Facts By Email – May 7-14, 2015 #17

“People who think they know everything are a great annoyance to those of us who do.” -Isaac Asimov

THIS WEEK’S FACTS BY EMAIL:

OZZIE OPINES;

BOM – CHANGING BAILOUT RULES (!?)

ALBERTA ELECTION – ‘ORANGE CRUSH’ – AND EFFECT ON REAL ESTATE IN ALTA

INTEREST RATES

CANADIAN DOLLAR – LISTEN TO JOSEF SCHACHTER ON OIL …

NUMBERS FROM TORONTO, CALGARY, EDMONTON IN APRIL

JOIN THE REAL ESTATE ENTREPRENEUR POWER WEEKEND MAY 23/24 (LOOK BELOW)

VICTORIA RENTALS: STABILITY TRUMPS SHOCK AND AWE

– PROS AND CONS FOR WOULD-BE VICTORIA LANDLORDS

MARKETING ONLY TO LOCALS:
SOUNDS LIKE A GIMMICK AND NOT A GOOD ONE

LESS U.S. BUYERS PLAN TO LIVE IN THE HOME
-EXPECT TO SEE SAME TREND HERE

MORE NEW, TOUGHER MORTGAGE RULES COMING NEXT MONTH

Ozzie Talks

1. AT THE REAL ESTATE INSTITUTE OF CANADA ON MAY 28 – ‘BOOM OR BUST’! DETAILS at Jurock.com

2. AT THE REAL ESTATE ENTREPRENEUR POWER WEEKEND MAY 23/24 – DETAILS BELOW

Questions, Questions

Q: I admit to admiration for your steadfast position that inflation would drive real estate assets higher! I listened to it first in 2003 at an
Appraisal conference in Nanaimo. I thought your presentation was farfetched. Not so. Good on you!

A: Thanks for sharing this. Made my day!

Q: You said forecasting interest rates are not your strength, but what is your gut feel?

A:
Well, it is the gut feel that has been often wrong. I always believed that they should be higher than they were. In fact I believe history will blame Alan
Greenspan (Mr. Irrational exuberance – did you hear Ms. Yellen yesterday?). He kept interest rates low for too long and now we are stuck. Central Banks
have no room to move. Outlook? As I speculated in our forecast issue in January. The cost of a rate increase TO GOVERNMENTS is too high. So an increase
will not be started by the prime rate. The bond market is something else. It can be driven by banks selling to each other (Or not! Some banks – right now –
cannot get any overnight financing – like in 2008/2009) or super power investment companies. I watch the 10-year US bond rate. (It is what the US mortgage
market is based on. Canada’s on the 5-year rate.) It is up since December from 1.88% to 2.19%. Not so much? It is huge in terms of a percentage increase
and has crushed the bond market. Germany is worse. It’s is wiping the floor with bond investor’s yield.

Q: Aren’t you like a ‘conspiracy theorist’ with your view that the BOC is worried about something major to happen?

A:
The BOC is changing mortgage rules dramatically weekly! Look below in the mortgage segment. But is worries about ALL markets and the
players in it. Banks, ETFs, individuals. This week it quietly announced that it

” … is taking advantage of the post-financial crisis calm to shore up its defences against future liquidity emergencies, including the power to
bail out provincially regulated institutions, such as Quebec’s Desjardins Group credit union network.”

Really?

“Should another bout of liquidity turmoil arise, we will be ready,”
Senior Deputy Governor Carolyn Wilkins
espoused.

Also, “We look to … the risks of financial transactions that must be priced more appropriately” in the market.

While the measures would make funding “marginally more expensive,” she suggested it’s a “small price to pay” to avert another crisis. Really? What crisis?

Well, Ms. Wilkins:

• … highlighted several emerging financial risks,
• … vastly expanded shadow banking sector,
• … diminished liquidity in corporate bond markets,
• … ability of exchange-traded funds (ETFs) and some mutual funds to withstand major shocks.

“The worry is that fund managers may not have enough cash holdings and may be forced to incur large losses as they sell assets to cover redemptions,”

she explained. “It’s far from clear that all investors and savers appreciate the liquidity and redemption risks involved in some funds … Everyone should be aware of all the risks involved in investing, including liquidity risk.”

