THIS WEEK IN THE JUROCK REAL ESTATE INSIDER:
- CHINESE “APPRECIATE” CANADIAN TAX AND WON’T SLOW BIG SCALE PROPERTY DEVELOPMENT PLANS
- EXAMPLES OF CHINA-BACKED REAL ESTATE PROJECTS
- MORE FROM OUTLOOK: PHOENIX STILL A DEAL
- MORE FROM OUTLOOK: CLARITY AND CONFIDENCE
- HOOP HOPS INTO CALGARY OFFICE SECTOR
- NEW MORTGAGE RULES MAKE IT VERY TOUGH FOR FIRST-TIME BUYERS
THE REAL ESTATE ACTION FOUNDATION COURSE IS THIS WEEKEND.
FRIDAY 6-9 AND SATURDAY 9-5. LAST ONE THIS YEAR!!!
New! Two tickets for the price of one!
The Quintessential Canadian Real Estate investment course, taught by local Vancouver Real Estate professionals Ozzie Jurock and Ralph Case … PERSONALLY!
WHY IS THIS CONFERENCE FOR YOU?
Learn How to Flip for Fast Profit
Learn How to Create Passive Income for Life
Learn How to Buy an Apartment Building with No Money Down
Learn Creative Financing Methods
Learn How to Find and Structure No Money Down Deals
Learn How to Build and Maintain a Rental Portfolio
Learn How to Structure Your Deals
Learn Where to Look for Real Estate and Which Areas to Avoid
See Case Studies of Different Types of Deals And Much, Much More…
REAW.ca to register or call the office at 604.683.1111 FOR THE SPECIAL DEAL!
Comments, Questions, Questions
Too many to respond to here. But the numbers were indeed an eyebrow-raiser for many.
Q: Are you sure these numbers are correct?
A: Of course, they come from the fine Vancouver Real Estate Board.
Q: Why are they different than the board’s numbers?
A: Prices from the board are benchmark prices. JREI publishes average prices. Reported sales are identical, where they are reported. We may have picked different areas, but these numbers are 100% accurate.
Q: Pension Funds bailing out of Vancouver – that is scary?
A: Perhaps … for them it is just good business – take chips off the tilting table. But we have been telling owners of small apartment buildings or indeed ALL development land owners to take chips off the table. We said in February: “Markets always die, when builders and developers pay too much for the land”.
Q: Who advises the Government on the mortgage rule implications?
A: Who indeed!? We understand that no major financial institution was informed.
Q: Do you think we can still make money in real estate?
A: Of course. Best deals come about in down markets! (Come this weekend to our action course and learn the Fundamental secrets, see www.reaw.ca) There are some smashing deals available now.
Chinese “Appreciate” Canadian Tax And Won’t Slow Big Scale Property Development Plans
The Metro Vancouver housing market took a big hit after the 15% foreign buyer tax was introduced August 2nd. Then last week, Ottawa followed up with a crackdown on foreigners claiming capital gains tax exemptions on their Canadian houses. Yet, according to a survey of Chinese investors looking at Canadian property, the moves were not only expected but also appreciated.
“I don’t think closing the residency loophole will be seen by Chinese buyers as an attack on them, said Mathew Moore, president of the Americas for Juwai.com, the No. 1 Chinese international real estate portal. “It seems like a sensible move to enforce existing rules.” He adds: “One thing that Chinese buyers appreciate about countries like Canada is that they are rules-based, which makes them safe, predictable locations for wealth diversification,” Moore said.
“If Canada can manage to maintain its good reputation, it stands to benefit from billions of dollars of new real estate development and housing supply, which Chinese developers and investors are already starting to deliver.” he said.
EXAMPLES OF CHINA-BACKED REAL ESTATE PROJECTS
One has to remember that the foreign buyer tax, so far, is only on housing in Metro Vancouver. It has no effect on foreign land developers, even those buying land that would eventually become housing. As the BC Finance Ministry explained to us recently, there is no foreign tax on the land purchase, just on the individual home sales if they are bought by a foreign national. You also have to realize that Chinese development plays in Canada dwarf their share of the residential market. Lately, some have questioned whether the slowdown in the Chinese economy might put a damper on demand by Chinese investors. But this has been balanced by the decline in the Canadian dollar, and is giving Chinese developers more bang for their buck.
Here are some examples of just some of the China players in Canada:
Konyuan International Ltd. based out of Richmond but largely backed by Chinese funding, has bought $740 million worth commercial real estate and residential land in the past two years, all of it in Vancouver, Richmond and New Westminster.
