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“The lack of money is the root of all evil.” -Mark Twain

OZZIE TALKS IN KIMBERLEY – AT THE EAST KOOTENAY REAL ESTATE OUTLOOK CONFERENCE

Topic?
Real Estate forecasts worldwide. Specific focus on the Kootenays and Alberta.

Also

Robert Ironside on ‘Debts and Demographics’ – an all-day convention – see the latest developments, future growth opportunities and much more.


Where:
Kimberley Conference Centre

When:
May 24, 2014

Tickets:
Kimberley Visitor Centre (778-481-1891) also at Kimberley Chamber of Commerce,
Kimberley Conference Centre and ReMax Caldwell Agencies.
Or write to
wayne.tinker@okko.ca

THIS WEEK IN FACTS BY E-MAIL: Best commercial mortgage rates 2.69%; best residential rate 1.99% (yes!) Prices are soaring in
Britain; sales volumes are soaring in BC; prairie farmland up 28% – inflation, inflation, inflation.

HOTLINE:
Will be up May 17, 2014 after 10 AM. Inflation-deflation discussion. (Lost your password? Call Lubna at 604-683-1111.) Best time to call the hotline? After
5 PM or on the weekend.

TIP OF THE WEEK: A cap rate calculates the
Net Operating Income
(NOI) in relation to price. The NOI is the cash remaining after deducting the Operating Expenses from the Effective Gross Income (EGI). NOTE: There are
several items, which often appear on financial statements, which must be deleted before calculating the Net Operating Income (NOI):

1. Debt Service payments are ignored because the Net Operating Income reflects the earning capacity of the property exclusive of
financing. 2. Depreciation allowances or any other purely bookkeeping or Income Tax deductions are ignored. 3. Capital Expenditures which provides long term benefits such as replacing appliances, painting of the building etc. are omitted. This
last one can be a major bummer. The older the building the more likely it is that it will have capital expenditures … this eating into your NOI.

  • Questions, Questions, Comments
  • Buy An Old Apartment Building Or A New One?
  • Vancouver Apartment Construction Costs Rising
  • Face Recognition Recruited To Sell You Stuff
  • Small Markets Posting Biggest Sales Gains
  • Commercial Landlords Enjoy Mortgage Break
  • Prairie Farmland Prices Spurt 28.5%
  • Eyebrow Raiser Of The Week: Alcan Paying $175 A Bed On Boat Workcamp
  • Happy Shock?
  • Michael Campbell Special Olympics Golf Tournament
  • Plot Of The Week
  • Best Mortgage Rates

I N T E R N A T I O N A L: British House Prices Are Soaring!

The Bank of England says that rising house prices could threaten Britain’s economic recovery. House prices across the country rose at 10.9 percent in the year to April, the fastest rate for four years. In London, the increase was 18 percent,
according to Nationwide, Britain’s leading mortgage provider.

The cost of a house in the capital is now 20 percent higher than it was at their previous peak before the financial crisis in 2008 sent
values tumbling, although the rest of the country has yet to regain pre-recession levels.

In London, the average property now costs 480,000 pounds (590,000 euros) according to online portal Rightmove, 14 times the median salary
and a sum beyond the reach of key workers such as nurses and many teachers.

Some of the growth has been fuelled by foreign investors looking for a safe haven for their money. (Sound familiar?)

In a new record for property in London, a buyer from Eastern Europe reportedly bought a penthouse in an exclusive development overlooking Hyde Park
recently for a staggering 140 million pounds.


Finance Minister George Osborne sought to calm the rampant overseas interest that risks transforming parts of the city into ghost streets, by
announcing in March a new tax on high-end properties owned by non-residents.

The OECD added to pressure to cool the housing market in a report last week, warning that prices were soaring when compared to rents and household incomes.
It urged measures to “address the risks of excessive house price inflation“.

As Britain’s economic recovery picks up speed, the OECD expects the Bank of England to raise interest rates from 0.50 percent – the record low maintained
since March 2009 – to 1.0 percent next year.

This would raise the cost of mortgages with variable rates, about half of all mortgages in Britain, along with the accompanying risk of a rise in
repossessions.

Major Point: JREI
has argued for years that we live in the world’s most unreported inflation of all times, that overprinting of money ALWAYS results in higher asset prices –
in particular real estate assets. We printed madly … and here we go worldwide inflation of real estate assets. Also of interest … Britain
introduces tax on high end property owners. One of JREI ‘astounding predictions’ is that Canada also contemplates some sort of a tax or downright
investment restriction on foreign investment.

