October 14, 2021
“ All spread sheets are meaningless.” – Benjamin Tal
NEW LIVE ZOOM ON OCTOBER 21, 2021 – 6:30 PM
BENJAMIN TAL SAYS- RAISE RATES EARLY – BUT SLOWLY
BUBBLE CITIES OF THE WORLD (UBS REPORT)
CHINESE MEGA DEVELOPERS CRUSHING LONDON, PLUS?
THE NUMBERS, THE NUMBERS – SEPTEMBER 2021, 2020,2019,2018
US/CANADIAN DOLLAR FORECAST
SF DEALS SHIFTING INTO CONDOS
PRE-SALES REMAIN HOT
MUST DO TRANSPARENCY REPORT BY LAW. FINE COULD BE $50,000
NOTE: INVITATION TO ZOOM MEETING OCTOBER 21
As you may know, I am the co-owner of a real estate company called Jurock Case Investment Realty (JCIR). Join me, Ozzie Jurock and Ralph Case to a ZOOM evening of forecasts next week.
As an Oz Buzz SUBSCRIBER, you can attend free, but must sign up at the www.JCIR.ca website to get an invitation. Next zoom meeting is “Real Estate Markets” on October 21, 2021, 7 PM PST.
(Our ‘international news’ features only events that may have an impact on our real estate investments. We make no political statement – just share our opinion on facts that may be relevant to us, as real estate investors.)
A dead end in the long term?
From the ‘UBS Global Real Estate Bubble Index 2021’: ( A GREAT REPORT)
Frankfurt, Toronto, and Hong Kong top this year’s UBS Global Real Estate Bubble Index, with the three cities warranting the most pronounced bubble risk assessments in housing markets among those analyzed. Risk is also elevated in Munich and Zurich; Vancouver and Stockholm both re-entered the bubble risk zone. Amsterdam and Paris round out the cities with bubble risk.
- Housing prices around the world have climbed in lockstep to new heights. And urban markets have shared in the spoils, which is noteworthy for two reasons. First, pandemic-related restrictions and the rise of remote working have actually weakened the case for urban housing. Indeed, rents in the cities analyzed have declined on average—something that happened rarely in the past. Second, housing affordability in cities was already heavily strained even before the pandemic struck.
- And yet the lack of affordability of homeownership for large parts of the population has evidently not been an obstacle to price increases. Record low financing costs and the entrenched expectation of long-term value gains have made owning a home so appealing that the price level does not seem to matter—at least for the time being. However, higher prices inevitably lead to higher household leverage, as the current acceleration in mortgage volumes clearly demonstrates.
- Worsening affordability, unsustainable mortgage lending, and a rising divergence between prices and rentshave historically served as forerunners of housing crises. As long as financing costs trend toward zero, property prices, incomes, and rents can continue to decouple. But ever-higher prices and leverage imply ever-higher risks, a spiraling path that will likely prove a dead end in the long term.
Major Point: My view is not that affordability is an issue. We print the money out of thin air, we make it available at almost no interest and we pepper people with cash – the result has always been and will always be: Higher Hard Asset Prices. Period.
The difference now is that it is visible everywhere. I used to argue with my German friends, who pointed to sharp rent control, a more tenants than buyer population. They then concluded German Real Estate would not increase. But that was before Germany also started to inflate its money supply…Now Frankfurt rates as the number 1 bubble? What about London dropping to fifteen? Well, there was Brexit and new Chinese developer crashing may drop them further.(See below.)
Q: Ozzie, a few years ago you said that the Euro would collapse to ninety-five cents. It did not.
A: I did, and I was wrong. It was $1,60 then and it is now $1,15 to $1 US dollar.
Q: With China clamping down on various sectors of its economy and literally killing its own multi-tiered mega developers…(more)…will we see investment from China stop?
A: The short answer is, we are already stopping it from our side: Election promise: No more foreign investment allowed for 2 years. (Actually, think about how you would feel with your US investment in Palm Springs if the US retaliated?)
But you raise several interesting points. It looks like the Chinese government is attacking (literally) its mega corporations (Ali Baba, etc.) and has in the process thrown all international bond debt holders under the bus.
Big international problems:
- Chinese developer woes are crushing Chinese and emerging market high yield debt. Typical China problem. Companies do not report losses…that is why they waits until a big crash forces the report. Surprise!
- Evergrande, which has more than $300 billion in liabilities and 1,300 real estate projects in over 280 cities – means that cities like London will see their real estate markets (likely) get under pressure as it cannot finish projects.
