Facts By Email

IN THIS WEEK’S FACTS BY EMAIL:

  • HONG KONG NEW FOREIGN TAX IS 30%!!!
  • 1% TAX AND $10,000 FINE FOR EMPTY HOMES APPROVED
  • KERRISDALE BUYER: “VENDOR KNOCKED OFF $100,000”
  • B.C. PPT BREAK ON NEW CONDOS AMONG REASONS TO BUY NEW NOW

 

Trump Wins – Good Or Bad For Real Estate?

You, dear subscriber, knew that he would. After all it was my No. 1 prediction this year, I repeated it at many speeches and in this publication. Notably in the FBE on May 23rd where I called him President Trump and quoted professor Hampson. Ok, ok, I was hoping for private reasons that he would win. The fact that he did win may have some pluses and minuses for us as real estate investors. Private reasons? Well, as the only Canadian that has a real estate chapter in Donald Trump’s book: “Real Estate: The best advice I ever received!” I now can (and will) say: ‘The prez and I’ or ‘US President Trump and I have this book together…’ Ahem…

OZZIE’S FEARLESS AND ASTOUNDING 2016 PREDICTIONS

FIRST – BRAGGING:

Here are the major ‘JREI – Trump forecasts”

  1. January 5, 2016 – Outlook issue or FBE #1
    “Long shot prediction: Donald Trump will win the election! I want him to…”
  2. I then followed it up on January 26 at the World Outlook conference and several speeches after that
  3. FBE #21 – May 23rd, 2016 (This is worth reviewing because the forecast was totally correct!):

“President Trump? Get Used To It

“I predicted that Trump would be president at the World Outlook conference in January. But I am not alone:

“Derek H. Burney was Canada’s ambassador to the United States from 1989-1993. Fen Osler Hampson is a director of Global Security at the Centre for International Governance Innovation and Chancellor’s Professor at Carleton University.

“Here is their take on why Donald Trump will be the next U.S. president.

“What many fail to recognize is that Donald Trump is rewriting the rules of American politics. He is riding a tidal wave of profound dissatisfaction among ordinary American voters (and not just aging, white, middle-aged males, for that matter) that is driven by a volatile mix of xenophobic nationalism, falling wages and living standards for the middle and lower classes, a yawning and ever-widening gap between rich and poor, and an acute sense that America under President Barack Obama has taken a backseat role in world affairs, has mismanaged major issues and is no longer the leading great power it once was.

“Donald Trump understands the angry mood of America better than his Washington-based Republicans, which is why he is the last man standing.” …Canadians and their government should nevertheless ready themselves for the possibility of a Trump presidency.”

So, no matter the handwringing, or the second guessing … Trump will be president and while many don’t like him, it behooves (yes) us to remember that Americans and the World did not like President Reagan either! (An actor, a Hollywood nut, etc.). Yet, today, President Reagan is mentioned reverently as a unique president … much admired. Is Trump qualified to be president? The truth is nothing qualifies anyone for that job. But he deserves a chance. He may be flawed – but he is not Satan. Donald Trump captured the support of people who are tired of elite political decisions – people who are not stupid, but who are called stupid by the establishment. President-elect Trump will have a long road to go, he will have much opposition, but he reflects a worldwide view of the middle class no longer believing in government officials (we mused on the fact after Brexit and the latest elections in Poland, Belgium support that view). France and Italy as well as Germany will kick out their governments. People are tired of promises and featherbedding. Trump’s victory speech was encouraging. He made it clear, that, while he might build a wall with Mexico, he’s not opposed to positive relations with the international community. He also said he likes Canada.