WOW! REALLY?

The answer to your question is: YES, Our BOC is worried. They even say so! Read above and below:

• The BOC is thinking of creating a new “contingent term repo facility” available to primary dealers, such as Canada’s big banks, and
  other institutions, in the event of a “market-wide” liquidity crunch.
• As well, the bank is proposing to cut the amount of “benchmark” government bonds it buys and to set up a regular program of term repo operations to
  better manage its balance sheet.
• And the bank is adding mortgages to the list of acceptable collateral financial institutions could put up to get emergency loans.
• The Bank of Canada said it intends to put strict conditions on any emergency loans it would make to provincially regulated institutions. Among them,
  recipients would have to be members of the Canadian Payments Association, the host province would have to backstop any losses incurred by the central bank
  and the emergency loans would only be made if the stability of the Canadian financial system were at risk.

Do not get me wrong. If the bank expects a problem, it should guard itself and us! But these statements clearly prove my point! Be very, very careful out
there.

Q: The Canadian dollar is rising. A few years ago you speculated that the Canadian Dollar will rise above the US dollar again. Is this it?

A: Glad you mentioned a ‘few years ago’. No, as I have stated for the last 3 years, the Canadian dollar travels now alongside its commodity and
particularly oil markets. If and when these markets recover so will the dollar. You may wish to listen to Oil analyst Josef Schachter (he forecast falling
oil prices in January 2013) this Saturday on the Michael Campbell show … www.cknw.com. The forecasters are divided as to the future of oil. I’ll listen
to Mr. Schachter as to my US dollar investments. I will put his views on the hotline, Saturday at 10 am.

Orange Crush!

The NDP crushed the Conservatives in Alberta last night … majorly … leaving the near dead WildRose party (now euphoric) as the official opposition.
What does it mean for us as real estate investors?

Well, no one knows precisely what the NDP will implement. One has to wait and see, however here is what their platform was:

• Not interested in pursuing Keystone Pipeline or the Northern Gateway (projects will be shelved) impacting the service sector as well.
• Bringing in carbon taxes – possibly close down coal production facilities
• Increase corporate taxes by 10% – 12% or so. Result: Head offices and other corps move elsewhere.
• Review the Royalties paid by oil companies (the Conservatives brought on sharp changes but backed down after a year or so). Result: They’ll stop all
  drilling now. Close down all marginal production. Stop all expansion further.

Major Point:

Initial reaction –

Americans investors
will run away. Oil companies may relocate to Saskatchewan and back to US.

REITs
will be affected (particularly in the commercial/office sectors).

Boardwalk
REIT
has over 50% of its income and First Capital REIT over 35% out of Alberta. But also ARTIS REIT and others will be affected,

While large REITs like RIOCAN will not be as much affected by Target closures (it has 13 years leases with its American
head office) it does not like the fact it has fewer anchor tenants and a lot of other closures may not have the paying/staying power of Target.

WATCH KEVIN O’LEARY VIDEO ABOUT

ALTA FALLING OFF A CLIFF INTO A HORRIBLE DISASTER

Seasoned Developer (David Steele) Writes About Alberta And The North

“Ozzie-over the past several months as we have been tendering our projects throughout Alberta and BC, the response from trades in Alberta has increased
significantly. A year ago, we had two framing crews from Alberta bid a job up north. Last month, we had bids from 10 Alberta framers.

The Alberta election will certainly create more uncertainty in Alberta and if there is uncertainty, more of the trades will look for longer-term
work elsewhere.

The North is still cruising along. BC Hydro (site C dam) recently issued the contract for the man Camp to Atco and Bird construction.
A major gas company is clearing a 100 acre site. And many people are sitting waiting for the much-anticipated $30,000,000,000 announcement by
Petronas/progress energy that is expected in June.”

Next week: More on Alberta and its surprising election results

The Numbers, The Numbers – Toronto

11,303 sales in April 2015 were the highest sales result on record for any month of April and represented a 17 per cent increase compared to April 2014.
New listings were up over the same period by five per cent. What does it mean? Higher prices ahead.