- Its not just Greenland Holdings – which has built some of the world’s tallest residential towers – and E-house have had their ratings cut. Fantasia missed bond payments. Bonds issued by developers including Shanghai Shimao Co. Ltd. China Aoyuan Group and Country Garden Properties Group up to 7.4%, (exchange data), while Kaisa Group – the first Chinese real estate firm to default back in 2015 – saw some of its dollar-denominated bonds drop to as low as thirty-five cents on the dollar, pushing their yields to nearly 60%. Note: Kaisa has $3.2 billion of international bonds to repay next year, second only to Evergrande which has $3.5 billion.
- The $5 trillion Chinese property sector accounts for around a quarter of the Chinese economy. Imagine this: The spread on the equivalent high-yield or ‘junk’-rated index that these companies would have to pay (all time high 2,337 basis points)! That drove the yield – to 24%.
Major Point: Massive defaults of mostly foreign and US denominate borrowers. (China govt has indicated it wants local buyers and investors hold whole – but does not care about outsiders.) That means sharp price declines and huge losses by investors in wealth management products, contractors, builders, and services. And of course, massive numbers of pre-sale buyers. And yes, by implication, less money coming to Canada. Watch Evergrande issues explained here: https://www.youtube.com/watch?v=ih8hDsqKcTU
Another China note: On October7 China told state owned companies to shore up and store supply for winter! Procure as many energy resources as possible. Will not tolerate lack of action. Right now, coal, oil gas all bought up at record prices and record amounts. We do not know what China is expecting…but clearly oil and other commodities are not going down anytime soon.
Also, China wants to know who has the money. That is why they hate crypto and that is why they make dealing in crypto a criminal offence. You think that’s only China, look below at what the US democrats want banks to do.
US: REAL ESTATE
According to CoreLogic’s latest CoreLogic Home Price Index for August 2021, U.S. home prices rose to a fever pitch this summer, with annual price gains reaching another all-time high in August 2021 at 18.1%.
NAR:A sharp increase in median sales prices for existing single-family homes in all but one of 183 measured markets during Q2 2021. US prices higher right a c ross the board.
Phoenix Listing inventory is currently 66% below normal while demand is 118% of what would be considered normal.
Las Vegas: Greater Las Vegas Home Prices Still on Fire in September
US: INVESTORS NOTE!
The 1031 exchange in danger? Real estate investors have been able to use the 1031 exchange for one hundred years. Allowing the deferral of capital gains taxes on the sale of a property as long as the proceeds are invested in a new property of like kind and equal or greater value within certain time limits. (Ed. note: Canada should adopt this. It would free up a lot of real estate holdings for development)
Although they generate a broad range of significant economic benefits, 1031 exchanges are a potential target for Congress in its $1.8 trillion American Families Plan. Most notably, there are discussions of a $500,000 cap per taxpayer on the gains that can be deferred. The House Ways and Means Committee recently stated that 1031 like-kind exchanges will not be included within the infrastructure bills, but nothing is certain until the final bill is proposed. NOTE: Write to the R.O.I. Properties team which help you formulate a strategy for success, regardless of what happens in Washington, D.C. Contact : firstname.lastname@example.org or 602-319-1326
US: UNBELIEVABLE BUT TRUE
Getting control of the population: The Democrats in the US introduced a bill that envisions to have banks report anybody’s (anybody!) transaction over $600! Why? To stop the population from cheating on taxes.
Comment: I like your Qs and As but leave out the long ones.
I only keep the long ones when they seem to answer several subscribers’ questions
Comment: Maybe put your Q and A on youraskanexpert.ca site. You put them there later anyhow.
Actually, we thought about that. But in surveys it is clear that Qs and As rank very high on user interest, so we leave them there…but we will label them better:
International, Canada Real Estate, Oz says.
LIVE YOUR MONEY
(Note, this is just a tongue in cheek opinion. I believe it, but clearly, it is not for everyone)
The most oft asked question is: “I have a house in …xxxx…should I sell now? Usually, the ‘over the sixty’ crowd asks. When I inquire what exactly they own, they say: a 2 – 3 million home. We owned it for years and it went up about $400,000 last year.
Now you know why there are no new listings…everyone is scared to sell too soon.
When I ask, is the home clear title, answer is yes, do you have other assets, usually it is yes, a small RRSP. Blows me away. You are a multi millionaire! But you live your life small. MY motto? Live Life Large! Forget the heirs! You are still alive…
Play with me: Imagine you sold your house and had two million free and clear.
Ok, let’s assume you are sixty-seven and you take one million and buy 10 x $100,000 condominiums in Phoenix at $1,000 each per month income…
That is annually: $120,000. Say you use $35,000 for condo expenses…
You have $ 85,000 clear. Use the $85,000 for spending money.
