Sunday, April 29, 2007


Quoting Islam

A collection of memorable quotes by a collection of memorable Islamic personalities.

"The accomplishment of a world without America and Israel is both possible and feasible".

Mahmoud Ahmadinejad
President of the Islamic Republic of Iran
Occupation: politician

"The Jews are a cancer which is liable to spread again at any moment. There is no solution to the conflict between Islam and the Jews except the disappearance of Israel. Put a knife in your shirt, get close to an Israeli and then stab him. And, furthermore, let the entire world hear me – our hostility to the Great Satan is absolute. I encourage all Muslims to take suicide bombings worldwide. Don’t be shy about it ".

Sheik Sayyed Hassan Nasrallah
Secretary General of Hezbollah
Occupation: terrorist

"Jews are responsible for the world’s moral decay and are the roots of the world’s evil".

Sayyid Qutb
Head of the Working Committee and of the Guidance Council of the Muslim Brotherhood
Occupation: philosopher

"Our thanks go to the late Adolf Hitler who wrought in advance the vengeance of the Palestinians upon the most despicable villains on the face of the Earth. However, we rebuke Hitler for the fact that such vengeance was incomplete and insufficient".

Mahmoud al-Zahar
Co-founder and Foreign Minister of Hamas
Occupation: diplomat

"Iran is ready to begin the next Holocaust and implement the Final Solution".

Ayatollah Akbar Hashemi Rafsanjani
Former President of the Islamic Republic of Iran
Occupation: clergyman

"Israel will exist and will continue to exist until Islam will obliterate it, just as it obliterated others before it. And then it will be America’s turn".

Ismail Haneyya
Premier-designate of the Palestinian Authority
Occupation: politician

"The battle with the West will surely come, the decisive Muslim victory is coming without a doubt and the Prophet - peace be with him – spoke about it in more than one Hadith. And the day of resurrection will not come without the victory of the believers over the descendants of the monkeys and pigs [the Jews] and the complete annihilation of the infidels".

Hajji Dawud Muhammad ibn-Abdulrahman ibn-Hossein al-Sini
Leader of the State of Qatar
Occupation: politician

"Oh Allah, destroy America as it is controlled by the Zionist Jews. Oh Allah, avenge in the name of your Prophet the colonialist settlers who are the descendants of monkeys and pigs".

Sheik Abdul-Azeez Aal ash-Shaikh
Grand Mufti of the Kingdom of Saudi Arabia
Occupation: clergyman

"Those who have come at night, like bats, will hear us saying: death to Israel, death to America".

Sheikh Abdullah Ramadan Shallah
Secretary General of Islamic Jihad
Occupation: diplomat

"In compliance with God's orders we declare that it is the duty of each and every Muslim to kill the infidels, civilians and military, wherever they may be and to wash the Holy Land with the blood of the beasty Jew. For there never was among them a supporter of peace. They are all liars, all criminals. They slaughtered our children, turned our wives into widows and their children into orphans. Therefore it is necessary to kill them all in accordance with the word of Allah the Almighty and Omnipotent, peace rest upon him. Make war on the infidel Christian, kill the filthy Jew in any place where you can find them. Have no mercy on them. Murder them everywhere".

Sheikh Dr. Ayman Muhammad Rabaie al-Zawahiri
Ideologue and Strategist of al-Qaeda
Occupation: poet

Those who cannot remember the past are condemned to repeat it.

Support US and Canadian troops abroad.

Luigi Frascati

Real Estate Chronicle


Monday, April 23, 2007


The Duty Of Confidentiality In Real Estate

Is there any such thing as a realtor-client privilege? An article of interest particularly to fellow Realtors.


In any Listing Agreement there is a point in time when the agency relationship ends.

A Listing Agreement, as it is widely known, is none other than a contract between the rightful titleholder of an interest in land (the ‘Principal') and a duly licensed real estate firm (the ‘Agent'), whereby the firm stipulates and agrees to find a Buyer within a specified timeframe who is ready, willing and able to purchase the interest in land that is the subject matter of the contract while acting within the realm of the authority that the Principal confers onto the Agent, and wherein furthermore the titleholder stipulates and agrees to pay a commission should the licensee ever be successful in finding such Buyer.

