“Whoever said ‘Practice makes perfect’ obviously never played golf.” -Anonymous

THIS WEEK IN FACTS BY EMAIL

  • QUESTIONS, QUESTIONS
  • OTTAWA CONSPIRING TO KEEP LANDLORDS IN THE SWEET SPOT
  • LOW RATES, FIRST BUYER RESTRICTIONS KEEP RENTAL MARKET PROFITABLE
  • A TINY PERK OPENS FOR SAVVY VANCOUVER RENTERS
  • VALLEY TOWNHOMES MAY BE PRIME FOR INVESTORS RIGHT NOW
  • NANAIMO BLOODLETTING COULD BE ENDING

  • FROM HIGH-TECH OWNER TO DUCK FARMER BUYER

  • CMHC TO CENTRALIZE LANDLORD PROCESSING – IN QUEBEC

Questions, Questions


Q: Most questions this year are concerned with the Lower Mainland housing market … up or down? One of the most interesting questions comes from
a long time subscriber:

“I have just read your FBE received today. I have a question and would like to know your expert view since you have seen many housing cycles in the 40
years you have been in this business.

“Historically, I have experienced that whenever prices in any market – whether it be stocks, bullion, property, oil, etc. crosses its previous highest
peak it had set during the previous bull market with large volumes the tone is then set for the beginning of a new bull market which continues for a
few years and continues to register new highs until it all comes to an abrupt end for one reason or another … (I believe more likely government
intervention next spring after the 2015 Oct. elections.)

“In your personal view could the lower mainland now be experiencing what one could call the beginning of a new bull market?

“I know you will say one must tread with caution and have 50% in cash at such times but honestly with that caveat do you believe we have now entered a
new bull phase like the one we had seen from 2002 to 2007? Just your gut feeling backed by your experience? Def. would like to know your thoughts on
this.”

A:
Indeed, the million dollar question with the twist of your comparison to investment markets in general. IN my view real estate markets differ from stocks,
bonds, bullion, etc. in that they are primarily local in nature. When a consortium starts to sell gold in London, it will affect your investment here. If
the Surrey developer drops his prices by 25% it definitely has no effect on values in London. It may not even have an effect across the river in the hot
Westside market. I have held the multi-year (16 year) position that we live in the world’s most unreported inflation. Why? Because of Central Banks
printing money. Every country in the world is now printing money AS NEVER BEFORE (EXCEPT THE US) – in fact – it is accelerating. The result will be (I have
argued and argued) higher prices of hard assets. All hard assets. But within that world view, there are dips and valleys. Products of hard assets fluctuate
condos/single family/townhomes/commercial/office. Local influences (office values in Calgary will get clobbered, Vancouver has sharply lower commercial
value and sales, over building, cycles etc. Governments seeing the results of their mad dash to devalue take actions that are often unpredictable. Watch
how they will slow down the housing market in Canada with new financing restrictions. So I doubt you can predict macro markets in this environment except
the overall rise in prices -asset class by asset class – at different times. (Please review my detailed view of my investment philosophy in the OUTLOOK ISSUE (on your password protected website – issue 1 – 2015).

Q: I like to follow you on Linkedin and Facebook, but other than being a subscriber, I don’t know you, is that ok with you
?

A: Of course … please do. I like everybody, but I ABSOLUTELY LOVE SUBSCRIBERS! I have just under 4,800 followers on Facebook, about 6,000 on Twitter and about 3,400 on Linkedin.
(We also have 1,100 on Jurock Real Estate Insider Facebook and about the same on the Insider twitter. Also some 2,500 on realestatetalks.com.) I would just suggest that if you ask a question just type: Ozzie, I am a Subscriber. I will get you an answer faster … ha-ha.

Ottawa Conspiring To Keep Landlords In The Sweet Spot

Low rates, first buyer restrictions keep rental market profitable

A 15% hike in mortgage insurance premiums for home buyers with less than 10% down is the latest gift to landlords as Ottawa appears to be doing everything
it can to sweeten the rental investment market. (This is the second increase in two years, as CMHC hiked its premiums from 2.75% to 3.15% in 2014.)

The tightening of the mortgage market by raising premiums on Canada Mortgage and Housing Corp. (CMHC) is, we believe, the start of a new round of mortgage
regulations aimed at tamping down home buying. The new rate for a loan-to-value ratio up to 95% is 3.6% of the mortgage, up from 3.15%. For a loan-to-value
ratio from 90.01 to 95%, but a non-traditional down payment, the premium climbs to 3.85% from 3.35%.