Take the other million and in the next 15 years:
Rent a luxury home with a pool in Phoenix for 1 month at $3,000 per month.
Total 15 years: $45,000
Rent a luxury hotel in Thailand for 1 month at $1,500 a month
Including a daily massage on incredible beaches.
Total 15 years: $22,500
Go on a cruise you and your beloved for 1 month luxury cabin $5,000
Total 15 years: $75,000
Go rent a luxury 4-bedroom log home on the ski hill in Kimberley at $3,000 pm.
Total 15 years: $45,000
You now are 82-year-old, you have not worked for 15 years and have spent $12,500 a year of your capital or after 15 years $187,500. Plus, you enjoyed $85,000 of income annually.
OK, lets look at that: From your one million you still have $812,500 left over and your real estate investment of one million in US condominiums has doubled. (If past performance is the measure)
End of 15 years…4 months holiday…a year (luxury) not working.
Plus spending $85,000 a year of rental income and you now own from your cash still $812,500. Your Phoenix real estate is worth two million. Or say 1.5 million
You still are worth more than two million either way and you have had a fabulous “end of life retirement” lifestyle.
Well, you say ‘what if my condos don’t go up’ …it does not go up: you still have $1,812,500.
What if…inflation rises fast? You are covered with your investment condominiums.
What if I get bored? “How could you be possible bored?”
You can “what if” forever. But without action you will likely die in your home and your heirs will drink a toast or two million toasts.
(Actual client) But Ozzie, OK, I am still in my home on the Westside and if I had listened to you in 2015, I would have sold. It was worth two million then… now it is worth three million. I would have lost all that money.
Hm, ok, but you were seventy-two then, now you are 78 years old. You have missed 6 years of 1 month in Thailand, 6 years of 1 month mountain chalet, 6 years of 1 month cruising and 6 years 1 month in Phoenix. And your investment CONDOS in phoenix went from the then $60,000 to $100,000 or more today. Life is in the living…consume some of your enormous, good fortune. You could even give $10,000 to charity every year and still end up very rich at 82! You will be in the ‘living’ column. Now you are just vegetating.
L I V E L I F E L A R G E!
QUESTIONS AND ANSWERS
Q: At a recent Zoom meeting you mentioned that you would be on Livestream. Are you and what eve?
A: We have a survey underway on that question. It is true that the volume of questions snows me under. I assume if I had an hour a week answering question live…that could help. Answer the survey please…
To many questions on Bitcoin. I am NOT a crypto advisor. The worst forecaster on crypto was – so far – Jamie Dimon. Just remember: Bitcoin has an imputed value not an intrinsic value. It will have the perceived value it has been given by the market. Right now, the market loves it…
Jamie Dimon on BTC:
2014: “terrible store of value”
2015: “will not survive” “will be stopped”
2016: “going nowhere”
2017: “a fraud”
2018: “don’t really give a shit”
2019: [JPMCoin launch]
2020: “not my cup of tea”
2021: “I have no interest in it” “fool’s gold” “worthless”
Major point: Who is he? CEO of JP Morgan Stanley
Ask yourself: Did IMF/WORLDBANK crashed Bitcoin to punish El Salvador?
Q: I cannot find anything on the coming Luxury tax? Where do I find details?
A: Google it. The tax would be calculated at the lesser of 20 per cent of the value above these thresholds ($100,000 for cars and aircraft, $250,000 for boats) or 10 per cent of the full value of the luxury car, boat, or aircraft. … The tax is proposed to come into force on January 1, 2022. Time to buy that boat NOW!
Q: Chinese pursue a hostage policy. Canadian, Australian, and Japanese citizen were kept hostage for economic arguments between governments. You should talk about it.
A: Not news. Do not go to China!
Q: We are at an unprecedented time in history. Inflation normally means high interest rates. Today we have inflation and all-time low interest rates. Your thoughts?
A: Benjamin Tal, Deputy Chief Economist of CIBC World Markets Inc. said today, that he is advising the Canadian Government to start raising rates slowly but early, (June next year) in three tiers.
He feels the biggest dangers would be to wait too long before starting and then raise them too fast, because by they have to. That is an excellent point! We have seen in the past where fast rising rates killed the economy!
Q: INTEREST RATES, INTEREST RATES, INTEREST RATES
A: Twenty-one questions on this ever-increasing interest. You see the opposing opinions on ‘wither interest rates’ on YouTube. I stay with my Oz buzz’ 60/61 notes: The surprise will be on the upside. Also, I repeat my Oz buzz 43. Watch the 10-year treasury. If it hits 2%, hang on to your hats.
