses averaged $412,800, up 18% from the same month a year ago.

For the record, here is the Conference Board of Canada’s take on where the housing market is now:

  • Even when mortgage rates do start rising, the Conference Board believes it will happen gradually. It forecasts
    rates with only a gain of 200 basis points – 2% by 2017 or 2018. But at current low rates, the typical homeowner on a posted five-year rate will have paid
    down $42,104 principal on a $100,000 in mortgage debt, so affordability won’t be seriously impacted once it comes time to renew at a higher rate.

The Conference Board’s outlook on six major cities:

  • Vancouver: Moved back into balance last spring. Recent price gains will give way to slower advances in 2014.

  • Calgary: Approaching sellers’ conditions, noting strong price gains last year.
  • Edmonton: Balanced, with brisk resale and price growth activity last year.
  • Toronto: Balanced with healthy price growth. A major correction is difficult to see given solid employment and population growth.
  • Ottawa: Market cooling due to falling employment from the government sector, flatter sales and tempered prices.
  • Montreal: Flirting with buyer’s market conditions with sales and average prices having dropped somewhat last year.
  • Major Point: Our take is that Vancouver, Calgary, Edmonton and Toronto are the places to buy right now. In Ottawa, look for rental units. Stay far away from Montreal.

    Chinese Buyers: Expect ‘Quantum Leap’ Forward

    We believe Chinese home buyers will increase in the Vancouver and Toronto markets this year for a couple of reasons: to escape slumping real estate markets
    in mainland China and Hong Kong; and a desire to invest in strong secondary markets around the world that, so far, have no restrictions on foreign investors.

    As we reported last week, a buyer with a Chinese name paid the equivalent of $24 million per acre for a .67 acre lot at Cambie Street in January. Expect to
    hear more of these stories and when you do, keep in mind that the average price for a new Hong Kong condo is around CAN$1,700 per square foot.

    Colliers International’s
    Hong Kong office is seeing an outflow of Chinese investment money heading into the US and the U.K. and Australia, primarily this year.
    Colliers CEO Piers Brunner said investors are being pushed out by ” the likelihood that the governments of Hong Kong and Singapore will keep existing local real estate cooling measures in place this year.”

    The pull factor are the

    “higher yields available in the prime gateway cities of the U.S., Europe and Australia, the growth potential of property there, and the high level of
    transparency.”

    Last year, Chinese investors spent $9 billion in foreign real estate markets and Colliers is forecasting “we’ll see a quantum leap in real estate purchases by Chinese buyers in 2014″ with much of the money aimed at secondary markets.

    Major Point: Chinese investors are moving beyond residential. They are buying commercial properties, hotels, apartment buildings and even looking at redevelopment
    real estate projects.

    While London, Manhattan and Sydney will lead the next wave of investment this year, we expect Vancouver will see a dramatic increase in Chinese
    investors in 2014 as well.


    So, if you wish to play with them … go put your money down in BIG houses, in the BEST areas. Also do not buy houses with house numbers ending in
    4 … but DO buy anything with an 8 . RE-read the article on our website on FENG SHUI and Real Estate investment – particularly if you are a
    builder/renovator/developer.

    China Buyers Discovering BC Recreation Market

    The recent sale of the Sechelt Golf and Country Club on the Sunshine Coast; the $2.5 million sale of 43-acre Fox Island off the Sunshine
    Coast and the sale of the 156-acre equestrian farm in Langley for $5.5 million all have one thing in common: they were purchased by buyers from Mainland
    China.

    “This is rare,” said Mark Lester, senior vice-president of Jones Lang LaSalle Real Estate, considered the dominant commercial real estate
    agency in the Asia Pacific. The rarity factor is Chinese buyers purchasing recreational property in BC, but Lester sees it is a “maturing
    of investments by China buyers, who have moved beyond residential into commercial real estate and now into the recreational market. He sees recreational
    development as a likely next step. In Sechelt, the Chinese-backed numbered company (0993104BC Ltd) that bought the Sechelt golf course has
    submitted a bid to build a 15-unit hotel on the site; and a Chinese company is proceeding with construction of a $50 million hotel in downtown Nanaimo,
    which is to cater to the growing number of Chinese tourists.

