Facts By Email

Chinese Stock Markets Crash By 3 Trillion – Recover A Bit And What’s Next?

Big question this week is: Will the stock crash and rumours of Chinese people selling real estate to cover their losses in stocks have any effect on Vancouver? If so … what?

Well, there are 3 camps of thought … 

1. The market was up 100% and the 3 trillion drop just gets back to where it was before the sharp rise and is still up 20%.

Outcome: All will proceed as usual. Nothing to worry about.

2. China fights modernization with intervention and controls

  • Half the stocks on markets are not trading
  • 5% owners not allowed to sell their holdings for 6 months
  • Government watching sellers – questioning brokers – investigating all large sellers
  • Giving millions to brokers … to buy stocks last Thursday – guaranteeing losses.
  • Now people are playing which way the government measure will work.
  • Will buy fewer commodities from Canada
  • Squeeze on Margins

Outcome: Will not succeed … market crash will resume. People will look for money – might sell overseas holdings. Money that is here though is likely to stay, Canadian dollar will continue under pressure.

3. Whistler crashed when US buyers left in 2009. But the reason was that were also serious housing and economic collapses in the US … So, are there… 

  • Slowing housing markets.
  • Slowing retail markets
  • Reported auto sales are falling off
  • Slowing economy
  • People are selling property to pay losses in the stock market

Outcome: China’s economy in trouble.Will buy fewer commodities. Result … Canada will export less … Canadian dollar will be lower.

What do we think? A little bit of everything. But people that already have put money into Vancouver will not sell here to move their money back, being happy to have it out of China in the first place. Also, Beijing changed the law that restricts the amount of money that forced individuals to take out only 50,000 per person each year.

(Although many are taking out a lot more – as we see every day as the money arrives in Vancouver buying real estate.)

According to the Wall Street Journal, China’s central bank is in favour of the removal of financial limits on how much individual Chinese and businesses can spend on stocks, bonds and real estate in foreign markets.

Outcome: With the stock market cutting into individual holdings they have an incentive to take money overseas. Those that can, will continue to take their money out. So, those that are already here … will leave it here. Those that have heavy losses are likely the smaller investors, not necessarily here … but if they planned to come … they won’t now.

It really bears watching. If Beijing is not successful stopping the rout (We believe the collapse will continue) and losses mount … all bets are off. The US sellers NEEDED to repatriate their money for their own local reasons. We expect a strong July to continue … but as investors … caution!

Questions, Questions

Q: Re … possible changes in How the CRA treats US LLLPs. “Ozzie … this is critical for me, you, and any other Investors in the US which hold properties in LLP’s / LLLP’s. It seems that the CRA is now formally reviewing how they will tax US LLP’s & LLLP’s. Unfortunately the comments lean towards them taxing these entities as foreign corporate income. Worst case, we may all be subject to double taxation, plus back taxes & penalties for previous filings. Best case, the CRA may firmly and formally establishes that they will tax LLP’s as partnership income, giving us all some comfort at night. More importantly, does your contact at Keats Connelly have any insight as to what may be coming down the pipeline?”

A: Dale A. Walters, CEO at Phoenix Accounting firm Keats Connelly replies:

“I have been reading the same things the Canadian accountant has been reading and do not come to the same conclusion. First of all, the article attached was an attorney’s review of the background and how CRA will look at the issue, it was not coming from CRA. Secondly, I have read the article a number of times and do not come to the same conclusion as your Canadian accountant, and 3) I believe it would be premature to make moves now that may be unnecessary when the CRA actually rules. If the CRA does actually rule against LLPs/LLLPs, then you can make the changes then. There is no benefit to making changes now and there nothing negative to waiting. Whatever is done is done for this year. If CRA has not made a ruling by the end of the year, we should consider making changes before 2016. These changes should only take 3-4 weeks at most (it is likely they could be done in 3-4 days).

By giving CRA another 4-5 months, we should have an announcement and even if not, we should have a better idea how they will eventually rule.

