IN THIS WEEK’S FACTS BY EMAIL:
- SPECIAL REPORT: LAND RUSH 2016
- INFLATION AND DEFLATION SIDE BY SIDE
- “IT IS DIFFERENT THIS TIME”
- RESEARCH MORE IMPORTANT THAN LOCATION
- BUY ZONED LAND – ONLY – IN THE SEA-TO-SKY CORRIDOR
- FUTURE POTENTIAL IN HISTORIC WHALLEY
- B.C. HOUSING SALES “HIGHEST IN HISTORY”
Questions, Questions, Comments
Quite a few questions and raised eyebrows on my ‘inflation and deflation’ at the same time comments. I stick with it. We are not heading to a total extreme one way or a total opposite other way. We will have and actually DO have both at the same time. Please read below:
Q: You said at Landrush that you would be watching bank stocks and other financial institutions and not invest in them, why?
A: Not sure I said it like that. I’m not in stocks at all, although I am tempted to buy oil stocks if and when they hit their January lows again. My point was this:
1. With negative interest rates now a reality in Europe and threatened by our Central Banker for Canada last December, it will be harder and harder for our banks to make money! They have to pay for the money they use to lend out. Result? They will take bigger chances on the lending side to earn higher returns.
2. The oil companies have borrowed untold billions; many of these will never be paid back to their banks. Ergo, be careful with banks.
On the funny side (but also eyebrow-raisingly scary) a Dutch mortgage borrower took his institution to a tribunal and argued that as he had a prime minus .7% rate and the banks borrowed at the libor rate (negative -.5%) he was owed the difference. The tribunal agreed! At time of this writing the tribunal has received 34 more requests. (I imagine there will be a flood.) Michael Levy mentioned on Saturday that the same took place in Denmark where borrowers are expecting to not only NOT pay their mortgage but also get rebates. Ha-ha! Unbelievable … maybe another reason to watch investing in financial institutions.
Q: The Canadian dollar is relentlessly going higher, what do you think will be the outcome?
A: I am not a stock/currency etc. advisor – not my strength – but inasmuch as the dollar is tied to the price of oil and inasmuch as Russia, Iran and Saudi Arabia cannot come to a price fixing agreement (again), the Canadian dollar is poised to go down with the price of oil. But, you ‘places’ your bets, you ‘takes’ your chance.
I am just saying. Not a prediction.
Special Report: Land Rush 2016
The 23rd annual Jurock Real Estate Insider Land Rush conference drew another packed house to a downtown Vancouver hotel on April 2 to hear where to buy, where not to buy and how to profit in what Ozzie Jurock told the audience is a pivotal, perhaps defining year, for real estate investors.
We begin with Ozzie’s astute observations on inflation and deflation, and present other highlights from five speakers that kept nearly 600 delegates glued to their seats. Next issue we wrap up coverage of Land Rush with insights from the rest of the sterling speaker lineup.
Inflation And Deflation At The Same Time?
Here is the gist of Ozzie Jurock’s eyebrow raising address to the Land Rush Conference as he explained how real estate investors can survive today’s runaway inflation.
We are now operating in a parallel universe where runaway inflation and crushing deflation not only coexist in the same environment but feed off each other in an unprecedented and unsettling economic whirlpool, Jurock explained.
The 70% plunge in oil prices over the past 18 months, a 50% drop in steel prices in two years, the overall global collapse in commodity values, stagnant wages, a swooning loonie and near-negative lending rates are a reality. Yet, the price of a Vancouver bungalow is 25% higher than a year ago, luxury real estate prices around the globe from London to New York, from Berlin to Hong Kong are soaring and more Rolls Royces are being sold on the streets of Moscow and Beijing that at any time in history. Inflation and deflation at the same time!
We have preached for years on the prospect of a runaway inflation of hard assets and now, right now in 2016, we are seeing its true face. It is due, of course, to the increasing reliance on government stimulus and money printing that has had the result of money swirling around the globe looking first for safety and driving hard assets prices into the stratosphere in the process.