    Lester, who chaired a Vancouver real estate forum this week on Chinese investment into B.C. agreed with panel speakers that the end of the immigrant
    investor program will have a near zero effect on Chinese real estate investments. “Vancouver will remain a preferred destination,” Lester said, “and we are now seeing a diversification of that investment.”

    Why Is Boardwalk Pulling Out Of BC? Hard To Make A Return Here?

    Boardwalk Real Estate Investment Trust
    has accepted an offer for its B.C. apartment building portfolio of three high-rise concrete buildings in Burnaby and Surrey – at total of more than 633
    rental units – according to two separate sources.

    Boardwalk officials did not confirm a sale is in the works, but Bill Chidley, the company’s senior vice-president, development, said
    earlier that Boardwalk plans to sell some of its assets and buy back its shares. Boardwalk unit shares are selling for $59, down from $66 at the recent
    peak in early 2013.

    The Boardwalk sale would represent the largest multi-family transactions in metro Vancouver in the past year. Based on current valuations of suburban
    concrete rental buildings -$185,000 per unit – the Boardwalk portfolio could sell for more than $100 million.

    Last year there were 100 apartment building sales in Metro Vancouver, worth a total of $549 million, according to Commercial Edge of the Real Estate Board of Greater Vancouver.

    Boardwalk is based in Calgary and the company’s outlook for B.C. gives an indication of why they may be selling in BC and buying in other western provinces
    that do not have rent controls. Basically, Boardwalk sees better economic and job growth in Alberta and Saskatchewan than in B.C. Also, it expects
    migration into British Columbia to total 41,300 in 2014, while Alberta will welcome 68,100.

    Other reasons why now may be good times to sell apartment buildings in Metro Vancouver include extremely high prices and very low capitalization rates and
    increased competition from new rental buildings. There are now more than 3,300 rental units awaiting permit approvals in the City of Vancouver alone, according to a survey by Mark Goodman of HQ Commercial.

    As an aside, renting in Vancouver is an increasingly attractive option.

    Major Point:
    Average rental prices have increased only marginally over the past year to $1,067, just a 1.9% rise. And CMHC’s annual rental market report indicates that
    it is 32.5% less expensive to rent a one-bedroom in Greater Vancouver than to own (whether one rents a condo or an older purpose-built unit). The gap
    increases considerably once strata fees, maintenance costs and taxes are also taken into account. It is thus significantly less expensive to rent in
    Greater Vancouver as compared to owning, and this gap is greater than in any other major metropolitan area in Canada.

    Poet Cove Apparently Sold

    Another sign that the residential rally is underway is the sale of questionable developments that once ran into trouble. Cue the lovely 22-unit, 12-acre
    Poet Cove resort on South Pender Island.

    When it was built during the heady days of 2004 it was valued at $30 million. The problem is it was designed to be sold as quarter-share units, which were
    among the first options to get killed when the recession hit.

    Ross Marshall,
    of CBRE Canada’s Victoria office, said last week that an offer has been accepted. “Negotiations are moving along nicely and we are
    optimistic things will progress.”

    The price may not be near $30 million, but the sale does not include the balance of the hotel lots, nine strata-lot villas and 15 strata-lot cottages on
    the property, all owned by third parties.

    The resort could open as early as this spring, if the sale closes as expected.

    “It’s a serious challenge for that particular property because of the ownership structure of the units and the use of the time-share portion in the high
    season. The owners have a high expectation of five-star service year round, and they have simply not attracted enough business to sustain the core business
    of that operation,” said hospitality industry consultant Frank Bourree, principal of Chemistry Consulting.

    When the resort went on the market, the offering included 19.25 of the hotel rooms (remember these are quarter-shares so there is actually 88 “units”), the
    Susurrus Spa, Syrens Bistro, the Aurora dining room, a fitness centre, and pool. Also included are four commercial lots with an operating marine commercial
    centre, an administration building, and the marina.

