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“Trust in Allah, but tie up your camel.” -Wise saying

This week’s Facts by Email:
US real estate soared after the crash. Which country will soar in 2014/2015? Depreciation reports now? Early numbers. Some suburbs up others down. Prices still behind 2011?

  • Surely Not Spain?
  • Hot Properties In Spain?
  • The Numbers, The Numbers – Vancouver
  • That Strata Depreciation Report … Do It Or Face The Consequences
  • Thought Of The Week
  • Plot Of The Week

INTERNATIONAL: Eye Popping Real Estate Price Inflation In Britain And Ireland

It is of interest to note that throughout the varied crises of the last 40 years – 1980s – 20 percent interest rates, 1987 – crash, 13.5 % mortgages in 1991,
9/11, financial crash of 2008 etc. etc. … one thing has been constant: In order to stave of panic, governments printed money. Result: hard assets (oil, real estate, commodities) went higher – much higher. Hard asset price inflation was always the result.

Milton Friedman: Inflation is primarily the result of increased money supply.

I have – since 1998 (in my book Forget About Location, Location, Location, here in this newsletter and at most every major conference) stated this simple
philosophy:

If you create more money out of thin air and that money competes with the money we earn … hard assets like real estate will rise. Period.

We always had a scary collapse, followed by dire predictions … and then … we recovered and soared ahead further … for 40 years!

Here and at the last outlook conference when all the world was crying sell, I reported again to forget the doomsayers and to note the above fact that
inflation in real estate prices – while it did not come out in the statistics at that time – was again emerging in Sweden, Norway, Britain, even Germany
and a half a dozen other countries (we quoted Roubini). Two years ago, we told you to buy London and Berlin when all the world was yelling, sell.

Now the statistics prove it is real

In Britain house price inflation coast to coast is over 11%!

In London price inflation is 18% this year … more than 30% since the downturn. (At the upper end more!)

In Ireland – is reporting this year double digit price increases (12%) for the first time in 7 years and the volume of sales.

Dublin
reports a 22% increase in prices in one year! This has lifted 25,000 Dublin home owners out of negative equity thanks to:

“Massive rises in property values over the last two years. A house valued at 300,000 last year is now valued at 366,000 and rising!”

Says the Irish Independence newspaper: Property Industry Ireland predicts that the increase will
continue and accelerate due to shortage of product. Since only 8,500 houses were built last year and the need is 25,000 per year.

Headlines are “property booms” and it scares the authorities. (Some) governments are responding. The (former Canadian) British Central
banker calls the rise in prices “The biggest threat to the economy” and announced this week a second string of new mortgage restrictions. That
prompted the head of RBS (Ross McEwan) to tell him to “let the banks regulate mortgage restrictions. Banks should be trusted to control risky lending … themselves”.

Ok, ok. What does that mean to investors?

Well, serious investors – like us – that believe that the printing of money is the culprit … do not worry about the crashes, but play in the recovery.
We (at JREI) thought the US would definitely recover first in 2010 (we were a little early). We predicted that the cities with good
employment bases that were hit the most, would have the steepest recovery … and recover they did … with a vengeance.

Well, based on the above … which is the next HOT SPOT of recovery? Where to place your investment cash?

Major Point: Spain
… ehm, gulp, yes, maybe. Big, big boys thing so … see next item.

Surely Not Spain?

Hot properties in Spain? Really? From 1996 to 2007, Spain’s national average house price rose by 197%, one of Europe’s highest house price increases.

Madrid and Barcelona
aside, house prices are highest on the Mediterranean: in Catalona, Andalucia and Valencia. The price ofcoastal properties surged 250% from 1996 to 2007, on average as thousands of foreigners, mainly from the UK, France and Germany, bought real estate.

Well, like in the US and elsewhere, the boom ended abruptly in 2008, as the global crisis hit and credit dried up. Developers were left with blocks of
unsold properties and massive debts. Uncertainty engulfed the market.