To expect in this new age to find answers in the past is ridiculous. Those that argue a 30s type depression are wrong (no docile masses in breadlines) and those that argue a return to Germany’s Weimar republic with its 1 million price for an egg are wrong as well. There will not be one or the other! What we are seeing RIGHT NOW instead is one AND the other at the same time!
What we have seen in the last 20 years has been new as well … not a total depression but an industry-by-industry depression (argued Ozzie). If you were the head of a vinyl record company in the 70s, you were in an $11 billion industry – in a boom. Along I come, a CD producer and 5 years later I am in a $14 billion business in a boom and you were broke – bust. While I am still happily enjoying the boom, a DVD producer appears and five years later, he is in a boom and I am in a bust. There are a thousand examples – from Wang to Blockbusters video and so on. So boom and bust at the same time.
Today we have deflation in commodity prices and inflation in hard assets AT THE SAME TIME. Do not go rummaging around in the past, there are no answers there for the new economy. The difference? Our deflation in commodity prices is an economic deflation. The world is buying less of our commodities. It is a function of the economy. Our runaway hard asset price inflation is a function of overprinting, dysfunctional governments and the rich escaping collapsing currencies and corrupt governments.
Look at home: Our new federal government first proposed to go $10 billion deep in deficit spending; now it is $30 billion and rising. The Alberta government has released a $10 billion deficit budget of its own and, like the feds and Ontario, have made no promises to reach a balanced budget. Ever.
With hyper-charged printing presses churning out money – remember the global government stimulus started seven years ago – and central banks offering money at near zero, even negative, lending rates, runaway inflation in hard real estate assets is the visible result.
An East Vancouver bungalow is now selling for 72% more than it was just before the great recession when the stimulus spending started: it is not because of lipstick renovations and a new kitchen that is now worth $1.1 million. It is because the dollar is worth so much less and our constant printing of money is flooding the world with yield seeking cash.
Real estate, especially residential real estate, is now virtually the only bulwark standing between the average Canadian and the twin tsunamis of inflation and deflation. The stock market is too vulnerable; the price of gold has fallen by $200 in the last two years. No shelter there.
However, advises Ozzie, real estate investors have to be more savvy and selective than ever. Buy in Calgary, Edmonton or Saskatoon and the price may not budge for years, the result of deflation in resource industries. But Chilliwack average house prices are up 20% from last spring; and they are up 29% in Langley and more than 14% higher in Kelowna and Nanaimo.
In Vancouver, of course, the typical house has made more cash in the past six months than the average annual household income.
And you have to make a decision quickly. Stricter, much harsher, regulations are coming to restrict mortgage lending. In Hong Kong, a 20% tax is being levied on homes purchased by investors, and we could see a similar move here. Governments need taxes to fuel their spending.
This year Italy will be the next big (bigger) fat Greek financial domino, followed by France, which has not had a balanced budget since 1974, and then Spain, as runaway inflation and unstoppable deflation combine to crush those overly-stimulated, under producing economies. Russia is on the ropes and Japan, with debt at 240% of GDP, is staring into the abyss. China’s economy is being shaken to the boots of potentially billions of unemployed workers.
Major Point: But the rich – who are getting much richer – don’t need to worry. They are getting their money out fast to real estate and land to safe, stable destinations. Like Canada. Like Toronto. Especially Vancouver, where the foreign real estate money is here to stay, parked permanently in the most livable city in the world.
For Canadian real estate investors, this is a year of economic volatility in which fortunes are being made and later lost. Be careful, but also be quick.
Major Point 2: Ozzie also said: All booms will be followed by busts – eventually, so buy well-selected real estate where the basic are in place – jobs, low vacancy rates, bright economic future. Re-read the Outlook issue.