The overall average selling price for all homes reported sold was up by 10 per cent year-over-year to $635,932. The MLS Benchmark price, was up by 8.4 per
cent. Interesting point:

Average price growth outpaced growth for the MLS Benchmark, suggests that a greater share of higher-end homes changed hands this year compared to last.

Major Point:
With only 18 days on average to sell a property, Toronto is boiling hot! We expect that to continue as the big bucks from around the world have been told
it is a better play than gold! (see last week). In any case we recommended Toronto for 2015. Toronto’s 11,000 sales are higher than all of Vancouver,
Calgary, Edmonton, Victoria and the Fraser Valley together!

Please note:
The big indexes are split between area code 416 and 905, with 416 the pricier area. The average detached home price in 406 clocked in at $1,056,100,
the average in 905 came in far lower at $729,900. The above ($814,200) is the average of the two.

The Numbers, The Numbers – Calgary

The fifth consecutive monthly benchmark price decline in Calgary. “With fewer buyers making purchase
decisions and improved selection for resale, new home and rental property, sellers have been either adjusting their expectations on price or delaying
their plans about when to list their home,”
said CREB president Corinne Lyall.

Total sales
stood at 1,957 units some 23 per cent below last year’s levels and nearly 15 per cent below April’s long term averages.

Year-to-date apartment sales
activity has declined by 33 per cent, while new listings have risen by nearly eight per cent.

The detached sector
continues to be the most balanced out of the three market sectors. The detached market does vary significantly depending on the price range. Higher priced
properties saw a sharp decline.

Outside of Calgary areas also saw a decline in sales of 26 % decline.

Major Point: 40 days for the average property to sell is not that bad and prices – particularly on the detached home front are hanging in there. But with rising
listing and the very negative (initial) impact of the astounding election results … The market will see soaring listings and falling sales and the
commercial sector will be sharply affected. See piece on election! If selling, read our piece: 21 ways to make your home sell faster and act now!

The Numbers, The Numbers – Edmonton

Residential
sales are down 13% from April 2014. Single family sales stood at 1,001 – down 14% over last April (1,147 reported). Condos took the biggest hit down 20% over last year with 432 sales.

But – on the bright side – despite a decline in all residential sales, the average sale price was $337,270 up 3% from April last year. Single family
dwellings sold for an average of $438,641 (up 2% from last April), condos for $252,935 (up 0.2% y/y) and duplex/row houses were $356,022 (up 7.23% y/y).

The end of month residential active inventory was 6,784 for the Edmonton trading area. Average days on market were 44 compared to 42 in April 2014.

Major Point: Edmonton is currently not affected as strongly as Calgary, but make no mistake – it will be affected. Maybe it hung in there because a lot of the
employment is in the government sector concentrated here – no fear for a job loss. The election will affect the oil sector with a lot of supporting
facilities in Edmonton.

Victoria Rentals Outperform Burnaby: Stability Trumps Shock And Awe

– PROS AND CONS FOR WOULD-BE VICTORIA LANDLORDS

Metro Vancouver apartment building investors are now buying in Victoria where more stable prices, steady returns and higher capitalization rates trump the
shock and awe being seen in B.C.’s largest city.

A key aspect is less competition from Asian speculators, who have helped define Metro Vancouver apartment buildings as land deals and driven per-door
prices to outlandish highs. This is most apparent in Burnaby, where the price-per-suite of 50-year old wood-frame apartment buildings
close to SkyTrain stations are now north of $350,000. These are often apartments that rent for $850 per month or less. A similar trend is being seen around
the new Burquitlam SkyTrain station in Coquitlam and to a lesser extent in North Surrey and New Westminster neighbourhoods close to SkyTrain hubs.

The cycle works like this:
An old apartment site (or an assembly of two of more buildings) is sold to a deep-pocket investor as a land deal. The buyer applies for increased density
on the site through rezoning for condominiums. Within 12 to 18 months, the new tower condos are presold to investors, who in turn rent the condos out. The
result is an increase in rental stock, albeit at higher prices. The typical rent for a Metro Vancouver condo is $1,400 per month and the vacancy rate is
0.7%, according to CMHC.