(Private mortgage insurer Genworth will match the increase in CMHC premiums as of June 1.)

Major Point:
In Vancouver, for instance, home buyers will have to come up with larger down payments or pay higher insurance premiums. On a typical Metro Vancouver home,
the premium will add $1,200-$1,500 per year in mortgage payments: and that is only if the buyer can scrape together about $65,000 in cash for the down
payment.

The result: less young home buyers and more renters.

(We don’t count affluent buyers and those with deep-pocket parents willing to lend money to cover big down payments – these are not the people mortgage
insurance was meant for.)

For the vast majority of want-to-be-home-buyers, the dream is that much further out of reach.

Meanwhile, larger rental investors (five units or more) can qualify for 10-year CMHC insurance mortgages at around 2.3%, lower than
many homebuyers are allowed. And, while these landlords are also paying mortgage insurance fees, scale makes it much more affordable, since a number of
units can be combined into a single mortgage.

Bob Dhillon, founder and CEO of Calgary-based Mainstreet Equities Inc., bought a 331-unit Surrey apartment building for $33.7 million this February
and said he is looking for other opportunities. The capitalization rate on Metro Vancouver apartment buildings is in the 4% range. “When you can borrow 10-year mortgages at 2.3% that is free money,” Dhillon said.

With the rental vacancy rate at 2% or lower in most Canadian cities, landlords can assume increased demand and steadily rising rents.

Major Point 2: JREI believes there is more to come as Ottawa attempts to cool home buying while not raising lending rates (which would harm the
manufacturing and export sector). Watch for a further shortening of amortization terms and restrictions on the amount of mortgage that can
be taken on, based on income. Note: In Ireland as of this year, for example, only 20% of buyers are allowed to buy a home
worth more than three times income. As there, such a restriction here would freeze an urban generation into rentals and out of home
buying. (In Vancouver, for example, the average home is worth 10 times the average income.)

A Tiny Perk Opens For Connected Vancouver Renters

You have no doubt noticed the land assembly signs that now line major arteries in Metro Vancouver, especially in Vancouver, Richmond and South Surrey. The
signs indicate rows of single-family lots assembled for higher-density housing, which in most cases doubles the value of the lots. But the signs also
signal what has become a tiny perk for some renters: free rent or very low cost rent sometimes for two or more years. In one recent case, a young lady
secured a Cambie Street house for free while a rezoning process drags on, expected to take two years. “The developer just wants us to watch the property, pay the hydro cut the grass,” the lady told us. In other cases, the former house owners get to
live in their house rent-free while the developer applies for rezoning, or tenants are offered low-cost rents, with the agreement that they have to move as
soon as the demolition permit is granted.

The Vancouver City planning department is packed with rezoning and development applications and delays of months are common.

Right now there is an estimated 1,500 development applications backed up and it can take 30 months to acquire a permit, according to developers!

The delays open a tiny window of opportunity for some renters, but living rent-free even for even a year in Canada’s most expensive city can be an angle
worth pursuing.

Valley Townhomes May Be Prime For Investors Right Now

Metro Vancouver home buyer or investors (is there any difference?) may want to look at Fraser Valley townhomes as a best buy as the spring
buying season fires up.

There are three reasons:

1. A temporary oversupply in the market; stable prices; and a change in the in-migration pattern. As we have pointed out for months and now according to a
study by the Urban Development Institute, the average price of resale Fraser Valley attached unit (usually a townhome) has fallen to around $355,000 per unit (down about 15% from a year ago) and sales have also slowed from a year ago. (At the same
time, the average detached house price has reached an all-time high of $723,000.) There is also a fairly high inventory of new and unsold
townhomes on the Fraser Valley market.

2. Then there is the demographic angle. Asian investors prefer concrete condominiums or detached houses over wood-frame townhouses,
according to realtors close to the action. But the latest numbers on in-migrations show that most of the new arrivals into the Lower Mainland are not from Asia, but from other provinces. In the second and third quarter 2014, for
example, total inter-provincial migrants totaled 33,120 people, as compared to about 17,000 immigrants (the bulk of whom come from China and other Asian
countries).