“It Is Different This Time”
Speaker: TONY QUATTRIN: Vice Chairman of CBRE National Investment Team – Vancouver (CBRE is the world’s largest commercial real estate services and investment firm). Quattrin’s Vancouver team brokered the largest office property sales and, recently, the largest multi-family portfolio sale in Vancouver and consistently averages more than $1 billion in annual real estate transactions.
“It is different this time,” Quattrin told Land Rush, in explaining why Vancouver in particular is in the midst of the “most buoyant real estate market I have seen in my 33 years in the business.” He listed the reasons why the unbendable rules of supply and demand have created such a robust real estate market in the city: a shortage of land and property colliding with unprecedented domestic and global real estate demand and historically low mortgage rates.
Every real estate sector is booming and, when B.C.’s traditional mining and forestry industries recover, he said, it will kick up another gear. Already 33% of recent commercial real estate sales in Metro Vancouver are linked to offshore investors, he added and that demand is accelerating. When a globally read newspaper ran a quiz asking readers where, among leading cities in the world, they would prefer to live, 89% of them chose Vancouver, he noted.
Quattrin dismissed fears of higher interest rates, which he said was about the only thing that could derail Vancouver’s real estate market. Interest rates will stay low, he said, because it is the interest of governments around the world to keep them low to service such high debt. In Canada, for example, the federal debt is $18 trillion but, because of near-zero interest rates, its debt service costs are lower than they were in 2007 when the debt was $8 trillion. “The feds are out of control,” he said, “they won’t control spending and they can’t raise the interest rates.” And the same is true globally due to a near decade of quantitative easing. “There is a wall of capital; the world is awash in capital,” he said, suggesting that much of it will continue to flow into Vancouver real estate. “There is a lot of upside room left in Vancouver’s housing market and the entire real estate market,” Quattrin said.
Future Potential In Historic Whalley
CHARAN SETHI: President of ace development company TienSher, Surrey.
Sethi has developed more than 1,800 homes throughout Surrey, Richmond, and New Westminster. His current vision is to develop 12 acres of land in Whalley – the historic centre of Surrey – into a mixed residential and retail community. And the sheer affordability should be enough to convince many to join in.
New condominiums that Sethi is now selling for as low as $160,000 in Surrey would cost $400,000 in Richmond and more than half-a-million dollars in Vancouver. The quality is the same, he said, but the land is so much less expensive so that it allows for lower prices. And Sethi said therein lies a great opportunity for investors savvy enough to get past the often negative media and understand that Surrey is the fastest growing and among the best communities in B.C. where 1,000 people a month are moving in. Simon Fraser University is expanding its Surrey Centre campus, new businesses are moving in, a new library and a city hall are complete and new jobs are being generated at the fastest pace in the Lower Mainland.
TienSher has just started marketing a new 5 story building and those who have seen the plans were amazed at the value in the five-storey condo project. Prices start at $159,000 and all of the 141 homes are priced at less than $300,000. And this, as Sethi explained, includes a massive rooftop deck – complete with a barbecue and beer taps – fitness gym, and suites packed with high-end finishing such as stainless steel appliances, nine-foot ceilings and free parking. SkyTrain is a seven-minute stroll from the front door. There is a lot of buzz about the project and Sethi expects a quick sell out based on pre-sale orders.
Major Point: If interested please note that sales have not started yet (Charan will have a big launch on April 30.) If you are interested and can move fast WorldWideReferrals Realty Ltd (a company owned by myself and Ralph Case) has an opportunity to possibly secure a unit for you. Immediately call Ralph Case at 604-833-9540 for info! (15% down secures a condo that will be finished in Spring of 2018.)
Granular Research More Important Than Location
Speaker: RUDY NIELSEN: President, Niho Land and Cattle Company and LandQuest and the largest private land holder in B.C. Nielsen is also the founder of Landcor Data, the most sophisticated real estate research engine in British Columbia.