As in all contracts, there is implied in a Listing Agreement an element which is commonly know at law as an ‘implied covenant of good faith and fair dealings'. This covenant is a general assumption of the law that the parties to the contract - in this case the titleholder and the licensed real estate firm - will deal fairly with each other and that they will not cause each other to suffer damages by either breaking their words or otherwise breach their respective and mutual contractual obligations, express and implied. A breach of this implied covenant gives rise to liability both in contract law and, depending on the circumstances, in tort as well.

Due to the particular nature of a Listing Agreement, the Courts have long since ruled that during the term of the agency relationship there is implied in the contract a second element that arises out of the many duties and responsibilities of the Agent towards the Principal: a duty of confidentiality, which obligates an Agent acting exclusively for a Seller or for a Buyer, or a Dual Agent acting for both parties under the provisions of a Limited Dual Agency Agreement, to keep confidential certain information provided by the Principal. Like for the implied covenant of good faith and fair dealings, a breach of this duty of confidentiality gives rise to liability both in contract law and, depending on the circumstances, in tort as well.

Pursuant to a recent decision of the Real Estate Council of British Columbia ( , the regulatory body empowered with the mandate to protect the interest of the public in matters involving Real Estate, a question now arises as to whether or not the duty of confidentiality extends beyond the expiration or otherwise termination of the Listing Agreement.

In a recent case the Real Estate Council reprimanded two licensees and a real estate firm for breaching a continuing duty of confidentiality, which the Real Estate Council found was owing to the Seller of a property. In this case the subject property was listed for sale for over two years. During the term of the Listing Agreement the price of the property was reduced on two occasions. This notwithstanding, the property ultimately did not sell and the listing expired.

Following the expiration of the listing the Seller entered into three separate ‘fee agreements' with the real estate firm. On all three occasions the Seller declined agency representation, and the firm was identified as ‘Buyer's Agent' in these fee agreements. A party commenced a lawsuit as against the Seller, which was related to the subject property.

The lawyer acting for the Plaintiff approached the real estate firm and requested that they provide Affidavits containing information about the listing of the property. This lawyer made it very clear that if the firm did not provide the Affidavits voluntarily, he would either subpoena the firm and the licensees as witnesses to give evidence before the Judge, or he would obtain a Court Order pursuant to the Rules Of Court compelling the firm to give such evidence. The real estate firm, believing there was no other choice in the matter, promptly complied by providing the requested Affidavits.

As a direct and proximate result, the Seller filed a complaint with the Real Estate Council maintaining that the information contained in the Affidavits was ‘confidential' and that the firm had breached a duty of confidentiality owing to the Seller. As it turned out, the Affidavits were never used in the court proceedings.

The real estate brokerage, on the other hand, took the position that any duty of confidentiality arising from the agency relationship ended with the expiration of the Listing Agreement. The firm argued, moreover, that even if there was a duty of continuing confidentiality such duty would not preclude or otherwise limit the evidence that the real estate brokerage would be compelled to give under a subpoena or in a process under the Rules Of Court. And, finally, the realty company pointed out that there is no such thing as a realtor-client privilege, and that in the instant circumstances the Seller could not have prevented the firm from giving evidence in the lawsuit.

The Real Estate Council did not accept the line of defence and maintained that there exists a continuing duty of confidentiality, which extends after the expiration of the Listing Agreement. Council ruled that by providing the Affidavits both the brokerage and the two licensee had breached this duty.

The attorney-client privilege is a legal concept that protects communications between a client and the attorney and keeps those communications confidential. There are limitations to the attorney-client privilege, like for instance the fact that the privilege protects the confidential communication but not the underlying information. For instance, if a client has previously disclosed confidential information to a third party who is not an attorney, and then gives the same information to an attorney, the attorney-client privilege will still protect the communication to the attorney, but will not protect the information provided to the third party.

