“Inflation is taxation without legislation.” -Milton Friedman

THIS WEEK’S FACTS BY EMAIL

  • MARTY ARMSTRONG AND GREECE
  • COMMENTS, QUESTIONS,QUESTIONS
  • THE BUDGET, THE BUDGET …
    CAPITAL GAIN BENEFITS FOR SOME
  • CANADA’S TWO HOUSING MARKETS START AT FRASER RIVER
  • GUESS MICRO LOFTS REALLY WILL SELL – IF BANKS WILL FINANCE THEM
  • ROB MACDONALD GOES ALL IN ON CALGARY
  • LANDLORDS ASKED TO COMPLETE RENTAL SURVEY
  • BURNABY NOW HOT MULTI FAMILY MARKET

Marty Armstrong And Greece

The inimitable Mr. Armstrong insists that the major turning point in the world economy will be October 2015. Not the end of the world, but the end of the
government world as confidence in government’s crashes and the private sector takes over. A calamity is coming. He confirmed his view today by writing:

“The computer (his computer) is starting to really pick up October, lining up with the ECM for 2015.75. Now the Greek government
issued a decree that forces local governments to transfer all cash balances to the central bank, as debt to the International Monetary Fund and
salaries are due. This is crazy. Greece should default before it creates its own civil war. You just can’t do this sort of thing to
the people.”

He adds: “We are heading into a situation of total economic insanity. Boy, maybe I should have retired and hid on some remote beach.”

Major Point:
He scared a lot of people at the World Outlook conference but he is not the only one ringing the alarm bells loudly. Michael Campbell
quoted one of the world’s leading stock market authorities with an impeccable record as ‘extremely worried’ etc., etc. Our recommendation to get 50% into
cash stands … notwithstanding Vancouver’s nutty market. Nutty? An old Pt. Coquitlam house (box!) just sold $107,000 over asking (from $595,000 to
$702,000). Nutty! Play, yes, inflation of hard assets is CLEARLY visible now as forecast … so play, yes. But not with all your chips!

Questions, Questions, Comments

Some comments on our piece on ‘major projects’:

1.
Hey
Ozzie, I know it will come down to how you define ‘major projects’ but I have to observe your list in this week’s issue ignored BC Hydro’s John Hart Regenerating Station in Campbell River clocking in at more than $1 billion and when combined with planned seismic
upgrades for the two dams in that system, the total spend will be $100’s of millions higher. Then there are the two piddling hospital projects in The
River City and Courtenay adding another $600 Million! Construction is underway on all projects, heading upward and tunneling under the earth. Where do
you think laid off oil field construction workers are finding employment? North Vancouver Island babe! We’re hot! Hydro electric and an operational
wind farm at Holberg – who knew we were so green?

2.
Ozzie: “… I guess the $9,000,000,000 for site C doesn’t count? lol”

A:
Noted comments and appreciated. Well, Vancouver Island – we are planning a piece next month and we’ll dig in. Site C dam. You ae correct – a major approved
project. But is isn’t under construction just yet. And yes, you could also list the $13 billion Petronas project. But, we were trying to highlight all the
stuff that is going as per the Association of Consulting Engineering Companies British Columbia. Imagine, right now Vancouver housing
sales are worth more than all mining LNG combined in BC.


Q:
This market in Vancouver does not seem normal to me?

A:
Normal?
Vancouver real estate? The illustrious editor of the fine Western Investor (best commercial paper in the west) said to me yesterday:

“What we all must realize is that normal is out the window. An entirely new city is being demolished and built around us and it has nothing to do with
the Canadian economy, interest rates or local incomes.” Indeed, Frank!

‘Place Holder’ Budgets Hints At Long-term Low Interest Rates

The April 20 Federal Budget held few surprises but hinted at continued low interest rates, according to mortgage experts.