Tianqing Real Estate Co of Beijing has invested $200 million since 2013, with one project each in Vancouver and Montreal. The Vancouver project is a condo development in the Cambie Corridor. Tianco’s Montreal project is a 38-story luxury condo tower and townhouse complex.
DongDu International Group, based in Shanghai, is developing three properties in Nova Scotia, including a residential building in Halifax, another south of the downtown core and two resort locations near St. Mary’s, Nova Scotia. DungDu is also raising a North American investment fund in China.
Greenland Group, also based in Shanghai, has developed the King Blue project, downtown Toronto, a luxury boutique hotel, and two high-rise residential towers.
Modern Group, out of Beijing, built a condo development at UBC in a joint-venture with the UBC Property Trust, and is said to have joint-ventured on a new project in Vancouver’s Oakridge area.
Major Point: Chinese foreign buyers alone are creating new housing, jobs and working joint ventures with Canadian developers. There is no foreign tax on the buys and they are benefitting from the low Canadian dollar. Expect this action to heat up over the next few years.
More From Outlook: Phoenix Still A Deal
On October 6th, a joint venture closed on the purchase of 123-unit super-luxury senior’s rental residence just outside of Phoenix, Arizona. The project includes a clubhouse, swimming pools with cascading waterfalls, state-of-the-art fitness centre, library, a large games room and complimentary transportation for residents. The price per door of the luxury suites? US$143,000 ($190K Canadian).
Yes, all you Vancouver investors, prices are still relatively low in Phoenix and there is plenty of upside for rental investors in one of America’s fastest-growing cities that attracts both young people and retirees, many from Canada. In fact, judging from what is happening in Vancouver, it may be good idea to be looking more closely at Phoenix this winter.
Todd Smith, ranked in the top 1% of Phoenix real estate professional with AZ Performance Team of Keller Williams, told the recent Jurock Outlook 2017 conference in Vancouver that Arizona’s biggest city offers unique opportunities right now.
His pick: detached houses for under US$200,000 that are in high demand as rentals.
Phoenix could see the biggest housing shortage in its history in 2017, Smith said, because new construction came to a halt seven years and never recovered, but housing sales have soared in recent years. Distressed sales that accounted for 90% of the market five years ago, now make up 4% of sales, he noted.
Todd said there is a trio of demand factors arising in Phoenix.
The first are the 350,000 boomerang buyers.
These are people who were foreclosed on and could not get another mortgage for seven years. Now they are back in the market.
The next group is Phoenix millennials (age 19-34), nearly 30% of who are still living with their parents. “We will have to find 63,000 more homes for them,”
The last leg is population projections:
Phoenix is expected to welcome 800,000 more people by 2022, a 21% increase. “We need at least 220,000 homes for them.”
Add in traditional demand and retirees, and Phoenix needs more than 600,000 new housing units over the next few years and the city simply does not have them, he said.
“Right now there are only 19,000 resale homes on the Phoenix market.” he said, down 33% from a year ago. Prices are up but have not reached the pre-crash peak of 2007.
The detached rental market has also become very tight and rates are rising quickly. In January 2015 there were 5,675 rental houses on the Phoenix market at an average of $1,365 per month. Last month there were less than 2,300 and rents had increased to an average of $1,680 per month.
Builders are now active in Phoenix, Smith said, but they are now paying more for land, labour and materials and civic fees. As a result, the average price of an existing detached house is lagging the price of a new house by $100,000.
So where to buy? Smith picks the West Valley communities of Surprise, Goodyear, Buckeye and Avondale, all of which have a large rental population, a vacancy rate in the 3% range and population projection over the next decade of more than 22%. Smith said his office has a selection of West Valley detached houses, all three-bedrooms and all priced at or under US$200,000, for Canadian investors. AZ Performance also handles property management as part of its turnkey service for investors.
More From Outlook: Clarity And Confidence
Ralph Case, president of Real Estate Action Group and co-founder with Ozzie of the Worldwide Referrals Realty, explained the importance of confidence and clarity in real estate investing to the Outlook 2017 Conference.
Case, who has bought and sold thousands of real estate properties in the past decade, said investors should be clear of what, when and where they are going to buy. Phoenix is a prime market, he said, and where Case, with Ozzie Jurock and joint-venture investors, focus their attention and now owns 2,000 rental apartments. That’s confidence and Clarity! He also mentioned that he and Ozzie will be involved in a new joint venture in Mesa (Phoenix) upcoming. Anyone wanting more info e-mail him at firstname.lastname@example.org.