Because of this, an analogy can be drawn in the case of a realtor-client privilege during the existence of a Listing Agreement, whereby confidential information is disclosed to a third party such as a Real Estate Board for publication under the terms of a Multiple Listings Service agreement, but not before such information is disclosed to the real estate brokerage. In this instance the privilege theoretically would protect the confidential communication as well as the underlying information.

And as to whether or not the duty of confidentiality extends past the termination of a Listing Agreement is still a matter of open debate, again in the case of an attorney-client privilege there is ample legal authority to support the position that such privilege does in fact extend indefinitely, so that arguably an analogy can be inferred as well respecting the duration of the duty of confidentiality that the Agent owes the Seller, to the extent that such duty extends indefinitely.

This, in a synopsis, seems to be the position taken by the Real Estate Council of British Columbia in this matter.

Clearly, whether the duty of confidentiality that stems out of a Listing Agreement survives the termination of the contract is problematic to the Real Estate profession in terms of practical applications. If, for instance, a listing with Brokerage A expires and the Seller re-lists with Brokerage B, if there is a continuing duty of confidentiality on the part of Brokerage A, in the absence of express consent on the part of the Seller a Realtor of Brokerage A could not act as a Buyer's Agent for the purchase of the Seller's property, if this was re-listed by Brokerage B. All of which, therefore, would fly right in the face of all the rules of professional cooperation between real estate firms and their representatives. In fact, this process could potentially destabilize the entire foundation of the Multiple Listings Service system.

In the absence of specific guidelines, until this entire matter is clarified perhaps the best course of action for real estate firms and licensees when requested by a lawyer to provide information that is confidential, is to respond that the brokerage will seek to obtain the necessary consent from the client and, if that consent is not forthcoming, that the lawyer will have to take the necessary legal steps to compel the disclosure of such information.

Luigi Frascati

Real Estate Chronicle


Friday, April 20, 2007



A recent appellate decision underscores the importance of taking care of land encroachments immediately as soon as they are discovered, before things get really out of hand.


'Never impose onto others what you would not choose for yourself' [Confucius in ‘The Analects' (XV.24)].

In its simplest form, a real estate encroachment is real property that extends onto adjacent land owned by someone else. For example, if someone builds a shed at the edge of their property without knowing the actual property boundaries, the shed may extend onto land that they do not own.The building of a structure entirely or partly on a neighbour's property constitutes an encroachment.

Encroachments may occur due to faulty surveying or sheer obstreperousness on the part of the builder, or both. Having a professional survey performed before building near the property boundary is a good idea if no survey records are available, so that any possible encroachment issues can be avoided.

If one is found guilty of encroachment, the neighbor typically has legal grounds to sue and force removal of the building or compensation for what he/she has lost in reduced property space and value. The optimal solution is never to get involved with properties that have encroachment problems. Sorting out the legal mess that encroachments onto someone else's land can cause is invariably expensive and time consuming, as the following court case, which ultimately landed right in front of The Court of Appeals of British Columbia, can confirm.

The Plaintiff, a single woman, and the Defendants, husband and wife, live next door to each other in Mission, B.C. The Defendants purchased their 5.5-acre property in 1996. The Plaintiff bought her 4.4-acre property in 1999. Each bought their property under the impression that the Defendants' driveway formed the Southeast boundary of Defendants' property and the Northeast boundary of Plaintiff's property. The previous owners of Plaintiff's property had maintained the land between their house and the Defendants' driveway (the "Northeast segment"), and the Plaintiff continued to maintain the Northeast segment after she moved in, including creating a garden there.

As a result of an informal survey done by one of the Defendants - the wife to be specific - in 1997, about a year after moving onto the property, she concluded that some of the outbuildings on the Northeast segment were actually on the Defendants' land. She said nothing about this to her husband, even when the previous owners sold their property to the Plaintiff. In fact the husband believed the driveway marked the boundary between his property and the Northeast segment until he received an official survey in February 2000.