Q: Should I buy a REIT or?
A: REITS trade on the stock exchange. REITs do not pay corporate taxes; it is flow through capital. NOTE: REITs rise when interest rates go down, and fall when they go up, contrary to what you might think. If you want fast access to your money, it is the way to go. BUT – and you knew it – there are a lot of different REITS. Study their 5 years performance. Stay away from hotels, etc. REITS.
Buy banks. They are flush with cash and must pay dividends in November…as much as 15 – 20%.
Q: On the MMT item in the last Oz buzz you say: If your debt is in your own currency, it is manageable. Didn’t Venezuela and others have their own currency?
A: Yes, but like most undeveloped nations they have to borrow their money in other currencies, mostly US dollars.
Q: CMHC announced that Montreal, Toronto, etc. are in a hot zone of overvaluation
But in Vancouver we are not?
A: Ha-ha, yes. Michael Campbell and I discussed that on air. Hard to see Vancouver to be the low in worries. But then…wasn’t it CMHC that forecast a 18% property crash last year?
Q: You talked about the transparency report last year. Must we file such a report by law? Is this federal or provincial! Who files it?
A: Thanks for the reminder. Actually, yes, we advised it was coming. Yes, it is now in force – it is a law! Effective November 30, 2021, new BC legislation mandates that all “reporting bodies”, including corporations, partnerships, and trusts that have held an “interest in land” since November 30, 2020, to file a report with the Landowner Transparency Registry. Significant control: An individual with significant control, or ISC, is someone who owns or controls a corporation. This individual: owns, controls, or directs a considerable number of shares. has considerable influence over the corporation without owning any shares. Also, you must disclose all “interest holders” (the people who benefit from the assets.)
If you own land that has been held by a corporation, trust, or partnership since prior to November 30, 2020, these requirements will apply to you.
NOTE FINES: A person … is liable to a fine of not more than $100,000; and an individual who commits one of these offences is liable to a fine of not more than $50,000. Imprisonment is not a penalty under the British Columbia legislation.
Talk to your lawyer, google it…do it…Deadline is coming
Q: Mr. Robert Kiyosaki forecasts the world largest crash ever this October. Could he be right?
A: Harry Dent forecast that crash several times in the last 10 years, even in 2021 – this March. Today, like the hawkers of old, you have to make outlandish claims in order to get attention and get people to click that ‘subscribe’ button. That is what some of these “gurus” do. In this mad unprecedented environment, everybody is going to be right with almost any prediction eventually. Years ago, in his successful book, he also felt that real estate is not an investment… Enough said.
Q: LOOKS LIKE OUR ELECTION WAS NOT NECESSARY. IT ALO LOOKS LIKE WE AE NOT AS POLARIZED AS YOU SAY. The winning parties got just under 32 % of the public vote.
A: Depends on your viewpoint. Having such a wide variety of opinion helps our democracy. In the States its 50/50. Given the problems we face, heaven help the US.
Q: With the NDP doing well, it will have more power this time. Should we study their platform more?
A: Yes, Trudeau has no power of threatening an election to stay in power he has to listen. First thing (good vote getter) will be a wealth tax.
Q: CANADIAN DOLLAR/US DOLLAR?
A: Same answer. It seems like the way oil and commodities go – so does our dollar. I still maintain, the US dollar in this topsy-turvy world will stay the preferred currency…and will strengthen even more…with the loonie falling more– in relation to worsening economic conditions and falling commodities prices. Mr. Tal felt that the Canadian dollar would rise with energy for another few months and then reverse several cents and find a new lower level.
Your thoughts – AS ALWAYS – are most welcome. WRITE QUESTIONS HERE: INFO@JUROCK.COM and put OzBuzz in the subject line. I try to answer ALL questions, but not all will be featured here.
CANADA REAL ESTATE
In a wide-ranging presentation to the UDI, highly respected Benjamin TAL pointed out that inflation is likely less transitory and could take longer, than most expect. He also warns that governments should raise interest rates earlier and slower rather than wait too long and raise them too fast (agreed). He calls it the biggest danger.
On housing he says that we still are in a seller’s market, operating in a record low inventory environment. We have been pointing to that for the last year.
He made some interesting statements – all of which I agree with:
- Government talks supply, but the how is not clear. In fact, Governments will actually stimulate demand at the same time when supply is not coming. (INDEED)
- His numbers show that first time buyers are in the market for one reason – parents help! Tal: twenty-five precent of first-time homebuyers get assistance from parents and up to 35% have their parents co-sign their mortgage
- Now condominiums are the only affordable entry point, which explains the ’’acceleration of activity’ in that sector.