The biggest impact on housing, potentially for first-time buyers, is theincrease in the TFSA (tax free savings accounts) to $10,000 a year up from $5,000. “This will help more young people save up a down payment,” said Dr. Sherry Cooper, chief economist for Dominion Lending Centres.As Cooper noted, TFSA allow accumulate money tax free and there is no penalty for withdrawals.

Most people investing in TFSAs currently are older Canadians.

Cooper, who called it a “place holder budget” also noted that the budget referred to real GDP growth of just 2% in 2015, an indication
that – with lower oil prices and a weak economic outlook – the Bank of Canada overnight remain will stay at 0.75%. Cooper does not expect the BOC rate to increase until at least late 2016.

Cooper also doesn’t expect the federal government to further tighten mortgage lending regulations. “That would simply hurt the economy,” she said.

Another real estate wrinkle in the budget allows real estate investors to avoid some taxes by donating to a recognized charity.
To qualify, you must sell your real estate to a third party and then donate the proceeds to a charity within 30 days. For instance, if you bought a home
for $300,000 and sold it for $500,000 and donated $200,000 to a charity, 40% of the $200,000 would be exempt from capital gains tax. You would be paying
tax on $120,000, but since capital gains are taxed at a 50% rate, you would only pay taxes on $60,000. This is a break that only a few wealthy people will ever get a chance to take advantage of, however.

Here’s a look at the budget’s key points:

  • $1.4 billion surplus this year, down from $6.4 billion projected a year ago and $1.9 billion in November.
  • Annual contingency fund cut by $6 billion over next three years.
  • TFSA annual limit raised to $10,000 from $5,500.
  • Small business tax rate cut to 9 per cent from 11 per cent by 2019.
  • Accelerated capital cost allowance for industry extended 10 years.
  • Seniors at age 71 can leave more money in tax-sheltered Registered Retirement Income Funds.
  • Home Accessibility Tax Credit for home renovations for seniors and people with disabilities.

One eyebrow raiser was
the Government has judged it necessary to do a downward adjustment for risk to the private sector forecast for nominal gross domestic product (GDP) over
the 2015 – 16 to 2019 – 20 period. Adjustment for risk translates to a contingency set up of $1.0 billion per year between 2015 – 16 and 2017 – 18, $2.0
billion in 2018 – 19 and $3.0 billion in 2019 – 20, which, for fiscal planning purposes, is applied proportionally against projected revenues. Why these
contingencies? What – again – is the Government expecting?

Major Point:
Not sure I agree with the view that the Government will not tighten mortgages further. Another quarter like the first one and you can bet they will raise
down payment requirements and amortization periods will get shortened. Remember to review your mortgages: The best 5 year variable rate today is 2.2% (!)
and the best 5 year fixed is 2.69 (!) for a normal buyer. If you close fast and have outstanding credit the rates can even be better!

Canada’s Two Housing Markets Start At Fraser River

As we have announced at our Landrush 2013 conference and here several times:

Canada is now two housing markets: Metro Vancouver and all the rest.

In the past week ace West Side Vancouver realtor Michelle Yu sent us an email telling how she had just sold a house for$550,000 over the asking price. A few days later an old eight-plex on West 10th Avenue sold for $500,000 per door. A realtor had also sold a nine-house assembly on Granville Street that penciled out to $3.7 million per house for homes
that were assessed at around $1.7 million by BC Assessments just last July.

This is not happening anywhere else in Canada.

Even Toronto, hot as it is said to be, is not in the same category. There, $1 million still buys a nice family house.


The average house price in Canada is now $440,000 according to the Canadian Real Estate Association but if Vancouver and Toronto are knocked out, the
average Canadian home price is $332,711 as of March.

And yes, even at that price you can still buy a home in the Lower Mainland.

A quick trip across the Fraser River is enough to reach reality and the rest of Canada.

For the average price of a house in Vancouver ($1.3 million), for example, you could these two houses in Surrey: MLS: F1438293 3 bedroom, 3 bathroom
detached house in West Newton, asking $538,800.; and MLS F1438290, a five-bedroom, five bathroom detached house on 72nd Ave, asking 599,900.