The colourful Rudy Nielsen is adamant that if a real estate deal is a good investment, you can always find the money. He is also insists that it is not location, location, location, but research, research, research that makes the difference in real estate investing. Nielsen has spent the last half-century in real estate and has developed Landcor Data that has granular information on every real estate title in all of British Columbia. Landcor recently expanded to Winnipeg and is now developing a massive database for Saskatchewan and Alberta. He says that Landcor can provide an instant appraisal on any B.C. property – his company has done $26 billion in appraisals in the past five years with, he said, at least a 75% accuracy.
Nielsen is convinced that British Columbia represents the most promising real estate market in Canada, if not the world. His sophisticated tracking of real estate and the economy allowed him to predict – and avoid – the 2008 real estate downturn. So what does his research show for this year in B.C.? An upward trajectory, Nielsen said, fueled in part by Asian investing.
“I just spent two weeks in China,” he said, “and they are coming to B.C.”
Right now, he said, is the hottest land market in B.C. since 1974 and “we are selling property sight unseen.” His motto: “Don’t wait to buy land. Buy land and wait.”
Buy Zoned Land – Only – In The Sea-to-Sky Corridor
DAVID BECKOW: President, Pareto Capital Partners. An expert in investing along the Sea-To-Sky corridor from Bowen Island to Whistler, David Beckow holds both a Law Degree and an MBA (Deans Honour List) from the University of Western Ontario, Richard Ivey School of Business.
There are great opportunities for home buyers now in the Sea-to-Sky corridor, Beckow said, as technology frees many Vancouver workers from the shackle of a city desk and the price of Vancouver housing convinces many to consider purchasing in the corridor, where prices can be half that or less than in the city. “You want to invest in land, not condos,” he said, because it is the shortage of land that will drive future values in the corridor.
Major Point: But he advised investors to be cautious because of the NIMBY syndrome that is so widespread in places like Bowen Island and Squamish. He advised investor/developers to only purchase land that already has the zoning in place, because it can be very difficult and time consuming to get a rezoning proposal past city councils and public hearings.
B.C. Housing Sales “Highest In History”
The BC Real Estate Association confirms that March set an all time record for housing sales in the province, with sales soaring 38% from the same month last year to 12,560 homes. This eclipsed the former record that was set in May of 2007 when 11,683 homes were sold through MLS. The average sale price also shattered records: up 20.2% from a year earlier, to $771,620. Wow.
The action is not just about a surge in the Lower Mainland: every market in the province, except Northern Lights (Dawson Creek area) has higher sales in March than in the same month a year earlier.
The three biggest sales increase were in Chilliwack District, with a 104.1% increase to 494 homes; the Fraser Valley, up 65.8% to 2,882 sales; and Victoria, where sales increased 51.1% to 1,065.
Vancouver Island saw 917 homes sell in the month for a 29.9% increase. Greater Vancouver reported a 28.3% increase in sales to 5,301 units and the Okanagan Mainline saw sales rise 26.8% to 847 units. Kamloops, up 28%, and the South Okanagan, up 16.9% were also strong performers.
The biggest prices increases were the Fraser Valley, up 29%; Greater Vancouver, with a 22.6% increase and Chilliwack, up 20.3%. Vancouver Island, Victoria and Powell River all posted sales increases higher than 13%.
Major Point: B.C.’s amazing housing market is now radiating out from the Vancouver core. Our top picks, as outlined at Land Rush are Nanaimo (you can still buy a home for under $400,000) the South and Central Okanagan (prices in the $340,000 range) and the southern Sunshine Coast, which is suddenly seeing red-hot demand with benchmark combined prices up 16.3% in the past year to $413,000.
1. 100 Mile House: 1 bedroom apartment in 100 Mile House. Price: $31,900 – currently rented for $525 per month, long term tenant
2. 100 Mile House, 2 bedroom apartment . Price: $41,900 – currently vacant, newly renovated, ready for occupancy, will rent for $700 a month.
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