C A N A D A: Questions, Questions, Comments

Lot of inquiries and comments about Chinese and Middle East investors in Vancouver’s
top neighbourhoods: West Side and British Properties. Wrote one West Vancouver subscriber: “… around me all the older houses are torn down (at a cost of $2 plus million) new $5-$7 million houses are built and then sit empty.”

Another said that his Middle East neighbours told him that Canada is now the preferred destination for the super-rich from his country and that the top
areas would continue to soar in value because of the influx of safety seeking capital.

Buy An Old Apartment Building Or A New One?

Is it better to buy an older apartment building in Metro Vancouver or buy new purpose-built rental units within a market
condominium project, which is how most of the new rentals are being delivered?

With the sudden increase in purpose-built rentals, we asked appraiser, research and valuation experts Altus Group to crunch the numbers.

The hypothetical scenario used by Altus researcher and senior consultant Cynthia Jagger considered a typical 1970 4-story
wood frame rental building with 54 suites, an elevator, a common laundry room, underground parking and 50 storage lockers. The new building was – in
concept – a 5-storey concrete building with 75 rental units, underground parking, 35 storage lockers and in-suite laundry.

Jagger looked at all the possible variables and projected an annual gross income for the older building of $806,970 per year, with the new building
generating income of $1.35 million per year. The older building had average rents of $1,245 per month, while the new one had average rents of $1,500 per
month.

After looking at all income and expenses (the new building owner, for instance, lost $6,480 a year in laundry income since it had ensuite facilities; but
the older building owner had higher maintenance costs), Altus figures the net operating income (NOI) would be $562,741 in the old building, compared to
$985,331 in the new building. The “stabilized” capitalization rate was penciled at 4% for the older building and 4.75% for the new building.

Bottom line: the old building would have a value of $14 million, while the new one would be worth $20.7 million.

Major Point: One wildcard is where the old building would be located. If it is in Kitsilano, the value going in would likely be close to $20.2
million, based on recent per-door prices in that area. But as Cynthia Jagger emphasized, “…this is a hypothetical analysis” for discussion purposes
only. We at JREI believe it is hard to make any return when the cap rate falls below 3% as some building sales have achieved for the owners. Since
replacement costs are not included in the cap rate calculation any old building will have an even lower return.

Vancouver Apartment Construction Costs Rising

It is more expensive to build an apartment building in Metro Vancouver than in the rest of Canada, according to Statistics Canada, which
reports that the area saw the highest increase in the country, with a 3.2% spike in the last year. The May report said that this increase is 1.7% higher
than the national average of 1.5%.

Calgary saw the second largest increase at 2.1%, followed by Edmonton at 2.0%.

Major Point:
However, when compared with April, the construction price index for apartment buildings in Vancouver increased 0.3%, which is below the national average of
0.5%. Calgary prices increased 0.9% over the quarter – the highest increase in the country (which will continue).

Face Recognition Recruited To Sell You Stuff

Recall that futuristic movie where Tom Cruise is tracked and hailed through facial recognition as soon as he walks past a store in his
local mall? Well that future is here, creepily enough, at least in some of Oxford Properties‘ biggest shopping centres in Canada (not yet
in Vancouver, though).

Oxford has inked a deal with Cineplex Digital Media to launch North America’s first “place-based digital ecosystem” at big Oxford malls in
Ontario, Alberta and Quebec.

“The cutting edge concept integrates architectural digital media, mobile technology, social media, experiential technologies, and digital media sales
and analytics, providing a
first-of-its-kind opportunity to inspire shoppers and influence purchasing decisions. From the moment the shopper enters the shopping centre, the system will provide opportunities to engage through interactive media and in-mall
activations,”
the press release says.

Major Point:
Where can you avoid this – the Alberta malls are Edmonton’s City Centre and Kingsway Mall. and Calgary’s Southcentre Mall.

Small Markets Posting Biggest Sales Gains

Smaller markets in British Columbia are posting the highest increases this year as the province has seen an overall 18% spike in residential sales, according to the BC Real Estate Association.

Provincial leaders include the South Okanagan, where sales on the multiple listing service (MLS) shot up 46.8% in the first quarter of 2014 compared to the same period in 2013, and the Central Okanagan, which has seen sales
rise 22.3% and average home prices jump nearly 7% to $386,126.

An example of the action is the Lakeshore at Manteo, a luxury waterfront development on Okanagan Lake at Kelowna, where
four villas, each priced at $1.3 million, have sold in the past three months.

“The sales success of this project is encouraging for Kelowna. It has impressed and boosted the confidence of the real estate community,”
said Adrian Block, president and CEO of White Rock-based Rykon Group, which is building 11 villas in Phase 1 of the
resort.