Or you could buy five condominiums in North Surrey, three condos in South Surrey/White Rock or five townhomes in South Delta for the same price as that
Vancouver detached house.

Checking a price limit between $100,000 and $355,000 (around the Canadian average) we found more than 3,000 listings in the Fraser Valley and Maple Ridge
in that price range.

Major Point:
This week Vancouver was called the least happy city in Canada and out-of-reach house prices are likely a key reason. Cheer yourself up with the knowledge
that realistic home values are just a Skytrain or drive away. If you are a seller of assembled land … take the money and run! The buyers paying the
crazy amounts are foreigners who will get skinned in the lot assemblies. Skinned!

Guess Micro Lofts Really Will Sell – If Banks Will Finance Them

Those – and we confess we were among them – who doubted that micro condos would sell in the suburbs got a quick education last Saturday in Surrey when
about 2,000 people came through the sales centre at the Evolve condo project in North Surrey. At the Evolve, condos are as small as 316
square and complete in 2018. At the end of the day, 300 of the 406 Evolve condos had sold, including nearly all of the 35 micro suites.

“Between noon and 1:30 p.m. excited early buyers who stood in line for hours, swarmed the buying counter in a frenzy that hasn’t been seen in years,”

according to a marketing manager Bill Morrison. The loss leader was a single micro-unit priced at $93,900 – it sold to an Edmonton investor who was first
in line at 4 a.m. Most of the lower level Evolve suites (around 400 square foot) are in the $140,000 range and one bedroom and dens on the 10th
floor and above are closer to $200,000.

Evolve is the second of six towers to be built in Surrey’s West Village by WestStone Properties. Over the next seven years, there will be
2,800 condos built in this area in Surrey City Centre.

If plans firm up, the Evolve’s tiny condos will look big compared to what is coming to Vancouver. Reliance Properties is planning to a build a 25-30 storey tower on Davie Street in the West End that will have condos measuring from 175
square feet to 275 square feet.

Investors should be aware, though that some banks restrict lending on super small condos!

“I would say there is still some hesitancy around lending on micro condos,”
said Toronto mortgage broker James Laird, president of CanWise Financial.

About 467 units of 500 square feet or less are currently in the occupancy phase in the City of Toronto, about 5% of the new condos coming on stream in the
core this year, according to condo research firm Urbanation.

An additional 2,868 of these smaller units will occupy by the end of 2015, making up 11% of all the new Toronto condos it says. And thousands more are in
the planning or construction phases.

“TD does have a minimum square footage requirement,”
said a TD spokesperson, without elaborating, “however we also review applications on a case-by-case basis.”

Major Point:
Is it a good investment? Not in our view. Get an older bigger condo as an investor.

Rob Macdonald Goes All In On Calgary

Last week we said Calgary’s housing market remains a good buy and that investors should be scouting the market to get in now while others are getting out.

At least one Vancouver developer appears to agree. Rob Macdonald, president of Macdonald Developments has just bought a
346-acre development in Cochrane, just 20 minutes from Calgary. The MonTerra master planned community had been owned by Medallian Cochrane Lakes Development Corp. Macdonald paid $6 million and plans to develop the land into a mix of detached and multi-family
homes. Said Macdonald,

“”We have every confidence that Calgary and its suburbs are going to have a very strong economic future which will include long term family population
growth.”

Major Point:
I always state that a developer deserves any profit or return he or she makes. They are risk takers. I prefer to buy a building that is there add value,
fighting with city hall, lengthy permit waits and up to 2 years construction leaves me cold. That is why I take my hat off to Mr. MacDonald. You deserve
any return you get

Landlords Asked To Complete Rental Survey

Landlord BC,
the industry association, is asking B.C. landlords to complete a 2015 Rental Building Income and Expense Survey. It is open to both LandlordBC
members as well as non-members. The survey comes to an end on May 1. All those who complete the survey will get a copy of the results.