In the first three months of 2008 the average price stood at EUR 2,101 (USD 2,898) per square meter, compared to December 2013’s EUR 1,467 (USD 2,024), which is the lowest figure registered since the beginning of 2004. A massive downturn!

According to the latest

Tinsa IMIE Index

since December 2007, the cumulative decline in prices has reached:

  • 48.6% on the Mediterranean coast
  • 43.7% in the capitals and major cities
  • 43.1% in the metropolitan areas
  • 34.8% in the rest of the municipalities
  • 32.8% in the Balearic and Canary Islands

Prices have continued to decline and properties have gotten cheaper since the bursting of the housing bubble, reversing some of the large increases of the
real estate boom years.

This is at this time not generally an area you would think of investing in … and yet should it be? US based Kennedy Wilson (which
bought 1 billion Irish pounds worth of property in Ireland in the last three years) and that played for the recovery in Britain and
Ireland, is now switching from the UK to SPAIN and ITALY! Ireland is now “ahead of itself” – it said this week. Flipping will be better in
southern Europe? Goldman Sachs global co-head of real estate Jim Garmann agrees:

“Investor focus is now shifting to Spain and Italy in a big way as literally billions of euro worth of property from those two countries will be put on
the market in next 5 years”

A lot of others agree:

IMF: “The downward trend in the property market in Spain is drawing to a close … and it is unemployment that is hindering a full recovery”

Spanish property Registrars: “…based on properties on the Registry during the first three months of the year, home sales increased in the first three months of the year
compared to the last three months of 2014, prompting a ‘change of trend’.

Figures from Spain’s General Council of Notaries showed earlier this month that hom e sales jumped more than 45% in the first quarter from a year earlier. Prices also showed signs of improvement after years of accelerating
declines. Average national house prices rose 0.84% quarter on quarter.

Another healthy sign for the Spanish property market is the fact that mortgage approvals increased in March for the first time in almost
four years. The number of residential loan approvals rose by 2% from a year earlier, the first increase since April 2010, according to figures from the National Statistics Institute. Also, the total amount lent rose by 16%, the first increase since 2007.

Although hundreds of Spanish families are still being evicted every day for defaulting on their mortgages,foreign buyers have returned in force to the country’s depressed property market. The past 12 months in particular has seen an increase in interest in Spanish property by foreign investors looking to cash in on
the highly depressed property prices which tumbled from their pre-crisis highs.”Several large deals have been completed for assets that 18 months ago not even the most foolhardy speculator would have touched”, according to Myles Johnson of the Financial Times.

Chavarria Waschke, managing director of Balearics Sotheby’s International Realty, talked of
British, Dutch, German, Danish, and Swedish buyers keen to secure a home in the Balearics. New data from the Bank of Spain last week showed that
foreign purchases in 2013 exceeded 6bn Euros (5bn pounds) for the first time since 2004.

According to Knight Frank’s Global Property Search, online searches for properties in Spain increased by 29% over the first three months
of 2014 compared with the same period in 2013. More than a fifth of all Spanish residential sales – 55,187 transactions – were to foreign buyers. Mark Stucklin ofSpanish Property Insight. “These are people buying on the coast and in cities like Barcelona.” And it is not just private buyers, he says:
Institutional investors are also in the market. “The likes of Goldman Sachs, JP Morgan, Blackstone, George Soros and Bill Gates are all getting into Spanish real estate.”

IN fact, mutual funds, REIT equivalents have been created by some of the world’s biggest money players.

  • The hedge fund Baupost is buying shopping centers,
  • Goldman Sachs
    and Blackstone are buying apartments in Madrid, and
  • Paulson & Company and
    George Soros‘s fund are anchor investors in a publicly listed Spanish real estate investment vehicle … Hispania Activos. It raised $763
    million, with Paulson & Company, George Soros’s Quantum fund and Moore Capital as anchor investors.
  • Kohlberg Kravis Roberts
    just bought a stake in a Spanish amusement park complex.
  • Big-name
    private equity
    firms and banks are teaming up with and competing against one another on huge loan portfolios with names like Project Hercules and
    Project Octopus.
  • A Socimi, or Spanish real estate investment trust, came to market, raising $547 million. Two weeks later, some institutional
    investors are buying in bulk from Sareb, the so-called “bad bank” that has acquired thousands of unsold properties from failed Spanish
    banks and building societies.

