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IN THIS WEEK’S FACTS BY EMAIL:

BANK OF CANADA IS TALKING REAL ESTATE DOWN BY SAYING IT IS 30% OVERVALUED. IS IT REALLY?

MORE PETRONAS

GETTING MORTGAGES AT 82

KELOWNA NUMBERS

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HOT PROPERTY: RICHMOND 2 BEDROOM CONDO $119,000

HOTLINE: A DETAILED DISCUSSION ON BANK OF CANADA’S FEAR MONGERING

  • Subscribers Please Note – This Is Important!
  • The Numbers, The Numbers – Kelowna
  • Mortgage Advice
  • Tech Tip
  • Hot Property

C A N A D A: QUESTIONS, QUESTIONS


Peppered with questions this week (I love it!). Probably the largest number of individual responses ever. The topic winners? A tie between oil related
questions (what impact will a lower oil price have in my area) and Mr. Poloz declaration that we are 30% overvalued.

Q: With Petronas heading back to Indonesia, will all LNG production collapse?

A: Whoa, Whoa? Petronas is NOT heading back.
It merely postponed the final decision as to when to start construction and yet in the meantime is taking a lot of actions that indicate their commitment.
I discussed Petronas and its activities in detail with Chris Biasutti – VP of sales and marketing for Western Canadian Properties Group Ltd.:

Ozzie: “What is Petronas’ real commitment to invest in BC? And how likely is it that they stop?

Chris:

1.
Progress Energy
(PETRONAS’s wholly owned subsidiary in NE BC spent $2.5 billion on drilling north of FSJ in 2014. They announced they plan to spend the same amount in the same region on drilling in 2015 and are continuing to develop infrastructure in the
region.

The continued spending to drill new wells and develop infrastructure will continue to create jobs in a region that is already at full employment.

2.
Petronas has cost certainty from the Provincial government on their Tax Regime and they have environmental approval from the provincial
government.

3.
Petronas does not yet have the CCA adjustment they would like to see from the Federal government and they are still waiting on a few
Federal environmental approvals. Petronas is unable to make any investment decision until they have certainty around these costs and approvals.

4.
Though Petronas claims their decision is due to the correction in the oil price, we believe this is primarily a negotiation tactic as
PETRONAS’s pricing model is not highly sensitive to the oil price because they own their own production already through Progress Energy and they are their own purchaser of the Gas downstream.

5.
There are 18 LNG projects proposed for British Columbia. Petronas is certainly one of the more important ones as many believe that
it will be the 1st domino to fall. In a recent article in the Vancouver Sun, it was pointed out that Petronas which is a company with over
$100,000,000,000 in annual revenues, has already invested up to $8,000,000,000 and made significant commitments to the federal government as part of the
federal governments conditions to allow them to buy progress energy.

6.
The gas fields outside of Dawson Creek and Fort St. John are the 3rd largest hydrocarbon play in North America
behind only Texas and Fort McMurray.

7.
Unlike Fort McMurray, NE BC has a diversified economy and is not totally reliant on the oil and gas business to support the growth in the
real estate market.

Ozzie: What about the impact on Real Estate Values in the North?

Chris:

1. The real estate market in NE BC has experienced steady, stable growth over the past 10 years and, as a result of its stable economic base, was able to
avoid the significant market corrections other markets experienced in 2008-2009. I believe we will see the same resilience from the NE BC real estate
market today as the effects of the volatility in the oil price are felt stronger in other markets.

2.
2. The Forestry industry continues to recover in Northeast BC employing approximately 2000 people in the region today.Agriculture also continues to play a role in the stability of the NE BC real estate market. NE BC currently produces 90% of the province’s grain.

3. At the center of our decision to invest in Fort St. John and Dawson Creek is the fact that over 50% of the rental
housing in those 2 markets was built in the mid-1980s or earlier. New rental accommodations are badly needed. With a population having an
average age of 30 years and an average income over $100,000 per year, the current rental stock is simply inadequate to meet the needs of
this demographic.

4.
We get calls every day from investors. Many of those investors want to play the real estate market like the stock market and try and buy a property on the
morning that they believe a big announcement from Shell, Petronas, site C dam one of the other major projects is announced.We seem to live in an investing world that is constantly seeking immediate gratification. In real estate, there is the old adage -“Don’t wait to buy real estate. Buy real estate and wait.”