In the Fall of 1999, the Defendants began to build a road branching off from the driveway to the rear of their property. They needed the road for access to some buildings they were constructing for their businesses. As a result of the road construction, both parties commissioned surveys early in 2000.The surveys revealed that some of Plaintiffs' structures in the Northeast segment (part of her garden shed; part of a storage building she uses for wood storage and to house a generator; part of a fenced run attached to the storage building; a satellite dish on a post; and an underground propane supply line) encroached on the Defendants' land. The surveys also revealed that there had been a trespass by the Defendants' contractor onto the Northwest part of Plaintiff's land that resulted in trees and bushes being destroyed (the "disturbed area").

Relations between the parties grew acrimonious after Plaintiff's counsel contacted Defendants to discuss compensation for the disturbed area. Defendants became very angry and told Plaintiff to move her buildings off their land. They also told her they intended to build a chemical storage facility on the Northeast segment. In the Spring of 2001, Plaintiff planted two shrubs on the Northeast segment, and Defendants phoned her threatening to build a parking lot on the segment. Also in the Spring of 2001, Plaintiff visited the disturbed area and found that Defendants' new road had been widened. She commissioned a new survey, which revealed that the road and roadbed actually encroached on her land to an extent of 241 square meters (about 2,500 square feet).

Relations between the parties continued to deteriorate. Defendants informed Plaintiff that they would be bringing heavy equipment onto the Northeast segment, cutting down all the trees, adding fill to the area, doubling the size of their dog kennels, and placing a chemical storage facility within feet of her home.

Plaintiff's lawyer filed a Statement Of Claim and applied for an injunction. She sought either an easement or vesting of the Northeast segment under s. 36 of the Property Law Act of British Columbia, general, special, aggravated and punitive damages and damages for diminution of the value of her property, the value of the lumber removed from her property, and the cost of restoring the disturbed area.

In their Statement Of Defense the Defendants admitted to a "minor trespass" on Plaintiff's property. They counterclaimed seeking an order that required Plaintiff to remove all encroachments from their land (that is, from the Northeast segment) and damages for trespass.

The Trial Judge found that the requirements of s. 36 were met by the Plaintiff. The Trial Judge held that Plaintiff undoubtedly had an honest belief that her property included the Northeast segment, that the buildings were of a permanent nature and could not be easily or inexpensively moved and, in the absence of any evidence about the value of the Northeast segment or any diminution in value of either property depending on the outcome of the litigation, that the Northeast segment was of more value to the Plaintiff and any subsequent owner of her property than to the Defendants.

The Trial Judge further noted that Plaintiff's house was close to the property line and that the Northeast segment provided a buffer and privacy from commercial traffic on Defendant's driveway. Her use of the land for her garden and outbuildings did not inconvenience the Defendants or precluded them from widening their driveway. In the result, the Trial Judge concluded that the balance of convenience was substantially in Plaintiff's favor and, moreover, that an easement would not address all of the equities and the need for finality in the dispute. She ordered that title to the 241 square meters in the Northeast segment vest in Plaintiff. The Judge further noted Defendant's wife failure to alert either the previous owners of Plaintiff's property, or her own husband or the Plaintiff to her discovery that the outbuildings encroached on the Defendant's land, and determined that this fact was instrumental in vesting the Northeast segment to Plaintiff.

As to the matter of compensation, the Trial Judge also made orders that Plaintiff pay to the Defendants the difference in value between the 241 square meters in the Northeast segment and the area encroached on by the road, that both parties pay damages for trespass, and that the Defendants pay Plaintiff punitive and exemplary damages.

This decision has now been upheld in Appeal.

Luigi Frascati

Real Estate Chronicle


Sunday, April 15, 2007


The Economics Of Brain Power

Investigating whether in these times of globalization, those of us who are left behind living in North America are in fact a bunch of morons – the whole 330 millions of us.

Is Economics a matter of opinion?