All Metro suburban municipalities allow old rental buildings to be torn down and replaced by condominiums. Vancouver restricts such developments and also
charges community amenity fees equal to 75% of the value of any residential land that does achieve rezoning for higher density, which is why some suburban
apartment buildings are now selling for Vancouver-level prices.

It is hard for the local landlords, who have traditionally dominated the Lower Mainland market, to compete.

Bill Goold
of Re/Max Bill Goold Realty recently sold an old apartment building in Burnaby’s Metrotown area to a mainland China investor for $40
million. All cash.

Such white-hot action has singed local landlords, who are now looking to other markets – and Victoria, the second largest city in the
province, is a logical choice. Second tier cities are Kamloops and Prince George (Kelowna is seen as too tightly held by a small group of local landlords.)

Here is a breakdown of the pros and cons of Victoria’s apartment building market.

Pros:

Per-door-prices: Based on recent sales, expect to pay around $126,000 per suite for older Victoria apartment buildings close to downtown, such as in the Quadra area or
near the Legislature. This is about half the price of Vancouver’s core.

Capitalization rates: It is not uncommon to find cap rates in the 5% range, though the latest sales have been tracking closer to 4.5%. While fairly low, cap rates are higher
than in most of Metro Vancouver.

Low vacancy rate: Greater Victoria’s rental vacancy rate is 1.5%, about the same as Metro Vancouver and below the national urban average of 2.8%. But four local landlords
with well-located properties told us they have had zero vacancies for three years or more.

Fairly high rents: Rising demand has pushed the average rent for a two-bedroom apartment in Greater Victoria to $1,068, second only to Metro Vancouver.

Steady demand: Student housing and retirement rentals (14% of the population is over age 55) provide a stable foundation for rentals.

Land assemblies:
While not in the same league as Metro Vancouver, there have been recent assemblies of adjacent apartment buildings as development sites.

Now the Cons:

A glut of rental condos:
Victoria already has a buyer’s market in condominiums and many more are coming to the market. This year nearly 600 new condos will be complete and there
are 745 under construction. The inventory of new and unsold condominiums hit an 18-year high in 2014 and will remain elevated this year.

New rental construction.
For the first time in years, new rental buildings are rising in Victoria, which will increase competition for older apartment buildings bought by
investors.

Low in-migration: The migration of people to Victoria has been falling for the past five years and the majority of people who do arrive come from B.C. and Canadian centres
that have lower housing prices. Victoria is not attracting many Asians, who dominate Metro Vancouver’s immigration curve.

Major Point: Per-door-prices for Victoria rental apartment buildings have increased about 9% from a year ago, but this is a landlord market, not a speculative play. If you are looking for stable rents and long-term cash flow, Victoria offers
excellent potential.

Marketing Only To Locals: Sounds Like A Gimmick And Not A Good One

The 48-storey Private Residences at the Hotel Georgia in downtown Vancouver features condominiums priced north of $1.1 million. There are
still 14 left to sell, according to Bruce Langeris, president of Delta Land Development. This includes a
6,800-square-foot penthouse priced at $18 million.

So what is the marketing strategy? The condos are being marketed only in B.C., not in Asia. The pitch? All advertising is strictly local and in English, as
Langeris said he wants the residences to be occupied (“real neighbours”, in his words) and not vacant.

Major Point: We understand the pitch, but we find it counter-productive to the developer and likely a reverse marketing ploy meant to entice offshore
(read Chinese) investors by making the Hotel Georgia seem even more exclusive than the high prices suggest.

Just because the condos aren’t advertised in Asia or in any language but English does not mean that buyers will be restricted, but the message is
unmistakably xenophobic. I wouldn’t want to live in such a building.

Fewer U.S. Buyers Plan To Live In The Home – Expect To See Same Trend Here

A subtle but potentially ground-shaking trend is emerging in the U.S. housing market and we expect it to soon emerge in Vancouver and Toronto. Less people are buying homes to live in and are instead purchasing for investment.

In the first quarter of this year, owner-occupier U.S. home buyers made up 63.2% of all detached and condo sales, down from 68.6% in the same period in
2014. That is a big drop.