5. As most seasoned real estate investors know, the key is to invest in areas that have or are about to have significant capital investment.

6. Only 2% of the population of BC lives in the north yet today it generates 9% of the GDP. This population base is expected to grow to 4
to 5% of the population of BC and some economists believe that over time it will generate 25-30% of the GDP of the province. If any significant portion of
this growth takes place, the potential real estate appreciation in the north could be staggering.

7. Is there a risk that projects of this size that could ultimately run into the hundreds of billions of dollars could take longer? Is there a risk that these natural gas reserves will not be developed? Those are questions that each
individual investor needs to understand and get comfortable with. We believe that there is no question that many of these projects will ultimately take
longer and not all 18 of them will go ahead. We are extremely active building duplexes, townhomes, condominiums and single-family homes in Dawson Creek and
Fort St. John. The rental market is very strong and most of the properties that we complete have a tenant in them within 3 or 4 days of receiving an
occupancy permit.

8. In northern BC, we have it all-forestry, mining, agriculture, hydroelectric power and natural gas. This area will drive growth in British Columbia for
the next 20 years. As a real estate investor, we believe the area will handsomely reward those individuals who do the due diligence to understand the
opportunity.

Major Point: A
s we went to press, Petronas announced the hiring of hundreds of employees and according to a long time subscriber – a guest on BNN said
this week that Petronas has leased 10 floors in downtown Calgary. Sounds like a commitment to stay!

Subscribers Please Note – This Is Important!

Q: The Bank of Canada says housing prices could be overvalued by as much as 30 per cent. Do you think that is right?

A:
Depends on what you use as a measurement. 1. Based on affordability – yes … but we have not been affordable in Vancouver for 25 years. In fact JREI
discussed Deutsche Bank’s similar assertion earlier this year. Where in the country is he talking about? Most of Vancouver Island, the
interior, Quebec etc.,etc. – in fact most smaller market all over Canada – prices are down over 4 years ago.

The real question is … why does Mr. Poloz find it necessary to make this dramatic announcement now?
Vancouver’s average house price is$ 806,500 up only 2% from $785,600 last year. The Fraser Valley’s average price stands at $511,770 – up only 1% from
$507,300 last year. Toronto’s average is much lower than the oft quoted increase in its detached price (8%). In Montreal – the median price is up only 2%.
It could have easily made the same statement in 2010 or 2011. So, why now Mr. Poloz?

Well, dear reader, whenever the BOC makes statements like that – it has a goal! He is talking it down because he isexpecting something bad to happen. Question is what does he see? Higher rates? A recession? I think he knows that if oil stays at – say $50 it would have serious consequences on the economy, jobs etc. and housing
could be seriously affected as well.

So, should we be worried about his statement? Yes, we should.

These kind of statement are often a harbinger of things to come. In July 2007 I sat at the beach and was reading where our central bank (and indeed the
world’s major central bankers) saw some problems but we were told not to worry. I had not been worried, but now I was. Sure enough the 2008 financial
crisis of 2008 followed. In 2012 our Finance minister said that we were overly indebted and our mortgage market was to blame. We were also told that
the statements made were not aimed at mortgage markets, and not to worry. Yet today as a self-employed person, a commercial loan seeker or an older
credit line applicant you will find it increasingly difficult to be approved. (See below).

And when the Central Bank and our Finance Minister said they were not talking down the dollar (but ganged up on it privately), it went down
dramatically.

These statements always are a shot across the bow and they have a person to tackle a possible problem our Central Bank worries about. Mr. Polos followed up
his 30% overvaluation with a 10%-30% overvaluation and then “we’re not trying to attack the housing market … “, but he is. It is disconcerting.

The Numbers, The Numbers – Kelowna

Judy Chapman of Premier Properties
(judi@pcrealty.ca) says:

“The Central Okanagan Residential sales market been busy in 2014. The number of residential properties sold year to date is up 15.34% over 2013. The
average sale price is up over 8% and the listing inventory is down 14%. Lakeshore sales were up a whopping 81% from 33 to 60 sales. It looks like a
strong market as we enter 2015.”