OK, here is the JREI take:

Trump as president as it may affect real estate values:

For the US: Good for Real Estate

  • Cutting taxes and running up huge deficits will mean more jobs and higher inflation (which will show in hard assets – Real Estate first. People will have more spending money.
  • Investing heavily in infrastructure means thousands of new jobs throughout the US. It also means concrete, housing, commodities companies will benefit.
  • Investment in the military… Benefits all real estate in the towns where the factories are located.
  • Real estate assets along the Keystone pipeline construction
  • US dollar will rise.
  • For pot … may nationalize use. Old warehouses … study Denver
  • He likes coal. Will benefit coal producing towns.
  • Benefit commodities and commodity producing areas.
  • He does not like the IRS! Still read last week’s FBE re CRA treatment of LLPs.
  • There could be less regulatory land-use and zoning burden for home construction, Homebuilders say that is due to all the extra cost of regulation and not necessarily from higher input cost of lumber, cement, and worker wages. President Trump will likely try to move this issue – though jurisdictional issues of federal versus local will be contested.
  • Community colleges are likely to get more help. Trump promises to create workers with trade skills such as welders, plumbers, bricklayers, electricians, etc. Some of these graduates will go into building homes and commercial real estate development. Buy around colleges.

For the US: Bad for Real Estate  

  • Possible default on debt (he mentioned it, but doing it would be highly doubtful).
  • His protectionism may invite retaliation from other countries.
  • Extra spending will raise rates faster than now expected. (We still think Dec ¼ percent will happen.)
  • Green energy producing towns and areas will get hurt by his anti-climate change stance.
  • Trump’s promise to deport 11 million illegal workers — could have a dangerous impact on America’s currently tight labour market. More importantly, it will empty a lot of “C’ class buildings. Sell your C buildings now. When Arizona deported Mexicans in 2011 … whole apartment buildings emptied.

For Canada: Good for Real Estate

  • Keystone Pipeline – terms may be negotiated – but it will be approved. Not only Trump but all Republicans already voted for it. That means access for our oil to ports. HUGE benefit. The project promises Canadian oil companies a better price on their output with more direct access to international markets.
  • Benefits all oil producing provinces – some more than others.
  • Americans will buy our real estate in larger numbers. Not because of Trump but because of our falling Canadian dollar. Where? Anywhere w/o the foreign tax. Toronto preferred but also Montreal and Whistler, Victoria, Kelowna.
  • Low rates for Canadians will continue

For Canada: Bad for Real Estate 

  • In general, Canada is directly vulnerable to border and market closing measures and indirectly vulnerable to actions that dissolve the trade, security, and environmental agreements to which Canada is a party.
  • NAFTA agreement (He wants to cancel it. Americans are skeptical of the promised benefits of free trade. He pointed to thousands of factories closed, some because of the push to move jobs offshore, others because of technological innovation.) Canada’s international trade minister, said roughly 2.5 million Canadian jobs are dependent on trade with the U.S., while 23 per cent (or $449.9 billion) of our GDP is derived from exports of goods and services to the U.S. alone. An astounding 72 per cent of Canada’s exports of goods and services go to the U.S. All industries in exports town need to evaluate their real estate holdings and make a decision. However, while cancelling NAFTA is easy (just withdraw with 6 months’ notice), Canada’s free trade with the United States is locked in through World Trade Organization rules and would be hard to untangle. Also, if he cancels it, Canada’s – USA preferential trade access remains, albeit at circa 1989 levels.
  • Softwood lumber dispute. He will want to score an early win (January), step into the messy debate and protect US producers. May affect lumber export towns.
  • Trump threatened to withhold American military support from NATO if its partner countries don’t meet their targeted defense spending. Canada is not paying its fair share. A potential conflict with the U.S.

Finally:

  • In the past Canada, did better with a Republican government (generally used to like trade and private enterprise more than protectionist Democratic governments).
  • Trump is pro-business and strong trade relations with Canada make good business sense. Canada is the largest buyer of U.S. exports in the world – more than all the states of the European Union combined. Trade with Canada supports nearly 5 per cent of U.S. employment and 6.5 per cent of U.S. GDP.
  • While Trump has threatened to build a wall against Mexico and impose punitive tariffs against China, he has limited his remarks about the Canadian border and trade to “not our biggest problem.”
  • Climate change: (this depends on your view on whether it is good or bad for us). Trump has vowed to back out of the Paris accord of 2015. “The climate change deal is ‘bad for U.S. business,’ it allows ‘foreign bureaucrats control over how much energy we use’.” (He is also a climate change skeptic who branded global warming a “Chinese hoax,” (!!??)  and has said the entire Environmental Protection Agency (EPA) could be done away with, including its “job-killing” regulations. This may force Canada to go it alone or cancel it. Your real estate located in areas that benefit from climate change measures may be affected negatively.