“One per cent doubt and you are out,” Case said,
“You don’t have to have 100 per cent confidence in a deal because things don’t always go as expected, but you need 100 per cent confidence that it’s a good deal and your ability to cope if things don’t go as expected.”
Also, he said, investors must have a clear goal of where he or she is going, that there is a workable plan. You have to write down the plan and have to have someone to make you accountable.
Over the long-term, he said, Canadian real estate has increased steadily in value, so having a tenant in place to pay your mortgage means with 3% annual compounded appreciation your asset will double in value over 25 years. The best advice, he said, is to take action once you have a plan in place.
Timing is important, he noted. The best time to buy in Metro Vancouver is right now as the foreign buyer tax and other measures have slowed the market, not last April when multiple offers were driving prices higher.
“Real estate is a very simple business, “Case said, “but people think it is more complicated.”
“Focus on the principle of: Will this property provide a positive cash flow?”
Case also explained that adding value to a rental property can increase both the net operating income and the overall property value. The “multiplier effect” means that every $1 increase in rent increases the value of the property by $200, based on a 6% cap rate.
For example, if you have a 10-unit rental property with a 6% capitalization rate and you add value to fill 10 vacancies at $500 per door ($60,000 per year), the overall property value will increase by $1 million.
Since 2012, Case said, he has shifted his strategy from buy, fix and flip to buy, improve using the multiplier effect to increase net operating income over the long term.
The only time he and his partners sell is when the NOI is maximized and there is a better opportunity to move the money to. He explained you don’t have to use the multiplier effect to make money in Real Estate. Sometimes you just find a great deal. For example, Case, Jurock and his partners have just bought an 83-acre subdivision on Bowen Island zoned for 31 lots for $2.9 million. It is appraised at $5.3 million now, but Case said then when the subdivision servicing is complete, it could be worth $11 million. This is an example only; this project is restricted to accredited investors.
Hoop Hops Into Calgary Office Sector
Last week, the Insider noted that large pension funds were shoving Metro Vancouver real estate assets onto the market hoping to catch the unprecedented price increases. This includes the Healthcare of Ontario Pension Funds (HOOP) that is selling its giant Willingdon Park, a nine-building office/industrial complex in Burnaby. (The value has doubled in the 12 years HOOP has owned it, to an estimated $400 million.)
We speculated the big pension funds could be eying Calgary as a next investment target. Well, this week, HOOP bought a 50% stake in Calgary’s TransCanada downtown office tower for $247 million.
Major Point: Canada’s big pension funds have some of the best real estate analysts in the country. If they are buying Calgary – where the office vacancy rate is close to 20% – it may be a signal that Alberta’s biggest city is poised for a quicker recovery that most of us believe.
New Mortgage Stress Test Make It Very Tough For First-time Buyers
Please review our special edition on the new mortgage rules from last Tuesday, but a brief recap:
On the same day that Ottawa announced a crackdown on foreign buyers using a loophole to unfairly claim a capital gains tax exemption on private residences, they lobbed a bombshell into the mortgage market.
While the ruling on foreign buyers will affect a handful of people, the new stress test and other restrictions on high-ratio mortgage loans will affect millions of ordinary Canadians. We believe it will accelerate the current slowdown in the Vancouver housing market and cut at least 20% of buyers out of the Canadian market this year. (Up to 40% of first time buyers.)
As of October 17, buyers applying for a high-ratio mortgage (5% to 20% down) need to qualify at the posted five-year fixed rate. This rate is now 4.6% while it is 2.3% for five years at the best rates offered. Also, buyers are restricted to a 25-year amortization and must have a credit score of 600 and the property must be principal residence.
Some of these rules have been in place for a year or more – such as the need to qualify at a 5-year rate – but Ottawa appears to be putting teeth into enforcement,
As of November 30, the government will also impose new restrictions on when it will provide CMHC insurance for high-ratio mortgages.
Major Point: If you need to refinance, do it now. If you are looking to buy a home, get the financing in place right away.
PLOTS OF THE WEEK:
Mission: 3-plex – only $600,000. 20% down – cash flow $905.
WE RESERVE THE RIGHT to accept or not to accept a specific deal. What makes it a deal? We look for: Low down payments, special discount, and owner carries mortgage, etc. Also note…we do not vet any deal, we just think it may be of interest. You MUST do your own due diligence. Please get contact info from your password-protected website or e-mail Max at email@example.com …and read the disclaimer!
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