The information that will be requested is available on a PDF format at VancouverAppraisal.com. The survey takes 5-10 minutes if done online. If you
have more than 3 rental properties, or any questions, call David Hutniak, CEO of LandlordBC, at 604-733-9440 for an Excel spreadsheet for faster data input.

Burnaby Now Hot Multi Family Market

Burnaby is now the hottest multi-family rental market in Metro Vancouver and it has everything to do with land.

The City of Burnaby is permitting apartment buildings to be torn down whereas in Vancouver, the city does not allow that. As a result, a
lot of old rental buildings in Burnaby are being demolished. The same vintage of buildings remain largely untouched in Vancouver.

“The result is that many suburban rental buildings are being redeveloped and renewed more rapidly and offer more modern building systems and amenities
than the aged and inefficient stock of rental properties in Vancouver,”

notes Avison Young principal Rob Greer.

Here is an example:
HQ Realty
has an old 58-suite apartment building near Burnaby’s Metrotown listed for the equivalent of $211,200 per door. It has development
potential, with a potential 2.5 floor-space-ratio.

At the same time, existing landlords are holding onto their properties. And why not? With Canada Mortgage and Housing Corp. – insured financing available as low as 1.7%, vacancy rates in the 1.5% range and soaring values, there is little incentive to sell.

“In the past 10 years, we’ve never seen such a shortage of listed rental apartment buildings that are available to purchase,”
comments Avison Young principal Rob Greer. “It’s the same all over Metro Vancouver. It’s not just in Kitsilano, the West End or along the Broadway corridor. It’s in Burnaby, Coquitlam, New
Westminster and Surrey. Multi-family properties are really tightly held right now.”

According to Avison Young, all the multi-family transactions in the second half of 2014 involved private purchasers, which highlighted the extremely tight
supply of significant assets in terms of both price and size.

The total absence of REITs and institutions in the second half was not due to lack of demand but rather a lack of quality assets. The
absence of these types of buyers did not affect pricing, which remained at or near peak, and capitalization rates continued to compress as private buyers
were able to take advantage of the low-interest rates to re-finance properties while still maintaining a positive cash flow.

Underlying land value and redevelopment potential are the significant factor in apartment building prices. Upwards of a dozen multi-family properties,
primarily in Vancouver’s Kerrisdale neighbourhood and the area surrounding Burnaby’s Metrotown, were acquired in the
second half of 2014 with the express purpose of redevelopment – and the pricing reflected that higher and better use.

Major Point:
There are 105,000 multi-family rentals in the region, according to Canada Mortgage and Housing Corp. (CMHC) and that number hasn’t changed
in nearly 20 years. An estimated 80% of all buildings are less than 30 units and more than 80% are in wood frame buildings. Asset price inflation is here
with a vengeance.

Hot Hot BC

The British Columbia Real Estate Association
reported some 9,101 homes sales, a 37 per cent increase. The total dollar volume was $5.8 billion, a 57.1% increase while average prices
climbed 14.1 per cent during the period to $641,799.

Greater Vancouver accounted for more than two-thirds of the dollar volume of sales. But there are other cities too that did well. In the Fraser Valley,sales were 45 per cent in March from a year ago. The South Okanagan saw a 30% bump in sales while Vancouver Island was up 28.2 per cent during the period.

The chief economist for the B.C. provincial association, Cameron Muir, says “rock bottom” interest rates and “rising consumer confidence” have helped drive sales across the province.

Major Point:
Indeed! Average sale prices in Vancouver were up 11 per cent last month, the Fraser Valley saw a 10% increase, South Okanagan an 11% jump and Kamloops was
up 7%. The provincial average price, for the 11 boards surveyed by the British Columbia group, reached $641,799. The cheapest place in the
province was Powell River on the Sunshine Coast of southwestern BC but even there prices climbed 4.6% to an average of
$229,393.