- People are coming back to the city.
- Investors – one in a third are in negative cashflow. But in today’s world they see it as ‘a replacement of my GIC.’ Tenant pays off part of the mortgage and they believe that prices will be higher 20 years form now and (Tal) THEY WILL BE!
- Strong rental demand from immigration and students.
In the end, ‘all crises are accelerators’ but ‘when the fog clears, everything will look very familiar.’
His admonitions: More money to municipalities to release more land. Municipalities need more flexible zoning. All need to add supply. To do that we have to have more innovation and fast!
As always Mr. Tal was upbeat, but thoughtful…,most importantly – even though he says “no one knows exactly what will happen the next 8 months” – he has been right much more often than not.
Faithfull subscribers see that much of what he talks about; we have been discussing as well.
Paul-Eric Poitras, managing partner at NAI Terramont says: “Tenants must be prepared to settle for less, drive long distances and pay more than they expected in Montreal’s sizzling industrial market. I’ve never seen such a hot market with so low inventory,”
Major point: Not just Vancouver and Toronto industrial markets are hot. Vacancy rates in Greater Montreal are less than one per cent – as low as they have ever been!
Canada wide, Single family sales are slowing, condominium sales are rising, prices ae up! Toronto home prices surge 18 percent higher.
THE NUMBERS, THE NUMBERS
Vancouver Board Report highlights
- Metro Vancouver’s job market continues to recover, but the recovery will be slower going forward.
Job vacancies remain elevated in the Lower Mainland compared to the country’s other major centres and a large increase in housing supply will be needed to close the gap.
Home sales and new listings have plateaued after reaching record peaks in March 2021.
Home sale inventory (active listings) is back to lows not seen since 2016.
New home construction has held up through the pandemic, with notable gains being made in purpose-built rental units.
Heading into the fourth quarter of 2021, expect new listings and sales in Metro Vancouver to remain near long-term averages and
Watch for the total supply of homes for sale (active listings) to increase at a rate well below historical norms. Again: A strange month:
Sales of SF homes were down by -27%!
SF home prices still up by 14% over last year as well as over 2019 and 2018.
SF Listings and condominium active listings are both down by 21%.
Sales of Condos were up by 2%, condominium prices up by 6%.
Condo Active listings down by 36% and new listings also down 14%.
Vancouver Major Point: Normally when sales slump listings increase. Not in this strange September in Vancouver. We pointed to a shift in the last few months from SF to condominiums.
THE FRASER VALLEY
Fraser Valley MAJOR POINT:
August SF sales down sharply by 27% over 2020 but still up over 2019, 2018.
Prices UP 16%. FV SF Active listings down by a whopping 53% as well.
FV SF new listings down 36% and new condominium listings down 17%! The Valley has had a spectacular September as compared to the last 4 years. Pre-sales are selling like proverbial hot cakes.
Ozzie’s other websites for you to play in: FREE
one. If you are in building, selling, marketing, developing, lawyering, etc. list yourself in the free BC real estate directory:www.bcred.ca (11704 visitors in September)
- Questions to Ozzie and experts:www.askanexpert.ca
- Set up your own “ talk” atwww.realestatetalks.com (30019 visitors in September)
(Ozzie’s 23-year-old bulletin board for you to play in)
- Want to see all Ozzie blogs and all Ozzie podcasts? Go here: www.ozbuzz.ca.
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Go to www.ozbuzz.ca to inquire rates and availability (Booked till October 8)
LIVE LIFE LARGE
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A great life is one shared with
Personal and professional pillars
I am attracted to people that
Share my values
I am attracted to people that
Community, and country
I attract positive relationships
I will grow into my future best!
Look up all of my “Grow into your future best” cards at: www.commitperformmeasure.com
I grow into my future best!
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WANT TO PARTICIPATE?
Go to www.realestatetalks.com – Some 2,500 members (47,009 posts) talk real estate. Ozzie created this bulletin board in 1998!
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OZZIE’S YOUTUBE CHANNEL
You can watch all videos and podcasts on my YouTube channel at https://www.youtube.com/jurockvideo. It is a great way to check on what I said 10 years ago.
Ozzie is on air with Michael Campbell on the fabulous MONEYTALKS every Saturday sometime between 8:30AM – 10 AM. The radio station is CKNW and the best way to listen to it is WHEREEVER YOU ARE IN THE WORLD, just visit www.cknw.com at 8:30 am every Saturday (PST), click on live and you’re good to go. The Hot Property that we discuss there, is available by subscribing to the Oz Buzz Dispatch at Jurock.com
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