Other strong markets are the Kootenays, where sales are up 36.6% so far this year, and Powell River, where sales advanced 16.7%, the BCREA reports.

As a comparison, housing sales in Greater Vancouver are up 23.4% through the first quarter and increased 16.1% in the Fraser Valley. Victoria sales are up 11.1%.

The average price of a B.C. home sold through MLS in April was $561,613. The lowest average home price is in Northern B.C., at around $250,000. The highest
price is in Greater Vancouver, at $814,873.

MLS market Jan-April 2014 for British Columbia

Sales Average price

BC Northern 1,262 $249,878

Fraser Valley 4,364 $507,427

Greater Vancouver 10,161 $814,873

Kamloops 602 $304,988

Kootenay 594 $265,062

Central Okanagan 1,911 $386,126

South Okanagan 489 $291,653

Vancouver Island 1,980 $320,325

Victoria 1,911 $496,190

Province 24,165 $573,965

MLS market Jan-April 2013 for British Columbia

Selected markets

Sales Average price

BC Northern 1,132 $235,140

Fraser Valley 3,758 $477,109

Greater Vancouver 8,235 $751,524

Kamloops 663 $319,665

Kootenay 435 $276,823

Central Okanagan 1,562 $$361,212

South Okanagan 333 $$289,369

Vancouver Island 1,813 $303,524

Victoria 1,720 $478,795

Province 20,746 $529,785

Source: BC Real Estate Association

Major Point:
A fine start to the year, particularly welcome in the interior, but as we point out most areas in the Lower Mainland are still well behind sales achieved
in the first 4 months of 2011.

Commercial Landlords Enjoy Mortgage Break

Apartment buildings are considered commercial property, which allows buyers to qualify for insured mortgages at lower rates and greater flexibility than
those buying residential units, such as condominiums. With the recent changes restricting mortgage insurance on second homes, the difference is quite dramatic.

“Financing for commercial rental property is completely different than financing for residential property. To a large degree, it is a different set of
lenders and a different set of lending criteria,”
explains Michael Lee, who heads the Vancouver office for Mortgage Alliance Commercial.

Unlike residential investors, who are restricted to putting down at least a 20% on the home, and therefore don’t qualify for Canada Mortgage and Housing Corp. (CMHC) insurance, apartment building investors can arrange CMHC financing with as little as a 15% downpayment.

While residential investors are restricted to 25-year amortization on mortgages, commercial landlords can buy extensions to 30 years or even 40 years. (Though few take up the 40-year option, Lee said.)

The main benefit for commercial landlords obtaining CMHC insured mortgages are the low interest rates that can be locked in for long term financing. “Because the loan is insured, there is virtually no risk to the lender, so they are able to offer their absolute best rates,” Lee said.

Current rates for a five-year term for a commercial landlord are around 2.6% and 3.4% for a 10-year term.(!)

Major Point:
As a comparison, stated (window) rates for residential mortgages at major banks are currently at 4.99% for five-year terms and 6.75% for 10-year terms.
(After you haggle 2.99% are the best rates this week. SO, HAGGLE!) Rates are often higher for second homes or investment properties and, under the recent
rules, owners are not allowed to have CMHC insured mortgages on two properties.

Prairie Farmland Prices Spurt 28.5%

Farmland values in Manitoba soared 25.6 per
cent in 2013 compared to a year earlier and shot up a startling 28.5 per cent in Saskatchewan, the biggest back in 1985. Across Canada,
the average value of farmland increased 22.1 percent last year, up from 19.5 percent in 2012, according to the FCC’s annual report on farm
properties.

The startling increases have drawn some elephants into the pasture. For example, the Canada Pension Plan Investment Board recently paidAssiniboia Farmland, a farmland syndicate fund, $128 million for 115,000 acres of Saskatchewan farmland. Prices may cool off because of lower crop prices, large carryout, rising input costs and high rental rates for land, according to FCC. Average crop prices over the next 10 years
are expected to be lower than they have been in the 2005-13 period, although they will be higher than they were in the 1990-2005 period, according to Agriculture Canada.

Interest rates are the other main driver for farmland values
. FCC expects short-term rates to remain low for the next 12 to 18 months, which will provide a “soft landing” for farmland values, it says.

FCC expects the national average to mimic what has happened in British Columbia, where farmland values have been fairly stable every year
for the past five years. Farmland in Alberta appreciated by 12.9%. B.C. farmland prices have barely budged – FCC says because they are
already so high.

Major Point:
We at JREI have urged you to buy farmland in Saskatchewan and elsewhere since 2006. Good call, eh?