Well, we do our best not to make it as such, but then politicians come around and ruin pretty much everything we do. For instance, the recent stats of economic indicators showing a progressive slowdown of the economies in North America has gotten politicians of all colors, shape and form up in arms and crying out loud that both the United States and Canada are losing not only jobs, but indeed also talented people to the emerging economies.

Recently released figures from the Bureau of Labor Statistics show that whereas the median income in the U.S. finally ticked upwards in 2005 after a steady decline spanning throughout the previous five years, that is good news only for the top twenty percent of earners - those making more than USD 90,000 a year. Below that, everyone lost ground to inflation.

Likewise, household income has increased, but individual earnings have actually decreased. The likely explanation is that more members of households are working to make ends meet. Moreover, the real estate boom of the past several years has made Americans and Canadians feel richer, since millions of people have used their home equity like credit cards. But now that home prices are reversing and the equity shrinking, the money pool looks more and more like a sterile pond.

And as to job growth, although the unemployment rate stood at a low 4.7 percent in September, that does not include people who have given up looking for work. What is worse, the percentage of the working-age population that is employed remains below its January, 2001 level.

At the root of it all many in the political entourage seem to be saying that we are losing jobs because we are losing talent - that is those of us skilled, intelligent, educated and entrepreneurial enough to create jobs in the first place - to the emerging economies. Which then by proximate causation leaves the rest of us, the morons, out in the cold.

One great misconception is that the number of jobs is fixed, so that if some of them move abroad there must be fewer left at home. This is, of course, absurd in that the economy is in continuous movement and jobs appear and disappear on a daily basis. But even if the number of jobs were fixed, the fears of a great job migration are highly exaggerated.

The McKinsey Global Institute ( has conducted a large-scale study of the offshoring markets and has concluded that constraints on both the demand and supply side will keep the number of service and managerial jobs moving offshore much lower than it is widely believed. More specifically, the aggregate number of jobs will likely rise from 1.5 million in 2005 to 4.1 million in 2008, representing 1.2 percent of the demand for managers and labour in the developed world.

Contrast this with the normal job turnaround in North America where 4.6 million individuals start with a new employer every month.

As to our brainpower going abroad, especially the brain drain from science and engineering, that also is too exaggerated. Particularly the concern that our colleges and universities are not up to par with their counterparts abroad, both in Asia and in Europe, and the concern that we generate fewer students willing to grapple with difficult scientific problems and that there are too few teachers qualified to teach them are also nonsensical.

Many of the figures that have set alarm bells ringing - those millions of Chinese engineers, for example - are misleading. The McKinsey Global Institute calculates that in 2004 there were far more young engineers in North America who were capable of working for multinational corporations than China - 540,000 against 160,000. There are problems with cultural and language skills in China, and the quality of education is often inadequate as well. China may very well have twice as many engineering graduates as America, but only ten percent of them are equipped to work for Western multinational conglomerates. And as to Chinese teachers and their level of skill, it pays to remember that in 1966 - 1976 the brightest and sparkiest people were dumped into labour camps.

China's biggest problem is a culture of deference - for many Chinese it is bad form to question superiors. Because of this, China has so far been much more adept at borrowing other people's ideas than producing its own, particularly when it comes to high-tech innovation.

In fact, North America has still an overwhelming advantage in the war for talent. One is the quality of the universities, which regularly dominate global league competitions. The second is the quality of the business environment, from the ready availability of venture capital to the skilful management and the willingness to pay for the best people. The top eight regional ‘knowledge economies', measured by such things as patent registrations, investments in R&D and the proportion of knowledge workers are all in North America.

If economic stats are less than satisfying, the fault may be found in places other than the intellectual and educational capabilities of our society. Perhaps they can be discovered in the shortcomings of our political cadre, with the lack of leadership, the penchant for procrastination and the continuous partisan bickering, all but futile, misguided and counterproductive. But be as it may be, dear politicians, if in fact We the People are still the best intellects the world has to offer, then that leaves by exclusion only one group holding the North-American Golden Trophy Of Stupidity - you.