If CRA follows their process of looking to see if it looks like a duck, walk like a duck and quack like a duck, then they should rule that LLPs and LLLPs will be treated as a partnership in Canada. If they were smart (which I am not saying they are), they would treat them as partnerships because in the next amendment of the Treaty, I am sure they will clean up the mess they made with hybrid companies with the last amendment. I believe they will simply add language that they have other places in the Treaty that says the other country will treat the entity, income, etc. the same way the home country treats it. That is for example why US retirement accounts are deferred in Canada and Roth IRAs are tax free in Canada. If this makes sense to you, we will wait until the middle of November before we decide what to do.”

Q: In your 16 page newsletter you always featured a Major, Major point. This was one of my favorite features. I remember your many detailed forecasts on inflation/deflation/ etc. It would be great if you could do a larger discussion on the above again?

A: We will do a separate update report in the next 2 weeks. It might also help to revisit our OUTLOOK issue (No. 1 in 2015). Our basic outlook has not changed. We are making a change however in that we are adding another possible outcome

The Numbers, The Numbers – Okanagan

The fine Okanagan Real Estate Board reported sales activity in June 2015 as the strongest in eight years up by 5% from the same month last year. Also on a year-to-date basis sales are 8% ahead compared to the same six-month period. This brought the results back to 2007 sales levels. The Shuswap also pushed home sales to an eight-year high and reduced days to sell to 72 days on average compared to 94 last year at this time. The board reports that the majority of the buyers are families who are moving up or empty nesters and retirees who are downsizing with 60% coming from within the Board area, 15% from Alberta, and 10% from the Lower Mainland and Vancouver Island.

That is a surprisingly low number of local buyers, but it also shows that the Okanagan remains a favorite place to retire and live for all Canadians.

Single family residential sales in the Central Okanagan were up 8%compared to last June while year-to-date totals improved by 13 % over the same six months last year.

Average days to sell a single family home in the Central Okanagan in June was down to 59 days compared to 65 in 2014 while days to Active 3,752 units from 4,002 last June

In the Shuswap, single family home sales for the month improved by 9%compared to June 2014 and saw a 17% improvement year -to – date.

The North Okanagan however, experienced a 12% dip in single family sales during June compared to last year and saw a 9 % decline year -to-date.

Total residential sales for the month rose by 5.5 % board-wide with 924 units compared to 876 in 2014.

Inventory (active listings) declined 5.3% to 7,511 from 7,935 last year at this time.

Total Okanagan
June 2015
June 2014
%
YTD 2015
YTD 2014
%
Units Sold 
1,006
961
+05%
4,416
4,087
+08%
Average Price 
433,200
424,500
+02%
Active Listings 
7,511
7,935
-05%
Detached 
526,900
494,700
+07%
Condos 
253,900
255,700
-01%

Total sales and total listings inventory for all of the Okanagan is shown. Prices are for Okanagan Central (Kelowna)

Major Point: Finally some light at the end of the tunnel. And it is not a train coming! Except for areas like Armstrong and the Northern sections, markets are back to where they were before the downturn. It as a long term coming and there are still great deals to be had.

The Numbers, The Numbers – Toronto

11,992 sales came through the TREB in June 2015. This is a new record for the month of June and an 18 per cent increase over June 2014 result of 10,132. Selling prices were up markedly as well in June, for all major home types. The average selling price was up by 12 per cent over the same period to $639,184.

High-end homes have accounted for a greater share of overall transactionsthis year compared to last year.

Toronto
June 2015
June 2014
%
YTD 2015
YTD 2014
%
Units Sold 
11,992
10,132
+18%
54,453
48,930
+10%
Average Price 
639,200
569,200
+12%
624,900
560,000
+09%
Active Listings 
17,972
20,686
-13%
Detached 
816,600
703,000
+14%
Condos 
390,900
366,000
+06%

Major Point: Toronto continues to shine still attracting a lot of overseas money … more from Europe than China! Money that is fleeing the euro, money that wants safety first and is not concerned about return. Well, maybe concerned … but returns is not the first goal. In addition the euro (still) is stronger than the loonie, the pound is stronger and US dollar is soaring. International buyers have found LOVE in their real estate buying in big city Canada.