Eyebrow Raiser Of The Week: Alcan Paying $175 A Bed On Boat Workcamp

Rio-Tinto Alcan
is paying $175 per night per person for the 500-600 construction workers staying in a converted cruise ship docked at the Kitimat harbour.

“We have already installed a 1,700 bed camp for our workers, which is nearly full. We expect to utilize close to 500 more beds,” Rio Tinto Alcan spokesperson Colleen Nyce told the
Prince George Citizen. “A number of options were looked at to supply the additional beds. There isn’t enough room in Kitimat anymore, with the [liquid
natural gas] projects doing early works in the region as well. The floating accommodation… turned out to be the most efficient and fastest way to
provide the accommodation required.”

The ship will be docked at Rio Tinto Alcan’s marine terminal for up to a year, during a peak period of construction work. The ship is being operated by
Richmond-based Bridgemans Services Ltd. and the Haisla First Nation. The ship features 575 single-occupancy rooms, a
378-seat dining room, three licensed lounges, gym, laundry meeting space and other facilities.

Major Point:
Times are good … big question is … what will happen when the expansion at RIO TINTO is finished?

Happy Shock?

“Investors Group shocked the market by offering 1.99% 3yr variable (prime -1.01%) on Tuesday May 13th,”
says Kyle Green of Mortgage Alliance (778-373-5441, kgreen@mortgagealliance.com). “This is the first rate below 2% since variables touched 1.75% back in 2010, before the prime rate increased from 2.25% to 3% that year. We’re getting
more information about the product – just came out 2 days ago and there seems to be conflicting information on the product.”

Of course it is a restrictive product (which would be expected with a rate this low). Here are some details:

– Restricted pre-payments. Can only pay it out with a sale

– Can’t port and increase. So if the property is sold, can transport but mortgage must remain exactly the same amount

– Only a 3-yr term

– They calculate their own Prime rate (called “Our Prime Rate”). This is relevant as we have seen situations recently where lenders can set the prime rate
at what they choose to. During 2008 and 2009, many customers with Manulife found that as the Bank of Canada dropped the
overnight lending rate, their Prime rate did not drop as substantially as it should have and many Manulife customers were left paying a higher interest
rate than they should have. It would make us feel much more comfortable if they set it at “RBC Prime” to ensure that this isn’t a bait and
switch type of situation.

– Mortgage is registered as a “collateral charge” which means upon renewal you may need to pay legal fees to transfer to another lender. This could be
relevant as it is less likely IG will have competitive rates upon renewal than a major lender as their strategy seems to be coming out with a competitive
offer here and there, and don’t stay competitive for longer than short stints

– Payments based off of 3.75%, not 1.99% rate (so more goes towards principal)

Says Kyle: The below are pure speculation by us but require more info:

  • Concerns over timeframes. We’ve seen lenders with small underwriting centres come out with rates before and turnarounds can exceed 3
    weeks which might be an issue.
  • Lock-in rates (converting to a fixed rate) is likely to be less competitive with IG than a larger lender, as IG comes out with
    competitive rates only here and there.
  • Often rates like these are very restrictive to who qualifies. It could be restricted to:
    • Owner occupied (no rentals)
    • Insured only (20%+ down payment, client may need to pay CMHC)
    • No secured Line of Credit available
    • No special programs like self-employed stated income, purchase plus improvements, etc.

We imagine the cross sell will be fairly aggressive since the margins on the mortgage will be quite small

Product will probably only be around for a limited time – it’s probably a PR play similar to BMO’s 2.99% marketing campaigns (which BMO has retracted while
other lenders are offering 2.99% in certain circumstances). We are gathering up more data and more information will follow.

Kyle adds: “All in all, the product may be an amazing rate but we are generally skeptical
when other lenders undercut the market so much, as there is usually a catch. Hopefully this pans out for many but IG is leaving the door open to
potentially twiddle with their Prime rate which could end up costing many borrowers more in interest than anticipated, without the option to leave
their IG mortgage.”

PLOT OF THE WEEK

We have some interesting ones – will be put up on Monday to your password protected website.

There is no charge to be featured here and absolutely no warranties given either. You have to check it up yourself.

Michael Campbell Special Olympics golf tournament

On June 17th at the Northview Golf club, Michael Campbell hosts his annual Goldcorp Special Olympics golf tournament. There are two golf
courses … low handicappers and duffers (like me). The cause is outstanding (raising funds for Special Olympics), it is a fabulous day, rub shoulders
with celebrities, play golf have fun. Tickets are $500. If you like to join call me at 604-683-1111 or email at ozjurock@gmail.com

To subscribe to Jurock’s Facts by Fax ($177 p.a.) call 1-800-691-1183 or 604-683-1111 or fax 604-683-1707.

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.