Meanwhile non owner-occupant buyers — any buyer who purchased a property but has their property tax bill mailed somewhere else — reached a new high of
36.8% in the first quarter of 2015, the highest level since the first quarter of 2011, according to RealtyTrac. The California-based real
estate tracking agency adds that is not institutional buyers who are dominating the housing investors, but “mom and pop” buyers purchasing one or two
properties.

We believe the trend will accelerate in Metro Vancouver and Toronto, where house prices are soaring out of reach of first-time buyers and are most
accessible to those who already own appreciating property. With mortgage rates at super low rates, steady and growing rental demand and eye-popping price
appreciation, more Vancouver and Toronto homebuyers will be buying for cash flow, not to make a home.

Major Point:
But there is a warning here for the sophisticated residential investor, and it come from Thomas Barrack Jr. He is the executive chairman
of Colony Capital LLC., which now owns 20,000 detached houses that it rents for an average of $1,250 per month across the U.S. Barrack
told a Bloomberg audience this week that a rush of “amateur” investors into the U.S. housing market may signal it is time to get out of game. Sound familiar in B.C.?

HOT PROPERTY:

Phoenix:

1.
Avondale: 4 bedroom/2 baths 2005 built: $139,900;

2. Buckeye: 3 BR / 2 baths $129,900;

3. Phoenix/Mesa: 2 br/2 bath townhouse,
$69,900.

Details on your website. Please send us any property that YOU think is a deal. Also post it on YOUR website. IT is easy! Always read the
disclaimer too! There is no charge to be there and here.

Tougher New Mortgage Rules Coming Next Month

As we have been warning, another round of mortgage regulations are coming, some by the end of next month.

OSFI (Office of the Superintendant of Financial Institutions) still feels that the market needs some tweaking as they set three new policies related to
their B-21 guidelines. These changes will make it more difficult to get a variable rate with less than 20% down, 100% financing via cashback and self
employed mortgages

These rules could make it harder to get low-ratio insured variable-rate mortgages, self-employed mortgages and 100% financing.

Here’s what’s happening:

– The qualifying interest rate for low-ratio variable and fixed terms of less than five years will officially become the Benchmark Qualifying Rate
(currently 4.64%). This change only applies to single insured mortgages, not bulk insured mortgages, says CMHC. Effective date: “As early as possible after
June 30, 2015, and no later than December 31, 2015.”

– Lenders will officially be required to obtain “third-party verification” of income for all borrowers, “including substantiation of employment
status and income history.” CMHC previously did away with “stated income” financing, but private insurers, like Genworth, still offer a
form of non-traditional income verification. CMHC’s said this announcement “is simply [meant] to add additional clarity and re-affirm CMHC’s position,”
spokesperson Charles Sauriol said. Effective date: June 30, 2015.

– Cash-back down payment mortgages will be eliminated unless the borrower can come up with 5% down on their own. Ever since OSFI’s Guideline B-20
killed these products at the banks, this type of 100% financing has only been offered by a small number of credit unions. Effective date: June 30, 2015.
However, a borrowed down payment from an unsecured line of credit or even credit card is still accepted however, as CMHC feels their exposure is lower if
the borrowed down payment is not factored into their mortgage.

“These changes won’t have a big impact on the typical borrower,”
says Kyle Green of Mortgage Alliance (778-373-5441, Kyle@GreenMortgageTeam.ca). “Most can breathe a sigh of relief that no further changes were made as some were speculating. We have definitely seen a pattern where OSFI and CMHC
changes are making smaller and smaller impacts which means they may be close to where they want the market overall.”

Participate With The Experts!

Our Real Estate Entrepreneur Power Weekend on May 23 and 24 is designed for Real Estate investors who want to take their skills to the next
level.

Learn a system to get focused.

Learn a system to recognize and capture great deals!

In addition to myself and Ralph Case, 11 hand selected real estate EXPERTS will teach YOU specific property strategies.

Experts? Yes, among others, one is a Georgie Award winning builder, some are respected authors and others have bought over 2,000 condos in the last 5
years.