The Numbers, The Numbers – Edmonton

For the first time in 2015, Edmonton recorded an increase in year-over-yearsales. June 2015 saw 2,008 sales, 2.4% over the 1,961 all residential sales reported in June 2014. This number includes 1,243 single family dwellings (2.1% more than 2014), 572 condo sales (1.6% more than from 2014).

Single family prices were up 2% year-over-year at $444,800 for June 2015.

Condo prices continue to remain static at $255,662.

Duplex/row houses are still popular and have seen price growth of 2% year over year.  June prices have dropped slightly from May by 1.4% for single family, 0.1% for Condo and 0.8% for all residential.

Inventory, while up, is still healthy at 7,177 for the Edmonton CMA at the end of June 2015, down from 7,303 in May. There is currently  just over three and half months’ supply of inventory.

“The reality of what we are seeing in the market is that the slight hesitation from buyers that came with the drop in oil prices is lessening. Edmonton has not been hit nearly as bad as what many predicted and buyers are becoming more confident that our market won’t plummet. This renewed confidence coupled with low mortgage rates and a healthy selection means that people are realizing that this is still a good time to buy.” Thus … board president Tetreault. INDEED!

Single family average days on market was up to 46 from 43 in May, Condominiums were averaging 52 days compared to 49 in May.

Edmonton
June 2015
June 2014
%
YTD 2015
YTD 2014
%
Units Sold 
2,008
2,135
+02%
8,975
10,129
-12%
Average Price 
378,000
371,600
+02%
375,200
366,400
+02%
Active Listings 
7,177
5,382
+26%
Detached 
444,800
435,600
+02%
440,700
432,400
+02%
Condos 
255,600
255,300
00%
253,000
249,000
+01%

Major Point: Edmonton is doing far better than could have been expected, what with low oil prices, much higher taxes etc. Sales a bit higher, prices a bit higher (!) and listings a bit down. An average of 46 days on the market is fine. A market very much and surprisingly in balance.

The Numbers, The Numbers – Calgary

A much better month … .because despite the 18 per cent year-over-year drop in sales (2,183 sales), transaction levels actually remain only five per cent below the 10 year average for June and three per cent above levels over the past five years.

“We’ve seen less concern from consumers lately,” said CREB president Corinne Lyall.”One of the main reasons is that we haven’t seen the worst case scenarios play out in the energy and housing sectors.”

With conditions remaining relatively stable in June, there was minimal pressure on home prices. “Every transaction has its own unique features, which is why we always encourage consumers to discuss these differences with local experts.”

Second quarter results pointed towards more stability in the market.

While both sales and new listings have slowed for each property type within the city,the apartment sector continues to report the weakest absorption rates, resulting in an 8% decline in the average price in June.

Calgary
June 2015
June 2014
%
YTD 2015
YTD 2014
%
Units Sold 
2,185
2,657
-18%
10,876
14,728
-26%
Average Price 
484,100
491,600
-02%
473,600
482,500
-02%
Active Listings 
5,070
4,759
+07%
Detached 
554,700
566,200
-02%
543,000
555,200
-03%
Condos 
322,200
351,800
-08%
312,800
325,200
-04%

Major Point: Fewer sales, but also a lot fewer listings. Earlier this year active listings were up 50% over last year now they are up by only 7%. Surprising number? So, a lot better …

Hot Property

1. Kamloops: RARE Triplex in North Kamloops GREAT Income. Sale Price: $429,900. Monthly Rent: $3465;

2. EDMONTON, ‘no money down Condo’ in Edmonton. 1 unit left in a building that has been redone and stratified. Owner is offering some creative ways to sell it which can equate to a no money down deal. The unit is a bedroom unit close to the river valley.

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