Facts By Email #34 – The Market Slow Down – Revisited

IN THIS WEEK’S FACTS BY EMAIL:

• QUESTIONS, QUESTIONS
• THE NUMBERS TIL AUGUST 14 – REVISITED
• GET COMMERCIAL FINANCING EASIER
• HOT PROPERTIES
• INTERNATIONAL REAL ESTATE WEBSITES
• PRE-SALE ACTIONS
• NEW PIPELINE IN THE NORTH APPROVED BY PROVINCE

Questions, Questions, Comments

Q:  We are Canadians. We have bought a pre-sale in Vancouver. It completes end of 2017. We want to get out of it. Can we list it?

A: It depends on your contract with the developer. If you can assign it … yes. But WHY? No one has a crystal clear crystal ball. If the reason is that you want to flip at a profit and that was your original goal. Fine. If your economic situation has changed. Fine. But if it is because of the tax … I own a presale, my daughter owns one, my partner owns one, his son owns one, our company owns one. We are not selling. We bought for cash flow, property value increases and a tenant to pay off our mortgages. In that regard nothing has changed. In fact, we – together with CMHC – expect rents to increase. Read the piece below on previous downturns and their duration.

Q: I heard that Bob Rennie told his buyers to close before August 2 and knew well in advance as he was informed by the Liberals.

A: I did not hear that at all. I believe CBC reported him saying that he ‘knew’ it. (That the government was going to do something.) I think there is nothing wrong with Rennie being asked his opinion. I am sure some other major real estate experts were asked too. I would expect the government to do research and ask industry officials about the impact of such a major tax intro. (No, they did not ask me anything. They should have.) Again, nothing wrong with that. If these experts, then used that information for the betterment of their clients …THAT would be illegal.

Q: Liked the International retirement piece. I went back to the January 2015 issue where you already recommended Spain and Portugal. Where would I find worldwide real estate websites?

A: Yes, we recommend 5 countries in the world for retirement – generally none in South America – every year. Look for some websites for real estate listings below. (Also we featured properties in Portugal/Spain last June 2015 and July 2014.)

The Market Slow Down – Revisited

As we pointed out last week, the numbers from the 14^th were early and thus likely would be adjusted upward. (More sales took place in the first 2 weeks, but were not reported till later.) Looking again at the first two weeks, with new reported sales (pre-14th) the numbers are still down but are not as bad. Likely by the end of the month we will look even better yet. Remember, that – before the new tax – single family home sales were already down over 30% in most areas since May – as we reported here every month. That slowdown was not too surprising when you consider the incredible run up in values. We now need to batten down the hatches (as investors) as we expect a renewed media focus on the likely sharp increase in listing inventory, increasing lawsuits and a slew of people that gloat with “I told you so”.

• Greater Vancouver Single Family Home Sales
  2016 = NOW 169 -71%
  2015 = 565
• Greater Vancouver Condo Sales
  2016 = NOW 379 -47%
  2015 = 701
• North Vancouver Condo Sales
• 016 = NOW 26 -40%
  2015 = 43
• West Vancouver Condo Sales
  2016 = NOW 5 -29%
  2015 = 7
• North Vancouver Single Family Home Sales
  2016 = NOW 22 -54%
  2015 = 47
• West Vancouver Single Family Home Sales
  2016 = NOW 7 -86%
  2015 = 51
• Richmond Single Family Home Sales
  2016 = 10 -88%
  2015 = 82
• Richmond Condo Sales
  2016 = 45 -40%
  2015 = 72

Major Point: With these adjustments things look better and by the time the month ends … perhaps better yet. As we said last week. It is the month end numbers we should wait for. So, it is serious – but not conclusive (as a bubble burst) – yet. Also, not conclusive in that we cannot weather the storm. Remember we have been here before:

2008-2009

During the enormous worldwide financial crisis our sales and prices dropped like a stone, Whistler could net get financing and a dozen projects went under between the fall of 2008 and the spring of 2009. Prices were slashed by some developers. Yet between the spring 2009 and the fall of 2009 markets reversed and continued their (until now relentless) climb.

Imagine you had sold in spring of 2009 when Westside building lots dropped to $1 million and less.

1995-1998

Many Hong Kong Chinese Canadians fled Hong Kong between 1990 and 1995 as they did not have much faith in the Chinese Government and its efforts to repatriate Hong Kong into Mainland China by 1998. Our markets rose sharply during those 5 years. But by 1995 it became apparent that Mainland China was doing an excellent job thru the creation of a ‘2 China policy’ and the fear abated and everyone went back. In those three years our average price reversed 17%-19%. (From about the then new high of $355,00 down to $278,000 approx.) The NDP was also blamed, unemployment was high.