Major Point: The election points out (again) that all polling should be banned. Exit interviews are a joke, CNBC talking heads, NY Times’s and others total bias should be analyzed. Koppel believes that the media no longer has a commitment to reporting. Most of the world is no longer covered, it is all about creating soundbites to be regurgitated ad infinitum. I believe that is why we are so polarized. Our view is supported and trumpeted as the only right view by our favorite news channel and we have become totally intolerant to all other views. (That is why we at JREI subscribe to the BBC and Deutsche Welle and Squawk Box Asia and Europe to get a more balanced view.)

 

Hong Kong Major Crash Ahead

On November 5 HONG KONG brought in a 15 per cent stamp duty across the board except for resident first-time buyers — tougher than eight previous rounds of taxes and lending restrictions. (Not including locals!)

Non-residents have paid 15 per cent since 2012 but until now, the most residents faced was 8.5 per cent.

The levies are likely to hit the value of lower priced homes more. For example, the buyer of a HK$4m ($515,700) property now faces a tripling of duty (tax) if it is a second home. The changes mean foreign buyers will now pay an effective 30 percent stamp duty.

Says Bloomberg: Hong Kong leaders’ surprise move to cool the world’s least affordable home market is set to spur an immediate plunge in prices and transactions as buyers and sellers hit the pause button.

Louis Chan, chief executive of the residential unit of Centaline Property Agency Ltd., sees transaction volumes plunging by 60 percent to 70 percent in the next three months, and an 8 percent drop in prices. Ricacorp Properties Ltd.’s Willy Liu said transactions will drop 30 percent to 40 percent in the next two months and prices will fall 5 percent.

  • The curbs sent developer stocks tumbling on Monday.
  • Cheung Kong Property Holdings Ltd. plunged 8.9 percent, the most since its June 2015 listing.
  • Sun Hung Kai Properties Ltd. dropped 9.7 percent and
  • Henderson Land Development Co. fell 6.2 percent.
  • The Hang Seng Properties Index slipped the most since January.

Developers have already moved to suspend sales in the city, the South China Morning Post reported, with Sun Hung Kai, Henderson Land and New World Development Co. cited as among those halting sales. Bank of America Corp. downgraded its ratings on Sun Hung Kan and New World, saying the higher stamp duty will “impact” about 25 percent of property transactions.

Major Point: Mainland buyers hedging against a falling yuan and an abundance of financing have poured into Hong Kong (and elsewhere). With these measures the Hong Kong government hopes to stem the tide of cash. There is also a crackdown from the Chinese side as they try to keep the money from fleeing and are more vigilant in keeping the allowed maximum ($50,000 US per year) from growing higher.

• Canada •

 

Late News: A $10,000 Fine A  Day?! Only In Vancouver, Eh!

The empty-home tax will take effect by Jan. 1 and will be calculated at one per cent of the property’s assessed value, Vancouver Mayor Gregor Robertson told reporters at City Hall. Homeowners will self-declare whether their property is a principal residence or a secondary investment. People who pay the new tax late will face a 5 per cent penalty, while those who don’t declare will automatically be taxed. Falsely declaring that a home is occupied or that it’s a principal residence could lead to a maximum fine of $10,000 a day for as long as the offense continues, according to the mayor’s office. Details here.

Major Point: The ‘anti real-estate owner league’ in action. What about homeowner rights? We are being trampled by the city. Why don’t we complain? Same as the average US disenchanted citizen did not complain … but then when they could act they did last Tuesday.