Luigi Frascati

Real Estate Chronicle


Saturday, April 07, 2007


Real Estate: The Power Of Mind Over Money

The biggest single untold secret of successful investors to accumulate wealth in Real Estate.

Contrary to popular belief, it does not take a lot of money to make the first step in the world of real estate investing and start producing wealth. It merely takes a little money - and a lot of time.

"Give me a million dollars, and I will turn it into two millions". Forgive me, but if anything were to qualify as a silly statement, this would be it. Not because this statement is untrue, but because it is inherently obvious. Anybody can turn a million dollars into two millions. The trick, of course, is to get the first million.

Or how about this one: " The rich get richer, the poor get poorer". Politicians as well as ordinary people use this statement as a political weapon to endorse the idea of taxing the rich, so as to redistribute their wealth to the poor. But even at the risk of being too blunt, the reality of it all is that giving money to the poor does not make them rich. If it did, all those welfare recipients out there would be millionaires.

"The rich get richer, the poor get poorer" is true, but within an entirely different context. It does encapsulate, in fact, the secret to accumulate wealth. The reason as to why rich people get richer and poor people get poorer is that rich people continue to do all the right things that got them rich in the first place, whereas poor people continue to do all the wrong things that got them poor. Naturally, then, it is of extreme importance to find out how rich people got that way.

Statistics show that if one goes back far enough in the family history of wealthy people, it comes to a point where none of them started rich. There was a time when the rich were poor - as poor as today's poor. In fact, to be more precise, there was a time when the rich were ‘broke'. To be poor is a state of mind, to be broke is a state of ... money, and lack thereof. With the difference consisting in the fact that one can always fix being broke, whereas it is not so easy to fix being poor.

So, how does anyone fix being broke? There is no magic: work hard, get a little money,save some of it and then invest it. Eventually, with time, one will not be broke anymore. That is according to study after study conducted by financial researchers everywhere. This is why, as I have stated above in my opening line, to make the first step in the world of real estate investing it takes a little money and a lot of time. Saving is what will get anyone to the first million dollars.

Wealth accumulation in grand style, especially as it relates to Real Estate, has nothing at all to do with large inheritances, sizable insurance payouts, business fortunes or even lottery winnings - much less lottery winnings, in fact. More than 95 percent of the wealthiest people in North America have made their money and got where they are today solely through their own efforts. They worked hard, got an education and a good job, saved whatever money they could here and there and took the plunge into Real Estate. They did not begin with $300,000, or $200,000 or even $50,000 to invest. In fact, a recent survey of successful American real estate investors conducted by The Spectrem Group (, a financial analyst firm, reveals the following common trait characteristics:

[ ] They began investing in Real Estate when they were young. The average age when they made their first investment was 24, and 10 percent of them began investing before they were 20 years old.

[ ] They invested as often as they possibly could. A whopping 92 percent saved regularly, adding to their savings after the initial real estate investment.

[ ] They invested intelligently, carefully picking the properties they bought, especially at the beginning. The rule of thumb was invariably to maximize return over investment (yield).

[ ] They let nothing stop them from setting aside money derived out of their prior investments. Although the majority of them (69 percent) suffered some circumstance that caused them to temporarily stop saving, only 4 percent actually let go of the saving habit.

[ ] They never sold at a loss. Whenever their local markets turned sour, they held on to their investments until better times came around. And better times always came around.

And the most remarkable statistic of them all is that, despite all the things that happen to all of us in life, an incredible 31 percent (almost one out of three) said that nothing ever interrupted their savings efforts.

The single biggest recognized untold secret of successful people for accumulating wealth in Real Estate is to save and reinvest the savings, with perseverance, throughout the years.

Luigi Frascati

Real Estate Chronicle


Wednesday, April 04, 2007


Re-thinking Collateral

New mortgage products on the horizon.