3. Townhomes often also have lower strata fees than large condominium projects and provide one-level living and even yards, which are
valued by a growing number of older home buyers.

Major Point:
This week we found nearly three dozen two bedroom or bigger townhomes in Langley and Surrey for $375,000 or less, with some priced under $200,000. An
example is MLS F1431235, a Surrey two-bedroom end-unit with patio and a pool for $189,000, with no age or rental
restrictions. With some 1,000 new people moving to Surrey per month … there is also excellent potential for price appreciation once the oversupply
ebbs.

Defining ‘Unaffordability’

By Dustan Woodhouse

Critics of real estate ownership often cite the average detached Vancouver house price against household income, e.g.,

‘Today the

(Vancouver) median income is $71,660

and the average (Vancouver detached) house costs $997,800 – 14 times annual income’.

There is an assumption being made that these metrics are co-dependent. This is a misleading correlation. It paints a picture of
impossibility, and has done for years.

Here is the reality check. It is not about income and house price; it is ALL about income and mortgage size.

Let’s look at apples to apples: Average income and average mortgage size

The BC median income of $68,970.00 and average BC mortgage balance of $288,750.00 presents a less hype-inducing ratio of 4.18 times
income.

Port Moody’s
(my neck of the woods) median income of $93,015.00 and average Port Moody mortgage balance of $295,427.00 presents an even less hype-inducing ratio of 3.17 times income. (Note! Ed.)

It seems reasonable, if less exciting, to focus on a ratio of monies earned to monies owed. Whether a home rises to 14:1 or falls to 1:1 is somewhat
irrelevant in the short term; what matters is the answer to this question: Does income cover expenses and is home ownership a long-term plan?

If yes, then it is likely one will weather a boom and a bust … or even three!

A home is just that, a place to make a life. For some it is a forced savings plan, for others a dream realised of owning their piece of the world. There is
value beyond just dollars in owning a home. Even without viewing one’s residence as one’s sole retirement savings vehicle, there are many degrees of safety
and stability as well.

Are there several Vancouverites with mortgages of 500K or more?

Yes, and those folks have household incomes proportionately larger (in excess of 100K). Typically they are dual-income households often with a basement
suite supplementing payments. In many cases these are highly employable people with multiple revenue streams-salary, investments, rental income-who also
have family support to call on if need be.

Again, looking at real numbers, the average BC mortgage balance requires a payment of $1,350.00 per month, or $16,200.00 per year. This is approximately 24% of the gross annual median income being used to debt service the average mortgage balance.

Fear-inducing headlines about ‘unaffordability’ and ‘ unsustainability’ (Ed.note: For 8 years by THE ECONOMIST and for 2 years by DEUTSCHE BANK) touting the end of the real
estate world have been around as long as my wife and I have owned real estate.

Values cannot get any higher!

Rates can’t get any lower!

We have heard these refrains since our first detached home purchase @ 160K in 1995 when rates were at an ‘unsustainable’ low of 8.75%. The vendor of that home had purchased for $40,000 in 1985, clearly we were suckers buying into an ‘overheated’ market. And
yet since 1995 the value never dipped below 160K ever again.

The payments on that home were $1,600.00 per month on a $48,000 household income. It was not ‘unaffordable’ it was simply a new reality that we had to
adjust out budget to accommodate.

Today our current home (measured by price) is more ‘unaffordable’, and our current mortgage rate more ‘unsustainable’ than ever.

Yet we sleep soundly
.

On a daily basis I take in applications and process files for clients consistently borrowing 75% of the maximum they qualify to borrow. They have room to
pay higher prices, yet they choose the more (Canadian) conservative path. They believe what they read in the papers, that everybody else is at the ragged
edge of what they can afford. As a nation we are a conservative bunch, largely living within our means. That is why we weathered the 2009 financial storm
as well as we did, as a country and as individuals.

Dustan Woodhouse is an ace mortgage broker with Dominion Lending Centres. You can reach him at dustan@ourmortgageexpert.com

Nanaimo Bloodletting Could Be Ending

When one talks of B.C. real estate, the discussion often concentrates on the spectacular Metro Vancouver market, not on the struggling outlier coastal
areas where house prices haven’t budged or have even reversed in five years.