    BEST MORTGAGES RATES:

    Mortgage Rates Dropping:
    “As the spring market approaches, many lenders have cut into their thin margins to get more competitive with their rates,”
    says Kyle Green of Mortgage Alliance (778-373-5441, kgreen@mortgagealliance.com).
    “5 yr fixed rates are now approaching 2.99% again as many lenders are now offering 3.09% for owner occupied residences. Variable rates are also around
    Prime -.45 – Prime -.55% depending on the lender (2.45% – 2.55%). In December 2013 most lenders were 3.39% – 3.59% for a 5-year fixed rate.

    “There is a chance that this trend may not continue, however. Last week the US fed announced that they will be reducing their bond buying program from $65 billion per month to $55 billion per month and hinted at
    the possibility that rates could rise in early 2015.

    “Immediately after, stocks dropped and bond yields (which impact fixed rates) went up by .1%. We saw a similar reaction last year when the US fed
    hinted that they may pull back on the program and as a result bond and therefore fixed rates shot up, but have since slid back down due to poor
    economic data. If you are thinking of locking in your variable rate into a fixed rate or are thinking of buying a place this spring or summer, now may
    be a good time to lock in a low rate.”

    Eyebrow Raiser

    BREAKING NEWS, BREAKING NEWS, BREAKING NEWS …

    The unfortunate airliner debacle occupied the news for almost 3 weeks. The networks jostled for position 24 hour a day and flashed “BREAKING NEWS” on the
    screen every hour … yet there WAS NO BREAKING NEWS! FOR DAYS and DAYS! Viewers are treated like cattle – having been alerted to BREAKING NEWS over and
    over. Good bye Anderson Cooper … oh good bye ALL North American news. I’ll head to BBC or Deutsche Welle.

    LATE NEWS:

    Bank Of Montreal
    slashes 5-year rate to 2.99%. This level caused former finance minister Jim Flaherty to express concerns last year. Now new Finance Minister Joe Oliver says he will ‘monitor the market closely’. The bank says it will offer a five-year rate of 2.99 per cent, down
    from 3.49 per cent. This is in line of ‘spring time’ buyers being plentiful and banks getting very competitive. Don’t expect it to last for more than a
    month!

    PLOTS OF THE WEEK:

    1. New Westminster,
    840 sq feet, common area cost $345, Taxes, $1,100. Reduced to $169,888. Under $200 a foot! Also we took a tour thru BC. What you can buy
    on MLS (yes!) for under $75,000. EVERYTHING CASHFLOWS! Just put the number in on realtor.ca and take a peek … Thee are actually over 400 properties.
    Here are ten:

    1. Abbotsford
    1 Bed/1 Bath Condo 714 sqft. Price: $69,900

    Listing ID: F1404685

    2. Kimberley 1 Bed/1 Bath Condo 581 sqft. Price: $58,900

    Listing ID: 23908

    3. Chilliwack 1 Bed/1Bath Condo 581 sqft. Price: $55,000

    Listing ID: H1303922

    4. Chilliwack
    1 Bed/1 Bath Condo 570 sqft. Price: $$58,400

    Listing ID: H1302900

    5. Agassiz 1 Bed/1 Bath Condo 592 sqft. Price: $59,900

    Listing ID: H1301477

    6. Merritt 1 Bed/1 Bath Condo 584 sqft. Price: $65,000

    Listing ID: 118191

    7. Merritt 1 Bed/1 Bath Condo 582 sqft. Price: $69,900

    Listing ID: 116995

    8. Quesnel 2 Bed/1 Bath Rancher 1050 sqft. Price: $64,900

    Listing ID: N232153

    9. Port Alice 3 Bed/1 Bath House 922 sqft. Price: $63,500

    Listing ID: 361576

    10. Clearwater 1 Bed/1 Bath House 410 sqft. Price: $69,000

    Listing ID: 112520

    Of course, these are just examples. We have not seen them, just look interesting. Please send me your deals … anyone can be featured here. There is no
    cost, no guarantees either.

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    While the above information is compiled from sources believed to be reliable, its accuracy cannot be guaranteed

    Any type of investing carries inherent risks; as such, JREI cannot assume responsibility for any subscriber’s actions.