SAREB
(Sociedad de Gestion de Activos procedentes de la Reestructuracion Bancaria) controls about 200,000 property assets – homes and developments –
and it is selling houses at a rate of 60 a day. Sareb is now implementing a new strategy for marketing and selling the 75bn Euro (or more) in real estate under its control, which could create yet further opportunities for international
investors. SAREB, Spain’s ‘bad bank’

It was founded in 31 August 2012 tasked to separate toxic or problematic assets from the balance sheets of credit institutions that require public support.
In 2013 SAREB has taken EUR 54 billion (USD $75 billion) of troubled property loans from the balance sheets of the country’s nationalized lenders, as
reported by the Financial Times.

ALSO, GETTING A PASSPORT/visa STILL WORKS! For non-EU nationalities, the Spanish government’s so-called “golden visa” is
also likely to help demand. No one knows as yet the impact of the visa deal, which offers legal residency to non-EU citizens who purchase a property valued
at 500,000 Euros or more. But estate agent Savills says a similar scheme in Portugal has succeeded in attracting Chinese buyers. The Golden Visa scheme, which came into force and is fully applicable since 30th September 2013, has resulted in increased
interest not only from the Middle East but also from Asia and Russia. Under this system, any non-EU national coming to Spain with more
than EUR 500,000 to invest is automatically granted a residency permit.

“We have already seen a staggering 2,500 per cent increase in Middle Eastern buyers this year versus the same period in 2012, and a 190 per cent
increase in buyers from Russia and Lithuania.”,

said Marc Pritchard, sales and marketing director for Taylor Wimpey Espana, in a report by Telegraph UK.

Major Point:
You could review what JREI wrote in 2010/2011/2012 and 2013 about the US and you would have had similar reports … of banks blowing out properties, bad
banks (Freddie Mac, Fannie Mae) gathering bad debts. Big boys getting in (Wall Street firms). Warren Buffet buying builders and real
estate companies. Trump saying the best thing to do buy a house etc.

Now for the savvy investor the same circumstances seem to be building in SPAIN?! Time to be brave? Well, you, dear reader have to decide
that for yourself. Europe is not the US, Spain does not have the economic strength of the US, nor is it managed as well. But it is coming out of a major
slump and brave investors (with a ton of research) will very likely be rewarded. I was in Barcelona the last 2 days and will leave on the 2nd.
It is a city with hustle and bustle, beautiful surroundings and sparkling history … of course also tapas and wine. I mean – what tapas!? Tapas almost
everywhere include Fois de Gras … Obviously things are looking up.

Hot Properties in Spain?

Websites with ‘hot’ properties abound. My wife and I spent a lot of time in Barcelona yeeeeaaaars ago and always liked it and the Costa Brava … but
there is a lot of digging that needs doing, before you invest. Some areas have cheap but empty miles of unfinished
properties. They may be good for the big players with deep pockets. But in the major cities even the smallest investor can ‘play’. In Barcelona – older
building 3 bedrooms – $36,900 Euro = $53,700 or in Tarragona a brand new 1 bedroom is offered at – $37,100 Euro = $54,100. Do some surfing on websites like
this.

C A N A D A: THE NUMBERS, THE NUMBERS – VANCOUVER

Another good month as compared to 2013. Sales are up by 29%, prices up about 4%, listings down. All’s well. But it isn’t a runaway either. While volume of
sales is finally higher than that achieved in June 2011, the average sale price declined by 2% over the average achieved in June 2011 and by 3% over the
price achieved in May 2014. Also it is still down 5% below the record of May 2011. The average used home price is 7% higher than 2013 but still a very
large 10% LOWER than that achieved in June 2011. Condos are up and down (up over 2011 and down sharply over 2013). And there you have it. The picture
becomes even less clear when you look at individual areas. Condo prices are lower in Coquitlam and New Westminster but up in Richmond and Maple Ridge.
Condo prices in East Burnaby are down by 15%!