Nanaimo, B.C.’s third largest city outside of the Lower Mainland, is a case study. A common example provided by a Nanaimo realtor: “My client bought a house for $325,000 in Jan. 2008. It has a 2-bedroom suite and is in good condition. She sold in June 2014 for $270,000. That is a
$55,000.00 loss in addition to the $25,000 she put into updates and the $12,000 she paid in real estate fees to sell, plus taxes. The total loss was
$95,000.”

Ouch!

But Nanaimo realtor Steve Pakozdy of Royal Lepage Nanaimo Realty
 (www.stevepakozdy.com) adds that
Harbour City’s detached housing market has recently started to perk up.

“Inventories are down 22% from last year and we have pent up demand [for higher-priced detached houses] after several sluggish years,”
he said. Condos and townhouses are another story, though. “You can still buy a 2- bedroom ocean view condo in this town for $150,000”.

Modular homes and trailers with pad rents are barely moving unless the purchase price is significantly reduced. Also, a number of lenders in the area say they will no longer finance trailers with pad rents (though it is still possible to get CMHC mortgage financing on such units.)

The detached housing demand is linked to Metro Vancouver buyers cashing out. “A
recent buyer from Richmond sold his small, dated rancher on a corner lot to a developer for $800,000. He then bought a new 2,500-square-foot house in
Nanaimo, with a legal two-bedroom rental suite, for $400,000. The media tends to focus on hot markets from Vancouver. The rest of the country has
followed a different path,”
Padozdy said.

Major Point:
Indeed! We like Nanaimo, the new Harbour parks and walkways, the (near) new Convention center, concentration of government and hospital services … all
bode well for a stable real estate market place. And a place where cash flow is not a dirty word!

From High-Tech Owner To Duck Farmer Buyer

From the South China Morning Post this week:

Who is Chen Mailin? He’s gone from being a duck farmer, to an hotelier, to the head of a skyscraper-building conglomerate and a member of
the Chinese People’s Political Consultative Conference (CPPCC).

The 45-year-old Jiangsu-province businessman is now also the owner of one of Vancouver’s grandest homes, a 17,000 sq. ft. Italianate mansion on 1.1 ha in
Point Grey, sales documents revealed last week.The C$51.8 million (HK$315 million, US$40 million) price makes it one of the city’s most expensive homes; it also may represent the single biggest residential transaction ever conducted in Canada, although the nature of private sales make this difficult to prove.

The home at 4787 Drummond Drive was built on what was once three separate lots by the computer games mogulDon Mattrick, formerly of Entertainment Arts (EA) and Microsoft, and now CEO of Zynga – and his wife, telecoms heiress Nanon de Gaspe Beaubien-Mattrick.

Despite maintaining strong mainland ties, he has also forged links to Vancouver, although these mostly appear related to residential real estate. His local
company, Chunghwa Investments (Canada) Co Ltd, is based downtown, but also has a listed phone number that apparently directs to another
mansion at 6080 Steveston Highway in Richmond. Chen also owned a home in posh Shaughnessy, at 1559 Laurier Avenue, which he offloaded last year for
C$10.5million.

The Point Grey estate was not listed through the public Multiple Listing Service (MLS), and instead was offered last year by Malcolm Hasman, the city’s ace luxury realtor.

CMHC To Centralize Landlord Processing – In Quebec

Effective April 27th, Canada Mortgage and Housing is centralizing the multiple underwriting of multi-unit residential 5 and 6-unit properties to
leverage corporate expertise and processing efficiencies. As the majority of these applications are underwritten in the Quebec Region for this property
type, applications will be processed at the Quebec Business Centre, according to an agency statement.

Applications are to be sent directly to the Quebec Business Centre by facsimile to 514-496-1302 electronically to multi_qc@cmhc.ca or by mail at 1100 Rene-Levesque Boulevard West, 1st Floor, Montreal, Quebec, H3B
5J7. Application fees may be sent by cheque.

Hot Property:

1. SURREY TOWNHOUSES we found nearly three dozen two bedroom or bigger townhomes in Langley and Surrey for $375,000 or less, with some priced under $200,000;

2. SURREY two-bedroom end-unit with patio and a pool for $189,000, with no age or rental restrictions.

Anyone can be here; there is no fee. They just look interesting to us … but you must check them out yourself. Contact info is on your
password-protected Insider website at Jurock.com.

BOOK OF THE WEEK:

To subscribe to Jurock’s Facts by Fax ($177 p.a.) 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