 

Kerrisdale Buyer: “Vendor Knocked Off $100,000”

A buyer who purchased a $1.2 million Kerrisdale townhouse last week confided that the vendor agreed to knock $100,000 off the list price. It is a common theme now in Vancouver and a sudden switch from eight months ago, when multiple bids were driving prices higher. Now price negotiations are often going the other way. As we have noted, average prices in Vancouver have been going south for months, despite the “benchmark price” being higher than a year ago.

The change is almost entirely due to government intervention, beginning with the crackdown on assignment sales in April, followed by the 15% foreign buyer tax in August and the tightening of mortgages in October, with a second round coming in late November. But the fundamentals of the Vancouver housing market remain solid. There is:

  • a low inventory of both land and property;
  • very low rental vacancy rates and high demand;
  • continued low interest rates; and
  • soaring immigration and in-migration numbers.

Across Greater Vancouver, the sales-to-active listing ratio in October fell to 24.4%, a shift to a buyer’s market, even though listings are down from September and from October of last year. This means opportunity for those buyers capable of purchasing with a large down payment. We expect continued downward action at the higher-end of the Vancouver housing market, where buyers are grinding hundreds of thousands of dollars off the listing price. Condos sales in the Valley are much stronger than last year.

Major Point: We believe the effect of the foreign buyer tax, which helped to drive detached house sales in Greater Vancouver down nearly 40% in October compared to a year earlier, will wane and both housing sales and prices will recover later in 2017. For right now, stay on the sideline as an investor … except for cash flow presales in the valley. (See below.)

 

B.C. PPT Break On New Condos Among Reasons To Buy New Now

It may be a good time to be looking at buying a new condo apartment or townhouse in Metro Vancouver. Couple of reasons here:

The first is that assignment sales of new homes are not subject to B.C.’s anti-assignment regulations that came into effect this spring.

The second is that the B.C. government has waived the property purchase tax on new homes bought for $750,000 or less, which really restricts the incentive to new strata units. The tax savings are around $13,000 at the price ceiling.

Another reason for looking for new now is that we suspect condo developers are about to get generous on buyer incentives to attract early buyers. This is because sales of condominium apartments dropped 23.7% in October compared to a year ago and townhouse sales plunged nearly 40%.

At the same time, more than 18,000 multi-family homes have started in Metro Vancouver in the first nine months of this year, up from 15,200 in the same period of 2015. While some of these are rentals, the vast majority are strata properties. And, as lenders tighten restrictions on both speculative development and first-time buyers, developers are under increased pressure to move units, especially early in the construction cycle.

Major Point: It is perhaps too early to recommend making stink bids on new Metro Vancouver condos, but developers could be more open to offering upgrades and special financing packages. Look for areas with a high number of foreign buyers and a high number of new condo starts: specifically, the Metrotown and Brentwood areas of Burnaby.

 

Mortgage Rates Higher?

As we reported there are further new rules kicking in on November 30, 2016. These rules could influence mortgage rates – as in higher. So, you will have a harder time to get financing – even refinancing, have less access to investor money in general and; likely will get a lower amount than you thought. The new Nov. 30 restrictions on borrowers are very hard. Yes, we have written about it before … but:

LISTEN! OR … YOU MUST RE READ!

From mortgages over $1 million, from much tougher qualifying rules and from a spooked lender that must okay higher premiums for insurance … it all means lenders will be harder to deal with. As we said last week, private money will step in – but it will be a lot more expensive!

Major Point: As we have said for over 1 year (!): Do not worry about the higher rates, worry about qualifying at all! That is – qualifying for a new mortgage but ALSO qualifying for a renewal of your existing portfolio. Review ALL your loans with your broker now. ALL loans! Use your credit line, even if you do not need it, it may no longer be there when you do! If you need money for renovations, investment, debt consolidation, mortgage renewal in the next two years, do get it tied down before Nov. 30!

 

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To subscribe to Jurock’s Facts by Email 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.