But imagine you sold then the average house at $278,000!

1981 – 1985

Prices shot up between 1978 and 1981 from $79,000 (approx.) to $181,000 (at the peak). The world was in high 12%-15% inflation. The then US chairman together with other world bankers wanted to KILL inflation. Kill it he did. He raised interest rates sharply, dramatically so, to where a 5-year term was 16.5% and short term money reach over 22%! The world was full of disaster stories. I was so worried then that I sold all my real estate (in 1979 – 1980) took my kids out of school and moved the family to Mexico ‘for a happy year before the world came to an end’. (That was the last time I listened to the naysayers.)

Prices fell back at the end of 1982 to $115,000. Imagine you had sold then!

Major Point: Revisit your OUTLOOK issue, where we urged you to check your motivation. Flipper? Investor? Shark? As a flipper … you had a fabulous run and yes extreme short term caution is indicated. Investor – if you bought for cash flow and are getting it … why worry? Half the mortgage payment goes into your jeans and your tenant pays it! If you don’t, we have been asking you to sell for over a year. Shark? This will be your time. There have not been many foreclosures in the last few years.

What does bring a major change about?

• A major bad economic news
• International incidents (China or others bringing in foreign exchange controls)
• Trigger points – tax change, zoning changes – change of uses of property
• A Black Swan (unpredictable – as we said in our 2014/2015/2016 OUTLOOK issues:

With the ‘swan’ comes…

• Mass hysteria … market become the stories people talk about
• Fear
• Uncertainty

Major Point: It seldom pays to run for the hills. In our view the continued printing of money (our theme since 1998) results in ever higher asset prices … with valleys in between. Yes, we have entered a valley. Maybe a short valley or even a long one … but we will climb up the other side.

Trouble Getting Residential Financing? Try Commercial!

Many real estate investors have been feeling the pinch when getting their 6^th property, as many banks have a cap of 5 rental properties you can own under their residential policies. However, there are many rules that apply to residential financing that does not apply to commercial lending.

“There are a lot of deals that can get done commercially that would be difficult to obtain on the residential side,” says Kyle Green of Mortgage Alliance (604-229-5515, Kyle@GreenMortgageTeam.ca). Here are a few of the most common:

• Low to nil personal income. Retirees, self employed who don’t claim enough income, etc. Commercial financing is based primarily on the properties’ ability to service debt, not the individual
• Unique properties, like non-conforming, more than 4 units, commercial zoning, short term rentals, etc.
• Down payment sources that residential wouldn’t allow like unsecured line of credit, etc.
• Too many rental properties. It can be difficult to get over 5 in the residential world (although not impossible), but in commercial there are no limits.
• Not enough down payment. Commercial financiers can “inter-alia” and secure debt against other real estate owned to get away with not needing down payment, or minimizing it.
• Room rentals. Residential lenders only consider suites, but occasionally we have clients renting out rooms on their own to increase revenue. Commercial can consider.
• Spec builds. Residentially these are nearly impossible, but commercial lenders can consider.”

This all being said, there are some downsides to commercial financing. “In general, it’s hard to get pricing at residential rates, although sometimes it is possible to get close,” says Green. “There are a lot of other costs however like the legal fees, appraisal, potentially environmental studies, lender and broker fees, etc. So in general residential should be your first avenue for financing but commercial financing by comparison can be much easier to obtain. There has been so much government intervention in residential financing for the past decade, where commercial financing really hasn’t changed at all.”

International Real Estate Websites

Our piece on retirement living elicited some questions on where and how to find overseas real estate.

Here are some examples of International Websites:

World Properties – http://www.worldproperties.com/en/Properties.aspx
Great site for most countries in the world. All languages. Not as many listings as others. Make the search broad: I.e. Germany all, rather than Bavaria

E-wy.com – European listings – English and German. Interesting site. Always trying to sell you something.

Sothebys and Christies have global sites, but some countries have only 1 or 2 properties. Mostly expensive properties. http://sothebysrealty.ca/en/, www.christies.com

Juwai.com – The No. 1 Chinese property search portal has 2.6 million visits each month.

Realtor.com/International – Worldwide listings in 14 languages from 40 countries with more than 1 million monthly visitors.