Indeed! Days to sell are also down 18% from an average of 118 days to 97 days. Sales are also up 9% in The North Okanagan and 4% in the Shuswap this November

Major Point:
Condo prices in November were well off their y-t-d performance as the Kelowna market goes into its seasonal price decline into December/January. But note:
“We are seeing more balance in our Board area but conditions in the Central Okanagan are still somewhat split between balanced and
sellers’ markets with more demand than supply for homes priced below the $500,000 mark due to declining inventory,” Darcy Griffiths, OMREB President reports, further. “The North Okanagan market remains stable for both buyers and sellers,
while the best value for buyers is in the Shuswap. I can second that, as I own condos in Salmon Arm where the market is
in very slow recovery mode. Prices are in recovery, but days on the market still fluctuate for condos at around 200 days (with November clocking in at 126
days).

MORTGAGE ADVICE

CAN AN 82 YEAR OLD TAKE OUT A MORTTAGE WITH A 35 YEAR AMORTISATION?

By Dustan Woodhouse

Strictly speaking: Yes!
In fact in 2009 my then 82 year old client did just that in order to invest the capital. With the net profits between the 2.25% mortgage rate enjoyed for
that five years and their more significant investment returns they were able to pay for full-time care worker which enabled my client to remain in their
home of 40+ years.


It made perfect sense.


However
… new Federal lending policies have all but eliminated mortgage and secured line-of-credit options for retired individuals, at least
those who are lacking pension income other than CPP and OAS.


Case in point is my current 72 year old client lucky enough to have purchased in Westside Vancouver 40+ years ago. Said client is seeking a $100,000.00
line of credit and has been turned down by every Chartered Bank and most Credit Unions, Their profile?

  • 60 yrs banking with the same institution (which turned her down)
  • Stellar Credit Score and Zero Debt
  • CPP, OAS, and $1600.00 basement suite monthly rental income
  • $2,750,000.00 Home value – Clear Title!
  • $40,000.00 in liquid assets.

Standard Lender Response:

‘CPP & OAS not applicable for income qualification, too much reliance on rental income. How will this client make payments?’

There was a time when all that was required was stellar credit, 35% equity, and confirmation of no income taxes owing to CRA – and one could quite easily
qualify for a mortgage of up to $1,000,000 at AAA interest rates (not exceeding 65% of the value of the property).


That time is gone!


November of 2012 saw the introduction of the B20 guidelines for chartered banks, and by Spring 2013 the flood of ‘Equity’ applicants into
the credit unions was so overwhelming that nearly all credit unions either collapsed or significantly limited their ‘equity lending’ programs.


The focus on line 150 documented income is intense, unrelenting, and unlikely to change anytime soon.
Few lenders will consider OAS or CPP income, although a registered pension puts one in a pretty solid position.


The even trickier crowd to accommodate are the self-made individuals who have sold their companies, have stellar credit, significant
liquid assets, and many times clear title properties. All of that gets their toes right up to the finish line, but without any confirmable income, or at least ownership of an incorporated company, crossing that finish line and getting financing
approved is far from a simple task.


Almost daily I am advising clients to forget this thing called logic, as it largely went out the window, along with reasonability and
rationality, when it comes to mortgage approval.


These stringent guidelines were arguably a measure brought in to push business owners to increase their personal taxable incomes, thereby increasing tax
revenues. The folks caught up in that effort, though, are largely the 65+ crowd that relied heavily on equity lending programs to allow them to stay longer
in their homes, drawing funds out as required.


Be wary of the unintended consequences of best intentions.


Back to the opening question about whether lenders age-discriminate. Certainly not officially, as that would be a human rights issue.
However there are 101 other ways for a lender to decline a file from an applicant they are not comfortable with.


Ultimately solutions and options do still exist for all clients. The issue though is that they are often accompanied by a .50% – 1.50% rate premium and on occasion a .50% – 1.00% lender fee.


Documented income is vital. Confirmation of business ownership is helpful as well, second only to income.


Moral of the story:
Get your financial ducks in a row before you retire or sell your company. Create access to the equity in your property before you need it.

Dustan Woodhouse is a highly successful, accredited Mortgage Broker. You can reach him at 604.351.1253.

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