Major Point:
A mixed bag. Realtors on the North Shore are reporting (some) multiple offers. Realtors in the Valley talk of a strong market below $400,000 … tougher
at the upper end. Sales will remain stronger than 2013 throughout the summer.

That Strata Depreciation Report … Do It Or Face The Consequences

By Michael LaPorte

Is now the time to conduct your Strata Depreciation Report?

Over the past 2.5 years, strata owners in British Columbia have needed to address the Strata Property Act requirements related to Depreciation
Reports. Although many strata corporations have proceeded with their report already, many more have not.

If you and your strata owner neighbors are grappling with the choice to have a depreciation report completed for your strata – how do you decide?

You may wish to ask yourself the following questions:

  • The Depreciation Report will help determine risk of special assessments based on your current and alternate funding paths – would this
    knowledge be valuable to you?
  • The Depreciation Report can help to stabilize your overall reserve funding costs – would this be helpful for your personal budgeting purposes?
  • As many other strata corporations now have their depreciation report completed, does the potential for a “competitive disadvantage” for re-sale
    of your strata concern you?
  • The Depreciation Report provides the owners with a comprehensive list of all of the shared components that the owners must collectively repair
    and replace over the long-term. Would an inventory of these items, and their estimated replacement costs and lifespans, help your strata more
    effectively maintain your property in the best possible condition at the lowest cost?

The above considerations, and your decision to either have a depreciation report completed or to waive the requirement, will likely impact how potential
purchasers view your strata property in the future. It may also determine your strata corporation’s financial capacity to fund future repairs and
replacements, which in turn will affect the condition and upkeep of you and your strata neighbor’s homes.

If the collective decision of your strata property owners is to have a depreciation report completed, you will want to consider the following questions in
your search for a qualified consultant:

  • Are the consultant and their firm experienced, qualified, professionally designated, and fully insured?
  • Can the consultant provide you with references and testimonials of past clients for whom they have conducted depreciation reports?
  • Is the consultant willing to provide you with sample work product of similar strata corporations to your own?
  • Can the consultant adequately explain the process undertaken in the preparation of the depreciation report, and are they available to meet with
    council and owners to discuss this process and the findings of the report?
  • Are you confident that your reserve planner will work to provide funding models that match your strata’s needs and priorities?

In conclusion, the decision to move forward and have a depreciation report prepared for your strata will have consequences in the years to come. You must
weigh these potential benefits against the cost of the report, and decide if now is the time for your strata to join the thousands of other strata
corporations whom have already come to this conclusion and now possess this valuable report.

Michael LaPorte is president of NLD Consulting – Reserve Fund Advisors and has been completing Depreciation Reports for strata corporations large and
small throughout BC. For further information, go to
www.reserveadvisors.ca.

Thought Of The Week

I am re-reading Gary Keller’s book: THE ONE THING. In this thought provoking book he nails it – for me. Multi-tasking
does not work. Focus on small thing does:

“The way to get the most out of your life and your work is to go as small as possible. Most people think just the opposite. They think big success is
time consuming and complicated. As a result their to do lists become overloaded and overwhelming. Success feels out of reach so they settle for less.
Unaware that big success comes when we do a few things well, they get lost in trying to do too much and in the end accomplish too little. You have only
so much time and energy, so when you spread yourself out, you end up spread thin…”

There is much truth in that. Focus is the key!

Plot of the week

House Fire Sale, $480,000
Handyman’s Special, Restoration “Fire Sale.” Oxford Heights, Port Coquitlam, Toronto Street. City Building Inspector has approved that house can be
restored, with drawings and permit applications. Price: $480,000

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

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