Did you take a close look at your banker, lately? Did you notice how skinny he or she has become? That is because, following the spike of house prices and the subsequent downturn in Real Estate, the carnivores have had a real hard time finding new flesh to feed upon. Things, however, seem to be changing now. As property values have risen dramatically in recent years and the pool of buyers ready, willing and able to purchase real capital assets has dwindled, lenders are beginning to re-think collateral.

Financial theory postulates that it makes little sense for market participants to borrow a lot to invest on a single assets class. But this is exactly what homeowners, investors and speculators in real estate markets all across North America and Europe had to do as a direct and proximate result of rising property values. High prices in many nations have forced many buyers to take on debts that are substantial multiple of their incomes. This has turned houses for most homeowners not only into their biggest single financial asset, but also into their biggest single financial liability as well.

To obviate this problem, banks in Europe are beginning to offer a new mortgage product, which is sure to reach North American shores very soon. Zurich Cantonal Bank ( is now offering a type of mortgage that links the value of the loan to that of the property.

This package comes in two versions: the first includes a ‘put-up option', that is a kind of insurance linked to Zurich's house-price index. At a cost of approximately 0.5 percent per year, this option ensures that if regional house prices fall, the size of the loan will decline in tandem. The second version, instead, links the level of the mortgage rate to the house-price index.

This new type of mortgage is designed specifically to shield market participants from the fluctuations of real estate markets, as well as to partly protect the same market participants from the affordability crisis, a problem rampant also in Europe - not only in North America. The primary culprit and cause of the crisis is the ratio between wages and real estate market values. This ratio is entirely skewed to values. Whereas market values in metropolitan areas in North America have appreciated an average of fifteen percent per year for the period from 2000 through 2005 - or a total of seventy-five percent, salaries have increased an average four percent per annum - or twenty percent total. The problem is even worse in Europe. There is, therefore, a fifty-five percent gap, which accounts for the problem buyers on this side of the Atlantic are facing today when it comes to go to the bank and qualifying for a loan. This gap is even larger in Europe.

By putting the principal balance of the loan on a sliding scale linked to the house-price index or by tying rate fluctuations to the oscillations of house values, Zurich hopes to attract a fresh pool of buyers and, at the same time, offer a better refinancing option to existing property owners. The flip side of the coin, of course, is to see how many buyers will actually be willing to pay more for their loans in times of market expansion.

In Britain, on the other hand, Advantage ( - the marketing arm of Morgan Stanley - has unveiled a mortgage product named ‘Flexishare Home Ownership Plan', with the following highlights:

[ ] Gives borrowers greater purchasing power.

[ ] Borrower owns 100% of property.

[ ] Part Residential Ownership Loan, part Conventional Mortgage.

[ ] Advantage shares proportionally in appreciation and depreciation.

[ ] Overpayments and buy back of Advantage's Share allowed.

[ ] Flexible amount of Advantage participation.

[ ] Choice of two stepped fixed rates.

[ ] Portability allowed (not committed to any additional lending).

[ ] Affordability based.

[ ] No Higher Lending Charge.

[ ] Fees may be added over 95% LTV.

[ ] Minimum 5% deposit.

[ ] Available in England, Wales, mainland Scotland and Northern Ireland.

Under this plan, the value of part the loan rises and falls in line with the house price. In return, Advantage charges a lower interest rate only on the fluctuating part of the loan, and hopes to raise the balance by packaging up such loans and sell them on the capital markets, where they might be a viable alternative to index-linked bonds. Again, though, there is a flip side to this type of scheme: in England, just like in America, homeowners are mainly accustomed to property values going higher and higher in the long run, and may not be willing to give up some of the potential rise in house prices by paying a higher interest rate, in order to insure a downside.

Both the foregoing products have the ultimate goal of allowing real estate purchasers and current homeowners alike to buy or otherwise refinance real capital assets using both equity and debt, and it will be interesting to see how successful and popular they will become. But aside from how welcome they will be in Real Estate, it would certainly appear that your friendly, neighbourhood Tyrannosaurus Rex is getting ready yet for another feast - wherein you are going to be once again the main entrée ...

Luigi Frascati

Real Estate Chronicle


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