Realtor.com – over 1 million USA listings

Realtor.org – USA suburban stats and facts

Realtor.ca – Canadian sales and listings

LuxuryRealEstate.com – Visitors from over 70 countries view 16 million pages per month. Features the most multi-million-dollar properties and is #1 in international real estate searches on google.com, bing.com and yahoo.com.

World property journal – News and luxury listings.

WorldProperties.com – Searchable in 9 languages, this site attracts home searches from 139 countries across the globe and is a crossroads for more than 800,000 real estate professionals worldwide.

WallStreetJournal.com – Reaches more than 30 million site visitors each month.

MansionGlobal.com – Features listings over $1 million to an audience of international property seekers. Listings are globally searchable and displayed in English, Spanish and Chinese. Homes listed at $7 million and above are featured in a special Berkshire Hathaway Home Services carousel on all “Latest News” articles found on the Mansion Global homepage.

Fort St. John – New Pipeline Approved!

Environmental approval by the BC Government has been received for two new pipelines. The pipelines are intended to go from Wonowon to Taylor and will carry gas to the proposed Woodfibre LNG plant. Investment: $235 million!

Plateau Pipeline Ltd.’s Northeast B.C. new plant would add 75,000 barrels a day of condensate natural gas liquids, while the Eagle Mountain-Woodfibre Gas pipeline is aimed at helping the construction B.C.’s first liquefied natural gas export terminal.

Of course – you knew it: This is just an initial step. There are still various federal, provincial and local government permits required before construction can begin. As well the pipelines still need approval from the Oil and Gas Commission, but it is hoped that construction can begin this September (!) with commissioning in the second half of 2017. The project is valued at $235 million, $83 million of which will be spent in the region.

It is a shot in the arm for the north as during construction some 455 person years of direct employment, 774 person years of indirect employment and 531 person years of induced employment will be created.

Of course dozens of conditions need to be met: Protect the moose and the grizzlies, and their old forests, watch for calving habitats and a wetland survey needs to be done before beginning construction, and of course the development of a plan to protect Aboriginal heritage sites.

The pipeline’s approval will allow gas drilled near Dawson Creek to reach the $1.8 billion LNG export facility to be located near Howe Sound.

Look it up here: http://www.pipelinenewsnorth.ca/news/industry-news/province-approves-235m-plateau-pipeline-project-1.2326541#sthash.108Vlwu7.dpuf

Major Point: This is good news … because the world is passing us by. We need to produce the gas and get it to market, or some other country – starting later – will (some have already) beat us to the punch. The job creation, and the ongoing tax revenues will give the North and indeed all of BC a “tax collection shot in the arm”.

Recommended Reading

I am re-reading Gary Keller’s book: THE ONE THING. In this thought provoking book, he nails it – for me. Multi-tasking does not work. Focus on small thing does:

“The way to get the most out of your life and your work is to go as small as possible. Most people think just the opposite. They think big success is time consuming and complicated. As a result, their ‘to do’ lists become overloaded and overwhelming. Success feels out of reach so they settle for less. Unaware that big success comes when we do a few things well, they get lost in trying to do too much and in the end accomplish too little. You have only so much time and energy, so when you spread yourself out, you end up spread thin…”

There is much truth in that. Focus is the key!

HOT PROPERTY

1. Nanaimo: Recently renovated home in the Pleasant Valley area that features a bachelor suite, a wired shed and a private yard. Price: $399,900;

2. Nanaimo, 5-year-old home on a large lot in the desirable Hawthorne neighborhood. 6 bedroom 4-bathroom home with a legal 2-bedroom suite. Price $629,000.

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 max@jurock.com … and read the disclaimer! 

REAL ESTATE OUTLOOK 2017

MARK YOUR CALENDAR – JUROCK REAL ESTATE OUTLOOK 2017 ON SEPTEMBER 24, 2016 IN VANCOUVER.

Our 24^th annual Outlook could be the most important ever. Twelve expert speakers will tell where the opportunities – and the dangers – lie in Canada and the United States in the year ahead.

For early bird tickets (your guests only $30), special seating and more information, click onto www.reoutlook.ca

Remember: Subscriber discount for becoming a sponsor with display table booth.

WONDERING ABOUT THE HOTLINE?

Hotline Text Alert System and Hotline Code Changed

To get on the Hotline Text Alert System and receive a text update when the Hotline is ready, please text ‘Jurock‘ to the number ‘393939‘ and you will be added to the system. You will receive no more then one text a week.

The Hotline Code has also been changed. Our new Hotline access code is 8080. The Hotline phone number is still 778-328-8887.

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.