You will learn state of the art property investment systems, new ideas to finance property, to renovate property, to buy in the U.S.A., and to structure
Joint Ventures, as well as how to deal with Realtors, mortgage brokers, joint venture partners, Real Estate lawyers, accountants – everything.

There are also 3 panel interviews with successful local investors. Learn from DOERS!

Get the systems in place that you need to find deals, analyze deals, and manage properties effectively and successfully.

Learn and network with other successful Real Estate investors!

“The next Real Estate Entrepreneur Power Summit is May 23 and May 24 at the Empire Landmark Hotel, Vancouver.

The “Entrepreneur Summit” is a full weekend of presentations from successful investors and experts on leading edge Real Estate investment techniques.

No Gurus selling CDs and courses, this event is targeted to Real Estate investors that want to take their knowledge and results to the next level.

Full two day weekend for $297. Early Bird at $197 –

Book at http://realestateexpertsummit.com/ or call office at 604-683-1111

Northern BC Needs LNG Bad; Forestry Is Sunsetting

While average prices remain elevated in places like Fort St. John and Dawson Creek, housing sales are waning and listings are rising right across northern
B.C. Residential sales through the first quarter of this year were down 15.4% from a year earlier and prices in March were down 4.5% to a regional average
of just under $250,000, the first and we don’t expect the last, price reduction this year.

Bottom line is the north needs a decision on the first liquefied natural gas (LNG) plant, which is expected to come – either yes or no – in mid-June.
(Front runner Malaysia-based Petronas‘ investment decision would be worth $36 billion when the plant and pipelines are included.)

If yes, northern centres like Prince George, Fort St. John, Prince Rupert and Kitimat
will see a resurgence in housing sales and prices. If no, or worse a long-term maybe, the northern housing market will stagnate, despite the still-busy LNG
gas fields and the expected start of BC Hydro’s Site C dam. (The latter will provide many construction jobs, but BC Hydro is building mega
workcamps to house workers. Few will be looking for rentals in nearby Fort St. John.)

A forestry recovery is often cited as the saviour of the north’s economy, but logging’s long-term future is in doubt. Here is what is going wrong in the woods.

Lack of timber: Ten years after the pine beetle killed 57% of the northern pine trees (a key species), the salvage of this lumber if pretty well over. As a result, the
supply of timber will drop from 72 million cubic metres in 2000 to 62 million this year, 52 million by 2020 and 44 million per year after that. To be brutal about it, the BC northern sawmill industry will be nearly cut in half within 10 years.

Asian demand waning: While lumber exports to Asia are higher now than a few years ago, demand is waning as China’s building boom wanes. (Most BC lumber is used in Asia for
concrete forms.)

U.S. demand lower than expected: U.S. housing starts have not recovered to the 1.5 million annual range needed to truly boost demand for

Falling prices trigger duties: Lower lumber prices have triggered softwood lumber duties on exports to the U.S.

Major Point: If you are bullish and confident on LNG, now is the time to be looking for real estate in the listings-heavy north. If you don’t think LNG and the all
the pipelines are coming anytime soon, look elsewhere to invest in residential real estate.

Northern mailout

Hot prop

Kyle

Canadian Home and Mortgage Corporation (CMHC) released the Updated Results of its House Price Analysis and Assessment Framework for Canada and 12 Markets
last week. The report focused on housing market risk factors such as overheating, acceleration in house prices, overvaluation, and overbuilding. Their
conclusion about the Edmonton market was that it presented a low risk in all these factors.

“While price growth has increased slightly since 2011, price increases remain in line with growth in the population of first-time home buyers and growth in
personal disposable income. As is the case for Calgary, the economy is being impacted by lower oil prices and slower inflows of migrants that will likely
contribute to an expected slowdown in the rate of price growth in 2015,” stated the report from CMHC.

“Quebec and cities like Regina and Winnipeg have all be tagged with a high risk of overvaluation. A moderate risk increase for overvaluation has been
assigned to Calgary, Toronto, and Montreal. We are still confident that our market remains stable. We are seeing prices starting to level off. While still
higher than last year, the average Edmonton single family home still remains one of the most affordable among major Canadian cities,” REALTORS®
Association of Edmonton President Geneva Tetreault explains.

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